Corporate giants push into elder-care market

As demand builds, local developers and insurers set sights on seniors

A series of strategic cooperation agreements were signed Wednesday by Pramerica Fosun Life Insurance Co, Fosun Property Holdings, Shanghai Fosun Pharmaceutical (Group) Co and other subsidiaries of Fosun Group, one of China's largest private conglomerates.

By harnessing its insurance, pharmaceutical and real estate units, observers see Fosun positioning itself for an early lead in the promising elder-care industry, an area which Fosun has itself identified as strategically significant to its future development.

There is no denying that the elder-care service industry could soon become a major driver of Chinese economic growth. Indeed, the demographic realities of China today will, in all likelihood, lead to an explosion in the country's elderly population over the coming decades. Statistics show that there are already 200 million elderly people aged 60 or older in China at present, and their rank is set to exceed 300 million by 2025 and 400 million by 2034, according to media reports. By 2020, 18 percent of China's population will be aged 60 or older, up from 14.8 percent in 2013.

This graying of Chinese society provides a host of golden opportunities for local enterprises that carve out an early lead in the elder-care sector. Specifically, many companies are now racing into the nascent nursing home and retirement community market. Already, demand for senior-appropriate housing facilities is growing rapidly thanks to lengthening life spans, the disruption of traditional family dynamics and living patterns by urbanization as well as flaws in the country's pension system. According to media reports, demand for senior living facilities totaled 500 million square meters in 2010, and is expected to reach 700 million square meters by 2020 and 1.3 billion square meters by 2050.

The potential of China's senior property market has already caught the attention of many of China's largest private companies, particularly real estate developers and insurers. Prior to its latest agreements, Fosun formed a cooperation last year with US-based Fortress Investment Group to establish an elderly community in Shanghai. Word also recently broke that Fosun is planning to build a similar community in Ningbo, Zhejiang Province. Elsewhere in the property development sector, giants like China Vanke, China Poly Group Corp and Greenland Group have already established retirement communities in several of China's largest cities. In 2012, insurance giant Ping An Insurance (Group) Co pledged to invest billions of yuan into a retirement community in Zhejiang Province.

Yet as early entrants work to unleash the market's potential, several pressing issues loom large. China's retirement community, nursing home and assisted living industry is still quite immature by the standards of most developed countries. What's more, high financial outlays and operating costs mean that few Chinese investors have made a profit yet from this market.

What's more, some property developers have been accused of taking advantage of preferential policies aimed at ramping up investment in retirement community projects, and then using their advantages to develop commercial projects instead. Many localities are willing to offer price cuts on land parcels if developers agree to build facilities for the elderly on them.

The ability of ordinary elderly citizens to pay for life in a private retirement community is also a source for concern. In some communities, elderly residents could have to pay as much as 10,000 yuan ($1,631) per month for a bed - not including fees for additional services. Needless to say such prices are far too high for many of China's elderly residents, the majority of whom have had little opportunity to save for retirement.

Faced with these and other difficulties, Chinese enterprises need to find their own path in the country's putative elder-care and retirement community industry. As they develop business models that suit local market conditions and satisfy their own need for profit, experience from mature Western markets and companies can set positive examples in terms of service quality and administrative best-practices.