China is going gray. By 2050, the country will have 400 million elderly, 30% of the total population. The China National Committee on Aging (CNCA) calculated that the domestic aged population will rise by 8 million this year, compared to an average increase of 3 million per year in the 1990s. The CNCA is predicting an aged population (over 60 years old) of 200 million by 2014.
As these worrying statisics loom ever larger on the horizon, the big question is how will China care for and house its aging population.
Solutions such as nursing homes and retirement villages may be a hard sell in China, according to Robert Pollard, director of Beijing-based health industry consultancy Synovate. He notes that many young Chinese professionals prefer to rent low-cost suburban flats and hire an ayi (maid) to care for their parents.
Nonetheless, Franc Kaiser, a healthcare analyst at InterChina Consulting in Shanghai, believes Beijing’s hand is being forced by the rapid rate at which its elderly population is growing. Every year, China’s over-60 population grows by around 3%, five times faster than overall population growth. "The issue is compounded by an increasing trend of young people leaving their parents to work in another city," said Kaiser.
He also points to worries about hired private caretakers who "abuse their position and trust of the elders, or cannot provide real professional support." Despite cultural traditions of filial piety and care, China is ripe for high-end retirement homes, he said.
China has plenty of nursing homes and retirement facilities, but few at the high end. An exception is the recently opened US$82 million Cherish Yearn home in Shanghai, which charges residents US$51,250 per year to while away their final years in luxury. A surge of similar purpose-built retirement facilities may be imminent.
Even as the country ages, China Healthcare Chairman Ong Chu Poh sees a willingness among China’s expanding middle-class to pay for premium care. "There is a steady increase in demand for our premium health care services. Due to the one child policy, the younger generation is having difficulties taking care of their parents and working at the same time," said Ong.
Government backing
Chinese government policy encourages private investment in nursing homes: Beijing municipal authorities decided in 2005 to offer a RMB100 (US$14.60)-per-bed-per-month subsidy to private operators rather than build or operate more public nursing homes. More than a third of the city’s nursing establishments are now in non-government hands.
The Shanghai government provides public nursing home facilities rent-free to private investors, whose earnings on the homes are not taxed. "Profitability is further guaranteed by high charges," said Kaiser of InterChina Consulting. But it is not a sure-fire strategy; Kaiser allowed that similar facilities have faltered in Hangzhou and other second-tier cities less open to private investors.
Learning curve
China Healthcare is learning firsthand about the risks involved in investing in second-tier cities. The Singapore-based firm purchased a 51% stake in Chengdu Tianli Group to operate a brand-new US$105 million "scenic healthcare park" in Jiguanshan Natural Park in Chongzhou, a Chengdu suburb. But after receiving the investment, Tianli became uncooperative and refused to perform the requisite annual auditing, said Ong. Thus, China Healthcare’s grand plans for a luxury retirement village were brought to a halt.
The spat cast a shadow over a very promising business plan. China Healthcare was planning to leverage a 20-year track record of running healthcare facilities in Malaysia and Singapore to open and operate high-end retirement homes in China’s second-tier cities. The company hasn’t yet given up on its dream of running retirement homes around China. High costs prevent it from expanding in Beijing and Shanghai, said Ong. Despite the problems in Chengdu, China Healthcare is going to stick with targeting second-tier cities for now.
"We may be forced to re-think our investment strategy," said a clearly frustrated Ong. "The management thinking, practice and ethical standards, commercial culture and value system [in Chengdu] is very different [from international standards]."
Ultimately, the firm was able to close another deal with better-looking prospects. It signed an agreement with China-Singapore Suzhou Industrial Park Land (CSSIPL) earlier this year to develop a retirement village at the Suzhou Industrial Park.
China Healthcare will plan and run the project, which will be built and equipped by CSSIPL. Most of China’s existing nursing homes and retirement villages are poorly constructed, and there is a dearth of qualified staff, said Ong. China Healthcare’s Suzhou offering will be a more spacious retirement village with onsite medical and food facilities as well as rehabilitation and social programs for residents.
"[The elderly] with additional medical conditions need to be taken care of by professional care providers; the ayi’s standard of care is not comparable… Nor is a normal flat comparable to that of a purpose-built and aged-friendly facility," said Ong.
