China is fast approaching a demographic crisis. It's already imbalanced population is ageing fast as the children of Mao's pro-fertility era move in to retirement. This is putting enormous pressure on the country's mostly state-run health service. In anticipation of the crisis, the government has given the green light to private investment in the health care sector, opening up numerous and important investment opportunities for foreign companies and their Chinese partners. One area in particular with much investment opportunity is that of elderly care and nursing homes. But the concept of these forms of elderly care are new to China and the 'market gap' which has emerged from the demographic crisis may not be as easy to exploit as it first appears.
As of last year, China's over 65s constituted just under 10% of the population. By 2050, however, that figure will rise to 25%. Most problematically, every member of that 25% will have less than two taxpaying adults to support the cost of their retired lives. At the same time, illnesses such as diabetes and alzheimers, which have never before been major problems in Chinese society (due to frugal diets and early deaths, respectively), are rising sharply.
At present the enormous state-run health care service sucks up around RMB1.45billion ($213billion) of government spending every year—around 5% of GDP. But the burden will rapidly increase in the next few decades as today's working age population who comprise 46.5% of the population graduate into retirement and old age. As early as 2020 this burden could push state spending on health up to $1trillion.
Even with such enormous quantities of state spending China's health care services will still find themselves under pressure. The government is very aware of this and has, through the 12th Five Year Plan (2011-15), given the green light to private investment in health care services and health insurance. The plan stated; “We will...encourage and guide non-governmental investors to establish medical institutions in order to form a diversified hospital running system.”
The nursing home sector, in particular, has potential for private investment. The ageing population, coupled with the work and career pressures on younger Chinese, mean that many elderly are left at home with insufficient care. According to the Daily Telegraph, Beijing's state-run No.1 Social Welfare Home already has a phenomenal 10,000 applicants for its 1,100 beds, which are freeing at the slow rate of a dozen a year.
In a study of nursing homes in China, Brown University's Feng Zhanlian noted the “explosive growth” of these institutions in the last few years. One such example is the 2011 construction of the Kaijian Centre in Shanghai by Cascade Health Care, a joint venture between investors Columbia-Pacific Advisors, who have been working in medical infrastructure development in Asia since 1994, and American elderly care provider Emeritus. Full care residency in the Kaijian Centre costs between RMB12,000 and 18,500 per month. This joint venture is commonly seen as the major market tester, but it is still too early to really asses how well the home is doing. Nonetheless, Columbia-Pacific Advisors have gone on to invest in another joint venture, this time with Chinese company Sino-Ocean Land. They are constructing a 110-bed residency in south-eastern Beijing, scheduled to open later this year.
But there are a number of issues which hold back investment in this apparently lucrative market. Firstly, China has a long culture and practice of younger generations caring for their elders. It is a tradition which is rooted in the thousands of years old social ideal of filial piety and runs deep in the Chinese psyche. Many feel that sending their elders to a nursing home is a betrayal of their filial duty or fear that their neighbours, peers and other family members may judge them for doing so. It is also a tradition which is being actively promoted by the government as the basis of the Chinese family unit and as a basis for care of the elderly. The tradition of filial piety and intra-family care amounts to a predisposition against the use of nursing homes. It does, however, leave the door open for privately run in-home care. In 2011 the American company Right at Home established a joint venture in Beijing which provides this service, and have recently expanded to Chengdu, Wuhan, Changchun and Hangzhou. To date they remain the sole international joint venture offering in-home health care services to elderly Chinese.
A second problem is that the legacy of China's one-child policy has left every couple with sole responsibility for four elders, commonly known as the 4-2-1 problem. The target market for nursing homes is undoubtedly China's rising and comparatively wealthy middle classes, but few of even this privileged social bracket can afford the expenses of private care for two sets of parents.
However, the most desperate need for elderly care is in rural China, where state-run health care services are of poorer quality and where many of the younger generation have fled to the large cities in search of work. This has left the rural elderly without good state-provided support and without the traditional familial system of support. But the reasons for private companies to invest in these poor areas, where demand is high but disposable income low, are very few.
A final set-back that has been expressed by some of the foreign investors working in this field is that although there is demand for such services, at present there is not a large enough pool of adequately trained labour. Education in health care is something which was marked for advancement in the 12th Five Year Plan, but the results of this push will not be seen for at least another five years. The door for foreign investment and partnerships in this field, however, has been opened. One example of this is the partnerships Yuanzhen UK Investments made at the beginning of this year with the MedTECH Centre of the Manchester Science Park and with TRUSTECH, a consultancy associated with the British National Health Service. The latter involved a £1million 10-year contract.
There is already a desperate need for elderly care in China, and demand will get higher as China's disproportionately large middle aged population move into retirement. At present only a handful of foreign companies are operating in the sphere. They are the pioneers who are testing the water, and it is worth keeping an eye on how they fare in this new market. Right at Home's recent expansion of operations from one to five cities, however, does show early signs of profitability. Time should increase opportunities. Demand will rise, China's skilled labour force will grow and the government is expected to continue its plan to attract and deepen private investment in the health care industry. Perhaps the biggest obstacle which will remain for foreign investors in this market is the Chinese tradition of familial care. This is an obstacle which foreign investors, with their Chinese partners, will have to tackle themselves by building trust and establishing their services as a reputable alternative to entrenched traditional ways.