China's wealthy seniors dodge
time-bomb By Benjamin A Shobert
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.
Benjamin A
Shobert is the Managing Director of Rubicon
Strategy Group, a consulting firm specialized in
strategy analysis for companies looking to enter
emerging economies. He is the author of the
upcoming book Blame China and can be
followed at CrossTheRubiconBlog.com.
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