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Old, gray and in need of care and service
March 9, 2009, Monday
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SHANGHAI is aging, as more than 20 percent of the city's permanent residents are older than 60.
In traditional Chinese culture, children used to take care of their frail parents. Although it is still alive, this culture has increasingly been compromised as fewer and fewer children live with their parents today.
There're a few seniors' homes, for sure, to receive those childless old people, but these homes are not enough.
Shanghai's demographic challenge thus represents a rare opportunity for investors to develop new services for a population whose purchasing power is increasing and whose demand shows no signs of slowing down.
"China is facing the challenge of turning gray quickly in the next decade, and even now, the senior population is already big," says Jin Yuliang, chief strategist at Hangzhou Stronger Data, a start-up technology company that creates communication services for the elderly.
At the end of 2007, more than a fifth of Shanghai's permanent residents were older than 60. The Shanghai Academy of Social Sciences predicted that the figure would grow about 1 percent per year, which means by 2020 more than 30 percent of the population will be over 60, while the average lifespan of a Shanghai resident is 81.
Based on data released by the local government, nearly 20 percent of Shanghai's senior citizens, about 500,000 people, would like to live in a senior housing facility. However, senior housing in Shanghai is full, except in the luxury segment.
"Openings occur only when someone passes away," says a manager at Liang Cheng Nursing Home, a non-profit facility in northern Shanghai that was established in 1994 and is operated by the local government.
Although Shanghai hopes to have 100,000 beds available to seniors by 2010, up from the current 70,000, those will not be sufficient to meet the demand.
The demand is high, but will it bring an investor profits? It depends.
Cherish Yearn entered the market in May 2008, when it opened an 800-unit, 560 million yuan (US$82 million) facility in southern Shanghai.
Cherish Yearn has many of the features found in American retirement communities, such as a wellness center, dining hall, short-term accommodation for residents' families and a hospital.
Cherish Yearn serves the mid-range market and operates as a non-profit organization. Units measure about 40 square meters and feature a kitchen, bedroom and living room.
Residents pay a one-time fee of 350,000 yuan and an annual fee of 20,000 yuan for life-long service.
Jin Chizhe, the company's sales and marketing manager, admits that the high fees are an obstacle.
"Our concept is totally new to the Chinese market," he said.
So far, 45 units have been purchased, and Jin says it will take four years for the remaining 755 units to be sold, leaving the facility to operate in the red until that time.
Shanghai Holiday Retirement Housing, a joint venture involving US-based Holiday Retirement Corp and a local company, opened a for-profit retirement community in 1998 but shut down three years ago.
In 2006, Germany-based Augustinum announced plans to build a for-profit, high-end retirement community in southern Shanghai scheduled to open in 2010, but construction has since halted.
"Foreign companies should start as non-profit operations because there is no established business model for profit-oriented organizations," suggests Pascal Jia, a lawyer with Z&H in Shanghai, who has researched the city's retirement home market and has written a book on the topic.
Government incentives
Non-profit operations receive benefits from the government, giving them an advantage, Jia says.
Another reason for the relative lack of activity in this sector, adds Jia, is that most investors seek short-term profits, while in the elderly care industry, profits normally come more slowly.
Non-profit organizations must reinvest any income back into the operation and upkeep of the facilities. In return, they receive tax breaks, discounts on utilities and other benefits.
The government is considering a law allowing non-profit retirement home operators to sell their facilities after several years of operation to a third party, which can then operate them for profit.
Other senior-oriented markets may prove easier to crack.
"By 2040, 700 million people in China will be past the age of 60, and 20 percent of them, or 140 million, will need living assistance - roughly double the current number. The market for the senior business will be huge," says Zhu Lei, CEO of China Youth Home Service Co, a Beijing-based home service management company that has hired more than 30,000 people to staff dozens of its chain companies across China.
"The senior citizens of tomorrow have already invested heavily in residential housing today, and they may not want to give up their comfortable homes to live in a retirement home."
Indeed, as Zhu says, home service will become a mainstream of the senior service industry, which in the long run will likely include "health care, food, psychological services, entertainment and tourism."
(Reproduced with permission from Knowledge@China, http://knowledgeatwharton.com.cn. Trustees of the University of Pennsylvania. All rights reserved.)
In traditional Chinese culture, children used to take care of their frail parents. Although it is still alive, this culture has increasingly been compromised as fewer and fewer children live with their parents today.
There're a few seniors' homes, for sure, to receive those childless old people, but these homes are not enough.
Shanghai's demographic challenge thus represents a rare opportunity for investors to develop new services for a population whose purchasing power is increasing and whose demand shows no signs of slowing down.
"China is facing the challenge of turning gray quickly in the next decade, and even now, the senior population is already big," says Jin Yuliang, chief strategist at Hangzhou Stronger Data, a start-up technology company that creates communication services for the elderly.
At the end of 2007, more than a fifth of Shanghai's permanent residents were older than 60. The Shanghai Academy of Social Sciences predicted that the figure would grow about 1 percent per year, which means by 2020 more than 30 percent of the population will be over 60, while the average lifespan of a Shanghai resident is 81.
Based on data released by the local government, nearly 20 percent of Shanghai's senior citizens, about 500,000 people, would like to live in a senior housing facility. However, senior housing in Shanghai is full, except in the luxury segment.
"Openings occur only when someone passes away," says a manager at Liang Cheng Nursing Home, a non-profit facility in northern Shanghai that was established in 1994 and is operated by the local government.
Although Shanghai hopes to have 100,000 beds available to seniors by 2010, up from the current 70,000, those will not be sufficient to meet the demand.
The demand is high, but will it bring an investor profits? It depends.
Cherish Yearn entered the market in May 2008, when it opened an 800-unit, 560 million yuan (US$82 million) facility in southern Shanghai.
Cherish Yearn has many of the features found in American retirement communities, such as a wellness center, dining hall, short-term accommodation for residents' families and a hospital.
Cherish Yearn serves the mid-range market and operates as a non-profit organization. Units measure about 40 square meters and feature a kitchen, bedroom and living room.
Residents pay a one-time fee of 350,000 yuan and an annual fee of 20,000 yuan for life-long service.
Jin Chizhe, the company's sales and marketing manager, admits that the high fees are an obstacle.
"Our concept is totally new to the Chinese market," he said.
So far, 45 units have been purchased, and Jin says it will take four years for the remaining 755 units to be sold, leaving the facility to operate in the red until that time.
Shanghai Holiday Retirement Housing, a joint venture involving US-based Holiday Retirement Corp and a local company, opened a for-profit retirement community in 1998 but shut down three years ago.
In 2006, Germany-based Augustinum announced plans to build a for-profit, high-end retirement community in southern Shanghai scheduled to open in 2010, but construction has since halted.
"Foreign companies should start as non-profit operations because there is no established business model for profit-oriented organizations," suggests Pascal Jia, a lawyer with Z&H in Shanghai, who has researched the city's retirement home market and has written a book on the topic.
Government incentives
Non-profit operations receive benefits from the government, giving them an advantage, Jia says.
Another reason for the relative lack of activity in this sector, adds Jia, is that most investors seek short-term profits, while in the elderly care industry, profits normally come more slowly.
Non-profit organizations must reinvest any income back into the operation and upkeep of the facilities. In return, they receive tax breaks, discounts on utilities and other benefits.
The government is considering a law allowing non-profit retirement home operators to sell their facilities after several years of operation to a third party, which can then operate them for profit.
Other senior-oriented markets may prove easier to crack.
"By 2040, 700 million people in China will be past the age of 60, and 20 percent of them, or 140 million, will need living assistance - roughly double the current number. The market for the senior business will be huge," says Zhu Lei, CEO of China Youth Home Service Co, a Beijing-based home service management company that has hired more than 30,000 people to staff dozens of its chain companies across China.
"The senior citizens of tomorrow have already invested heavily in residential housing today, and they may not want to give up their comfortable homes to live in a retirement home."
Indeed, as Zhu says, home service will become a mainstream of the senior service industry, which in the long run will likely include "health care, food, psychological services, entertainment and tourism."
(Reproduced with permission from Knowledge@China, http://knowledgeatwharton.com.cn. Trustees of the University of Pennsylvania. All rights reserved.)
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