For several years, the plight of China’s aging seniors and the demographic changes the country is rapidly going through have increasingly come into focus. Last week, investors and operators of senior living facilities from developed nations came together in Hong Kong to discuss whether China’s aging trends represented a business opportunity that was ready to be positively leveraged.
While the market opportunity was largely unquestioned by last week’s participants, it is clear that those companies early into China’s burgeoning senior care industry are the risk takers and the entrepreneurs. For now, until business models have been proven to operate profitably and be able to scale up across the country, large institutional investors are going to sit on the sidelines while more risk forward capital gets busy building a senior care industry in China.
Western senior care operators who came early into the China market have encountered a handful of problems, most of which will require the assistance of the central government in Beijing and the Ministry of Health (MoH) specifically to resolve. Chief among the problems is the paucity of trained geriatric doctors, nurses or even the vocational assistants who provide the necessary assistance to elderly patients.
Western academic institutions have been sensitive to the poor geriatric medical infrastructure that exists in China. John Hopkins Medicine has already partnered with Peking Union Medical College to provide training for China’s doctors and nurses who are currently caring for the country’s graying population. While this is a promising endeavor, China needs many more academic institutions to offer assistance. Equally, the country will need to find ways to incentivize businesses to build for-profit training institutions around China if it has any hopes of providing adequate manpower to solve the chronic shortage of trained senior care personnel.
China’s regulatory environment specific to senior care remains poorly defined. This is less the fault of China’s MoH and more the nature of an industry launching in a country that had previously not had a structured for-profit senior care market in place. Because China hopes to attract foreign expertise into this sector, it is necessary for the country to clarify the regulations that will govern senior housing, assisted living, and senior-specific rehabilitation hospitals. These clarifications will serve at least two purposes.
First, they will provide clarity on what standards operators will be held to, an important set of rules that will limit liability claims and lawsuits. Second, the government needs to clarify what approvals are necessary in order to open would go a long way towards expediting foreign engagement with the senior care sector. Several participants at last week’s Terrapin conference in Hong Kong mentioned early entrants into the China market had found they need almost twenty government chops (approvals) in order to legally open. As long as ambiguities exist that govern how facilities can open and the standards they will be held to, foreign investment and expertise will be slow to enter the China market.
China’s need to regulate the senior care industry goes beyond simply establishing approval processes and care standards: the central government in Beijing needs to crack down on issuing land rights to Chinese real estate developers who stipulate they will develop senior housing on the land, but whose real interests are to build out commercial properties and traditional residential communities. Over the past two years, as China’s local governments have tightened up and begun to restrict land for commercial development, real estate companies have struggled to find ways to access land.
With the advent of senior housing, and the government’s interest in promoting this sector, developers have been quick to jump on land where they can build if they promise to set aside certain amounts of land for senior care and senior housing. Thus far, the senior care infrastructure that has been built out by Chinese developers has been poorly tied to operating partners who know how to deliver the necessary healthcare elderly customers require. For many developers, this is not a concern. The MoH is already sensitive to this problem but it may take several years before the necessary restrictions are placed on how land rights are issued or on how China ties issuing land for senior care with the need to see a plan for how healthcare services will be delivered once the facility is up and running.
The emphasis on housing and facilities can easily overlook what the Chinese government believes is most important in ultimately addressing its chronic aging problem: delivering senior care in the homes of average Chinese. In the last two weeks, China’s central government has made public its desire to see home healthcare be the primary approach to addressing the need to provide care for China’s growing senior population.
This builds on specific strategies Beijing and Shanghai had independently established, both of which stipulated that over 90% of care for seniors would take place in the home. The recent announcement from China’s central government pegged their goal also at 90% for home healthcare, with the balance coming in the form of housing and facility centric solutions.
Thus far, Western entrants into China’s senior care market have emphasized solutions for the country’s wealthy. Much of this is because this market segment is easily defined, and has already shown a propensity for western luxury goods and healthcare services. Yet, China’s government knows that long term, it will have to encourage investment and foreign expertise to deploy into the middle section of the market. China’s healthcare leaders know they will have to take care of the bottom 20%; they already see the top 5% being targeted by western operators. The question is what can be done to encourage the migration of western luxury senior care providers into the mid-market. While the prices this market segment might command are lower than the high-end, the size of China’s middle market is enormous.
The development of China’s senior care market is taking place within broader reforms to the country’s healthcare system. As such, the senior care industry will compete for attention and policy incentives with other even more important priorities such as building the country’s primary care infrastructure, getting foreign investment and expertise successfully deployed into China’s specialty hospital industry, strengthening the country’s national insurance program, and crafting national reimbursement strategies for pharmaceuticals, medical devices and diagnostics that both control costs without sacrificing quality. While China’s demographic burden is unmistakable, so too are the mounting pressures to provide basic healthcare services that are affordable and accessible nationwide.
Because of these competing priorities, China must selectively engage foreign operators of senior care solutions. The need to clearly coordinate what government is able to do with what industry most needs may be the most important policy framework that still remains to be established. In the short term, the best policy adjustment the country could make would be to clarify regulations and policies that guide foreign investment into, and domestic operation of, healthcare solutions and senior housing.
If it wants and needs foreign expertise most in home healthcare, the policy framework will need to provide clear incentives to draw western operators into the China market. Regardless of how China approaches crafting a set of policies that will guide the senior care industry, it is essential that the government clearly enunciate its priorities and what it is willing to offer incentives for. Given the many ways China’s aging problem could pose disruptions to the country’s economic growth and social stability, clarity on what the government will do and ensuring businesses can act to deliver care should be the highest priority.
China’s Population is Aging Rapidly
BEIJING—China’s vast population is aging rapidly, according to the latest census figures released on Thursday, a demographic trend that threatens to sap the country’s economic vitality.
Some Chinese demographers have seized on the numbers to argue that the government should abandon its one-child policy, put in place in 1980 to deal with a population explosion encouraged by Chairman Mao Zedong.
But China’s top leaders have declared that they are not prepared to dismantle a policy that has drawn widespread criticism for using forced abortions, sterilizations and other coercive practices. President Hu Jintao on Tuesday told the Communist Party’s Central Committee that China will “stick to and improve its current family planning policy and maintain a low birth rate,” the official Xinhua news agency reported.
According to the National Bureau of Statistics, which surveyed 400 million rural and urban households from November last year, China’s population has risen to 1.339 billion from 1.265 billion in 2000, when the last census was carried out. That reflects average annual growth of 0.57% from 2000 to 2010, down from 1.07% in 1990-2000.
The new population figure reflects a growth rate of 5.84% over the decade. That compares with a growth rate of 11.66% over the previous decade.
People over the age of 60 now account for 13.3% of China’s population, compared to 10.33% in 2000. Those over the age of 65 account for nearly 8.9% compared with 7.1% a decade ago.
The reserve of future workers is also dwindling. Those under the age of 14 now make up 16.6% of the population from 23% 10 years ago.
China’s National Population and Family Planning Commission, which oversees the widely reviled one-child policy, says the policy has prevented 400 million births. The government credits it with helping to lift the country out of poverty and underpinning three decades of rapid growth.
But Wang Feng, a population expert and director of the Brookings-Tsinghua Center for Public Policy in Beijing, said on Thursday that economic growth is now imperiled. Slowing population growth rates endangers the country’s massive pool of labor, which has been the country’s economic engine.
“For the national fertility level to be so low, and for so long, is a wake-up call for policymakers that there will be consequences,” said Mr. Wang, a member of a group of elite demographers, academics and former officials who have been calling for the one-child policy to be replaced with a two-child policy—and even incentives to have children.
Members of the group say that the Chinese labor force is due to start shrinking from 2016. That would throw into reverse a demographic trend that fed China’s manufacturing boom and put upward pressure on wages, which is likely to result in higher rates of inflation. The number of workers aged 20-24 is already shrinking.
Family planners have justified the one-child policy in previous years by stating that the country’s fertility rate—the average number of children born to each woman—is 1.8, said Professor Cai Yong, an expert in China’s demography at the University of North Carolina.
However, the real number, according to calculations from the census data, is significantly lower than the 1.8 level, said Mr. Cai. That would put the fertility rate dangerously below the “replacement rate” of 2.1.
At a press briefing on Thursday, the statistics bureau commissioner, Ma Jiantang, acknowledged that the population shifts are stirring up new challenges. “Aging is affecting coastal and developed areas and their labor forces most, but all 31 provinces are affected,” he said.
The data also show that urban areas are swelling. Nearly half of China’s population, or 49.68%, now lives in cities. Around 36% lived in urban areas in 2000.
Urbanization adds to the aging problem, as those who migrate to cities are less likely to have children, said Mr. Wang. Birth rates in large cities are lower than in rural areas, he said. Shanghai’s fertility rate is less than one child per woman, he said.
China’s average household count is now 3.1 people, down from 3.44 a decade ago, according to the census data.
When it was introduced in 1980, officials said the one-child policy would last for 30 years. But the 30th anniversary came and went last year with no word on when it might be phased out, although the government is considering limited pilot schemes to relax the policy.
The growth of China’s population has been declining since 1987. The U.S. Census Bureau projects that China’s population will peak in 2026, with around 1.4 billion people and that India will overtake China in 2025 as the world’s most populous nation.
As China Ages, a Shortage of Cheap Labor Looms
SHANGHAI, June 29 — Shanghai is rightfully known as a fast-moving, hypermodern city — full of youth and vigor. But that obscures a less well-known fact: Shanghai has the oldest population in China, and it is getting older in a hurry.
Twenty percent of this city’s people are at least 60, the common retirement age for men in China, and retirees are easily the fastest growing segment of the population, with 100,000 new seniors added to the rolls each year, according to a study by the Shanghai Academy of Social Sciences. From 2010 to 2020, the number of people 60 or older is projected to grow by 170,000 a year.
By 2020 about a third of Shanghai’s population, currently 13.6 million, will consist of people over the age of 59, remaking the city’s social fabric and placing huge new strains on its economy and finances.
The changes go far beyond Shanghai, however. Experts say the rapidly graying city is leading one of the greatest demographic changes in history, one with profound implications for the entire country.
The world’s most populous nation, which has built its economic strength on seemingly endless supplies of cheap labor, China may soon face manpower shortages. An aging population also poses difficult political issues for the Communist government, which first encouraged a population explosion in the 1950’s and then reversed course and introduced the so-called one-child policy a few years after the death of Mao in 1976.
That measure has spared the country an estimated 390 million births but may ultimately prove to be another monumental demographic mistake. With China’s breathtaking rise toward affluence, most people live longer and have fewer children, mirroring trends seen around the world.
Those trends and the extraordinarily low birth rate have combined to create a stark imbalance between young and old. That threatens the nation’s rickety pension system, which already runs large deficits even with the 4-to-1 ratio of workers to retirees that it was designed for.
Demographers also expect strains on the household registration system, which restricts internal migration. The system prevents young workers from migrating to urban areas to relieve labor shortages, but officials fear that abolishing it could release a flood of humanity that would swamp the cities.
As workers become scarcer and more expensive in the increasingly affluent cities along China’s eastern seaboard, the country will face growing economic pressures to move out of assembly work and other labor-intensive manufacturing, which will be taken up by poorer economies in Asia and beyond, and into service and information-based industries.
“For the last two decades China has enjoyed the advantage of having a high ratio of working-age people in the population, but that situation is about to change,” said Zuo Xuejin, vice president of the Shanghai Academy of Social Sciences. “With the working-age population decreasing, our labor costs will become less competitive, and industries in places like Vietnam and Bangladesh will start becoming more attractive.”
India, the world’s other emerging giant, also stands to benefit, with low wages and a far younger population than China.
Even within China, Mr. Zuo said, many foreign investors have begun moving factories away from Shanghai and other eastern cities to inland locations, where the work force is cheaper and younger.
As remote as many of these problems may seem today in Shanghai, the country’s most prosperous city, evidence of the changes is already on abundant display. If Shanghai represents the future of China, it is in central Shanghai’s Jingan district, where roughly 4,000 people, or 30 percent of the residents, are above 60, that one can glimpse that future.
Squads of lightly trained social workers monitor the city’s older residents, paying regular house visits aimed at combating isolation and assuring that medical problems are attended to.
At 10 a.m. on a recent spring morning, Chen Meijuan walked up a narrow wooden stairway to the secondfloor apartment where Liang Yunyu has lived for the last 58 years.
“Good morning, Granny,” Ms. Chen called out as she entered the 100-year-old woman’s small bedroom. “Did you have a good night’s sleep?”
Ms. Chen, 49, earns about $95 a month as one of 15 agents who monitor the neighborhood’s elderly population. Her caseload exceeds 200.
“I usually pay visits to about five or six households a day, stay a little while and chat with them,” she said. “For Grandma Liang I am a little more focused, visiting two or three times a week.”
After being introduced to a foreign visitor, Ms. Liang regaled her guests with stories, ranging across the decades of the 20th century. She recounted the arrival of Japanese invaders in the city nearly 70 years ago, her opening of a kindergarten in 1958 and her husband’s arrest and death in a labor camp during the Cultural Revolution 40 years ago.
“My daughter always invites me to live with her family, but I feel embarrassed to be with them,” said, pausing from her tales. “I’m worried I might die in her home, so I prefer staying where I am.”
Her son, Zha Yuheng, 76, a grandfather and retired textile industry worker, lives with her now, which also concerns her. “I am taken good care of here,” she said, “but living with my son leaves him with a big burden, I’m afraid.”
Mr. Zha protested that his mother was little trouble at all. “Every morning I get water for her and make sure it is not too hot or too cold, and she handles everything else on her own,” he said. “She gets up, dresses, makes the beds and even makes food for herself.”
In many wealthy societies the very old are candidates for nursing home care. That sector is still tiny in China, though, especially compared with the size of elderly population. Zhang Minsheng opened the city’s first private nursing home in 1998 in an industrial area far from central Shanghai. It is now 95 percent occupied.
“People were not willing to enter nursing homes in the past, because they were considered places for those without descendants,” Mr. Zhang said. “Now, from the standpoint of ordinary people, it is becoming a normal thing.”
The average age of the residents of Mr. Zhang’s home is 85, and most live several to a room, sleeping on narrow beds separated by flimsy partitions. Many pass the daytime hours in long corridors furnished with chairs, where they chat or simply stare into the distance.
The sheer magnitude of the aging phenomenon has Chinese officials and academics grasping for answers, but almost everyone agrees that there are no easy fixes. Population experts here speak of “patching one hole and exploding another.”
China has a wide range of retirement ages, generally from 50 to 60. Raising the retirement age would relieve pressures on the pension system but make it harder for young people to find jobs. And it would be resented by many elderly people, most of whom have missed out on China’s economic boom.
Lifting restrictions on internal migration raises the unwelcome prospect of a mass migration, while abandoning the one-child policy would be politically unpalatable.
The government has already tinkered with the policy. It now allows husbands and wives who were their parents’ only children to have a second child, for example, and has eliminated a four-year waiting period between births for those eligible to have a second child.
But Chinese demographic experts say the leadership is unlikely to abolish the one-child rule, because it is reluctant to admit that one of its signature policies was in any way a failure — particularly in view of the disastrous population boom encouraged by Mao in the 1950’s.
Moreover, lifting child-bearing restrictions might not help. Poorer people in the interior might have more children, but the rising middle class probably will not, experts say.
“More births would only change the structure of the population and prolong the aging process” of the society as a whole, said Ren Yuan, a professor at the Population Research Center of Fudan University in Shanghai. “But it has nothing to do with the number of old people. The scale of this large group has already become a reality. The beds you’ve got to add in nursing homes, the labor you need to take care of the old, is a reality than can’t be changed.”