China has an aging problem. What is unclear is whether it will be a source of disaster or opportunity. The statistics are staggering: In 2015, according to the National Statistics Bureau (NSB), the number of Chinese citizens over the age of 60 was 222 million, or 16% of the total population. The NSB estimates elderly citizens (65 years old and over) will constitute one-third of the population by 2050. As this happens, the U.S. Census Bureau projects that the working age population will fall by 5% – approximately 53 million people – between 2015 and 2030. A United Nations study estimates that there will be 64 retired elderly Chinese citizens for every 100 workers by 2025.
For those that get it right, meeting the new needs of this aging population will be a profitable endeavor: Senior care is expected to become China’s largest industry within the next twenty years.
Historically, the Chinese emphasis on filial piety was sufficient to sustain the elderly. Parents and grandparents could count on the financial, physical and emotional support of their offspring as they aged and became increasingly dependent. But Chinese society is quickly changing, and this response is no longer tenable for most people. One reason is that many young people have moved to new cities for school and work, leaving their parents and grandparents far away and in need of support from those outside the family. According to the China National Committee on Aging (CNCA), 70% of elders in mid-size and large cities live alone.
Yet even when families remain geographically close, today’s Chinese children face a unique burden as a result of the one-child policy. Within the next ten years, the first generation to have their family size dictated by the one-child policy will enter their eighties and face the “4:2:1” problem – the difficulties a single child faces when they are expected to care for two parents and four grandparents. This is an unrealistic expectation for many children, so the Chinese government and private companies are preparing to help them shoulder the burden as they begin turning to the market for support. As it meets this need, the senior care industry is expected to be worth RMB 1.8 trillion by 2020 and 7.6 trillion by 2050.
The senior care industry looks very different in different parts of China. Sometimes the government constructs communities designed to meet the needs of the elderly and leaves the operation of these facilities to the private sector; other times, the government simply subsidizes the private sector. In a 2016 press conference, a vice mayor of Shanghai explained the history of the Shanghai government’s interaction with the senior care industry: “In the past, senior care services were provided by organizations under the government. They were subsidized by the government. Now, the government purchases services from social organizations… Seniors are subsidized and can choose services themselves.” In-home care was declared the government’s preference in 2010 when the 12th Five-Year Plan outlined the government’s goal for a “90-7-3” system, under which 90% of the elderly are cared for in their homes, 7% receive care in their community, and 3% receive around-the-clock care in a residential facility. The interests of China’s elderly seem to align with their government: a 2010 survey by CNCA found that about 85% of elderly Chinese prefer in-home care to living in a nursing home.
In-home treatment is preferable to the Chinese government because it is cost effective. Yvonne Wu, managing partner of Deloitte’s Life Services and Health Care division, noted that “due to the very tight funding, the government still sees community care a suitable model to mitigate funding pressure.” The government’s tight funding was reflected in a 2012 World Bank study which found that only 38,000 institutions had been built for senior care, enough to serve 1.6% of the population over 60 – far short of the Bank’s 8% coverage standard for developed nations.
The high costs and minimal profits of community care have hindered some of the most ambitious government efforts to equip urban neighborhoods to serve their elderly citizens. For example, in 2001 the government began a four-year effort known as the Starlight Program to bolster community care services for the elderly. Under this program, the Chinese government reported investing RMB13.4 billion (approximately US$2.1 billion) in community emergency aid, day care, health services and recreational activities for seniors. By 2005, however, despite having established 32,000 Starlight Senior Centers and reportedly benefitting over 30 million elderly citizens, the program began losing financial support. A 2012 paper by a group of Chinese researchers noted that, since the Starlight Program wound down, “Self-sustaining, community-based long-term care services remain largely nonexistent, except in a few major urban centers like Shanghai.”
Cost-consciousness is not exhibited by the government alone. When Ben Shobert, managing director of Rubicon Strategy Group, looks at China’s projected demographic changes, his understanding of price sensitivity among older Chinese consumers makes him skeptical of the demand that China’s elderly will have for senior care services. “[This cohort of Chinese elderly] lived through some of the worst moments of China’s history, and they are very, very savvy and wary consumers,” he says. “One big question is whether they are going to make a lifestyle-based purchase decision, or if they are going to wait until it’s purely needs-based.”
Senior care service providers usually make most of their profit from amenities and lifestyle purchases, so the question of whether China’s aging population will be willing to pay for the services from which these organizations profit is fundamental. This helps explain why China’s insurance companies have been among the most prominent Chinese players in the senior care industry. Insurance companies like Taikang Life Insurance and Union Life have invested billions of RMB in building continuing care retirement communities (CCRCs), bundling the services their CCRCs provide with the sale of long term care insurance. Access to long-term capital puts China’s insurance companies at an advantage in developing CCRCs – where short- and medium-term returns are usually slim but grow over the long-term. Because they have diversified revenue streams and established reputations with Chinese elderly, China’s life insurance companies are well equipped to build CCRCs that serve the middle class.
Meanwhile, foreign real estate and insurance companies, along with venture capital and professional retirement home management firms, have been quick to meet the needs of China’s wealthier citizens with residential service offerings. In 2011, Cascade Healthcare, a joint venture between Seattle-based investment management firm Columbia Pacific Advisors and senior living community manager Emeritus Senior Living, became the first foreign firm to receive approval for a for-profit senior care facility. Cascade Healthcare’s first facility opened in Shanghai’s Xuhui District in 2012 on a 50,000 square foot site with 100 beds. They have since opened additional facilities in Shanghai’s Pudong District and Beijing.
The Chinese government has acknowledged that it needs the help of foreign ventures like Cascade Healthcare to meet the needs of the elderly population. In mid-2013, the State Council indicated through an Opinion that they wanted to encourage foreign investment in the senior care industry. This was the first time that the potential of foreign capital in senior care was explicitly recognized by the government. In 2015 the Ministry of Commerce followed suit and began offering tax exemptions and other fiscal benefits to eligible non- and for-profit senior care institutions.
But these benefits have not been enough to entice foreign providers to offer the in-home care that the Chinese government knows is needed. As Shobert notes, the government’s incentives do not “give any meaningful reimbursement for home health care providers.” Foreign companies also continue to face an uncertain and burdensome regulatory environment. “The regulatory framework that guides home health care is still very out of sync with what we can do in the West, from a clinical and care point of view,” says Shobert. “Many times the Ministry of Health doesn’t have the regulatory capacity to approve a home health care provider as a home health care business, so what they end up doing is regulating a home health care provider the same way they would a hospital.”
However, regulation has not deterred Chris Alford, director of Asia operations for Home Instead Senior Care, one of the world’s largest home care service providers. “I don’t think the [regulatory] uncertainty is a big deal. That’s one of the costs of doing business here, there’s always uncertainty,” he said.
Home Instead is a franchise business with Chinese branches in Shenzhen and Wuhan. According to Alford, one of their biggest challenges has been educating Chinese consumers on the value of in-home service. In his view, “We are probably two or three years away from home care really taking off. But right now the main component is education. It’s easier to sell a nice nursing home because you can point to tangibles – ‘the beds are nice, it’s a new building.’ But for Home Instead, when we say ‘here’s why our care is professional, here’s our training, certifications, etc.’ – those things are very hard for [Chinese consumers] to really feel and understand why they should pay a premium.”
While no Chinese institutional care providers would comment for this article, it seems clear that the cultural challenges of educating a country on the value of hiring specialized in-home care providers or convincing a thrifty generation to indulge in the amenities of a nursing home, along with the regulatory uncertainties as the industry begins to mature, might play a major role in dissuading foreign companies from expanding into China.
Another reason foreign companies may be reticent to come to China is simply a lack of international experience. “Most of the senior living companies that you would view as potential platforms that could be exported into a market like China have very little to no international experience of any sort,” said Shobert. “They are heavily domestic, neighborhood-by-neighborhood businesses … These are not management teams that know how to take something to Toronto, let alone Tianjin.”
China’s coming demographic changes are certain, but the ability of foreign businesses and the Chinese government to satisfactorily address the senior care industry’s many regulatory, financial and cultural challenges is not. Yet creating a reliable and affordable senior care industry is essential for China to meet one of its greatest social challenges.
In-Home Care and the Ayis
In-home care providers in China face a unique challenge from ayis and baomus. While live-in ayis and baomus are not in direct competition with home care providers, the companionship and support that they can provide to the elderly does overlap with the service offerings of in-home care providers. As these providers educate consumers, they are paying attention to how they can differentiate themselves from these mainstays of Chinese culture. “What does a caregiver really look like? How are they different from an ayis or a baomu? Why is specialized care more important? Those conversations are starting to happen, but at this stage we are basically educating from the ground up,” said Chris Alford, director of Asia operations for Home Instead Senior Care, one of the world’s largest home care service providers.
While Home Instead is not aiming to replace ayis, Alford notes that in-home care companies hope to supplement the services that ayis and baomus provide with caretakers who are specially trained and always dependable. “Caregivers are backed by 24/7 office support. If an ayi gets sick, there is no substitute. That’s fine for house cleaning but doesn’t work if a senior is relying on someone showing up for daily living activities.”
If China’s army of ayis and baomus were properly trained in senior care, they would be of major benefit to China’s burgeoning senior care industry, which is greatly limited by a lack of properly trained local staff. The Ministry of Civil Affairs has set a professional standard for the industry, but only 40,000 of the over one million staff in the industry meet the standard. The costs for foreign firms associated with identifying and training caregivers to service their China operations are thus usually greater than in their home country.