Aged Care Investments in China

Aged Care Investments in China

Aged Care Investment in China: An Overview of Age Care Opportunities Arising from the China-Australia Free Trade Agreement

On 17 June 2015, Australia’s Minister for Trade and Investment, Andrew Robb and Chinese Commerce Minister, Mr Gao Hucheng signed the China-Australia Free Trade Agreement (ChAFTA). The agreement, effective this month, is expected to open substantial opportunities for both Australia and China. In a first ever commitment for a free trade agreement on aged care services, wholly Australian-owned hospitals and aged care institutions can be established throughout China.

The ChAFTA presents significant opportunities for China, a country facing impending challenges associated with the support of its rapidly expanding aged population, and also Australia, whose largely consumer driven aged care sector has application in international markets.

In an effort to facilitate dialogue between Australian and Chinese enterprises, the Australia-China International Aged Care Summit was held on 16-17 November 2015. The Summit saw 600 participants coming from Chinese government, peak bodies and institutions and almost 150 delegates from Australia representing 75 organisations.

Demographics

Currently, China has a population of 1.38 billion people and comprises of the largest ageing population in the world. There are currently 209 million people aged 60 years and over and 22 million people aged 80 years and over. While the total population of China is expected to stagnate, the proportion of people aged 60 years and above will rise from 15.2% to 36.5% while people aged 80 years and over is expected to increase from 1.9% to 8.9%. The rapid shift in the country’s demographic composition will present itself with a number of challenges in the future.

Population Snapshot

 

Drivers of an Ageing Population

  • Implications of the one child policy (1978 – 2015)

One of the largest drivers of China’s rapidly ageing population has been primarily attributed towards the Government’s recently abolished one child policy. The population control policy has greatly impacted fertility rates, which has remained below the population replacement level of 2.1 births for over two   decades

  • Improved life expectancy

In China, life expectancy has drastically increased from 44.6 years in 1950-1955 to 76 years in 2015-2020.

Current Market

Although the demand drivers for aged care services is strong in China, the sector is in its infancy. There are currently 40,000 aged care institutions with approximately 5.7 million beds, representing approximately 27 beds per 1,000 elderly people. By 2020, the Chinese State Council plans to reach a target of 35 to 40 aged care beds per 1,000 elderly people, representing a significant shortfall. The Council expects an aged care workforce to be in excess of 10 million by 2020.

 

Government run agencies comprise of the largest operators in the market. Access to these services is difficult with entry eligibility based on care, social and financial welfare needs. Prospective residents are required to join long wait lists. Charges are generally based on an accommodation rental model and are relatively low. Most institutions provide services to residents that only require minimal assistance with daily living and who are relatively capable of living   independently.

During the Australia-China International Aged Care Summit, Ansell Strategic and other delegates had the opportunity to visit a number of established aged care and retirement living sites. Details can be found here and our observations are summarised as follows:

 

The Chinese State Council has, in recent years, encouraged more private investment to meet the growing needs of the ageing population. As the sector is still in an infant phase, privately run institutions do not receive any funding from the government, operating in an extremely challenging market. With no fully developed successful service models for aged care, there is a large variance in the type and quality of services offered by privately run organisations.

In 2013, the State Council reported that approximately 2.3 million beds were vacant, representing a significant mismatch between current services supplied and market demand. These combined factors have resulted in many privately run organisations struggling to generate a positive return.

“OUR OBSERVATIONS INDICATE THAT AUSTRALIAN MODELS ARE NOT EASILY TRANSFERABLE TO CHINA. FAMILY VALUES AROUND FILIAL PIETY AND VIEWS ON INSTITUTIONAL CARE WILL GRADUALLY GIVE WAY TO THE REALITIES OF A RAPIDLY AGEING POPULATION.”

Government Strategy

China’s Five-Year Plan sets out the Chinese government’s overarching strategy and targets for economic and social development over a five-year period. For China’s 12th Five-Year Plan (2011-2015) the government outlined the “9073” or “9064” framework to support its ageing population. The strategy aims for approximately 90% of the population aged 60 years and above to age at home and be cared for their families, 7% or 6% receiving support from community based care, and 3% or 4% requiring residential aged care.

“9073” Strategy Contained in China’s 12th Five-Year Plan

 

Challenges

China’s ageing population will present significant economic and social burdens to China. These include:

Social and Cultural Expectations

As with other Asian cultures, there are traditional and social expectations that the children/family will care for elderly Chinese. With a rapidly ageing population,  the ability for children to fulfil these expectations will becoming increasingly difficult. Ramifications of the Government’s one-child policy has resulted in the emergence of “4-2-1” family structures (a single child requiring to support their two parents and four grandparents) placing a heavier burden on children to be able to support their parents/grandparents. China’s robust economic growth has also facilitated urbanisation (younger people relocating to larger cities to work), reducing ‘traditional’ family structures (parents living with/being cared for at home with children).

Market Acceptance

Currently, there are still perceived negative connotations associated with moving into an aged care facility in China. Older Chinese citizens were brought up during a tougher time and are generally more frugal and conscious of their money. The option to move into an aged care facility is not appealing to those who have concerns about money and expectations that family will be available to care for them at home.

Developing Market/Lack of Established Service Models

While seniors housing and independent/retirement living concepts and models are commonplace throughout the west, the concept is relatively new to China. As such, China has not yet developed its own unique service models and while China may be able to draw from international experience from countries with more developed aged care markets, it will need to establish a service model that takes into account social and culture elements.

Lack of Skills/Knowledge Qualifications

The supply of experienced and skilled resources that are able to develop and service aged care and retirement village services will be highly sought after in the new Chinese market.

Declining Ability to Support Elderly/Higher Levels of Dependency

Over the next 20 years, the ratio of workers to retirees will drop from 5:1 to 2:1. A shrinking working population combined with a rapidly ageing population will create additional pressure on the Chinese government to support the elderly. The Chinese government understands that it will require private investment into the aged care market to support its population in the long term.

Although China faces a number of challenges ahead with their ageing population, there is enormous potential and opportunities for both Chinese and Australian aged care businesses. To find out more about opportunities in China, please download the full article provided at the link below. We hope you enjoy your reading.