China still has a lot to do to set up a mature senior care industry

Though China's 12th Five-Year Plan (2011-15) has outlined the strong role that private and overseas investment can play in creating a mature senior industry and senior service system, the reality is far from that.

Though the government has proposed the goal of setting up an "appropriate and extensive" senior service network, it is still not clear as to what "appropriate" means. It has not laid out plans for it.

Local governments have been actively promoting the construction of retirement communities, often investing large amounts of money in subsidies for seniors and building information networks for senior service.

In one of the demonstration retirement communities, for example, all the people over the age of 60 are being given subsidized meal deliveries for around 15 yuan (1.86 euros, $2.44). The government pays nearly 9 yuan for each delivery, with the balance coming from individual contributions. This exercise costs the government an annual expenditure of over 10 million yuan and also raises doubts on how long such practices can last.

Many of the private senior care projects were shut down due to high land and labor costs, and the low consumption power of the senior citizens. Several insurance companies including Taikang Life Insurance Co and China Pacific Insurance tried to invest in the senior care industry and make it part of their production line on a long-term basis. But they were confronted with policy barriers. Neither the government nor the society could distinguish between senior care industry and real estate speculation.

Many of the senior citizens who have lost their ability to look after themselves cannot find a place in most of the public facilities. The ones that have good services and reasonable prices are usually run by the government and have very strict entry conditions. It can take decades to get through the waiting line. Other reasonably priced nursing homes come with bad services while those with good services are usually out of the paying capability of most seniors.

It is estimated that nearly 90 percent of China's senior citizens prefer to age at home, but they don't know where to buy reliable senior services. Fake senior care products and medication have also become very prevalent.

There are four major problems to be solved.

First is the allocation of land resources. Senior communities are part of the social welfare system. It has a low return but requires a long return cycle. Senior housing also has a higher standard on the land scale, natural surroundings and supporting facilities than ordinary housing. If a company has to bid for a land directly, it would be very difficult for them to get it. It's even harder to have a business model for the project to be commercially sustainable. But if the land is identified as a public asset, it would have to be transferred to a new investor after a certain period of time.

Second is the lack of supporting policies. Most of the residents in senior communities have very limited incomes. The question still remains if there should be tax reductions for those who invest in senior service and related products. Also, seniors usually spend a lot on healthcare, which can be a very important factor for the occupancy of the assisted-living communities. Only if the hospitals in the community are included in the national healthcare insurance can the dwellers get refunds, so that more clients can pay for these services.

Third is legal responsibilities. Senior citizens are vulnerable to outside accidents. If that occurs and the responsibility is not made clear with the clients and the senior service providers, it could lead to a series of disputes and even affect the daily running of the project.

Next comes the standard on technology. The government has not yet issued standards on building senior communities. Without a unified standard, the bad institutions in the market can't be filtered while the good ones can't get support, which could stunt the development of the industry.

It is not enough to depend on the government's plans and financial support. China needs detailed and practical senior care service system and industry planning. There are in total eight business models for senior facilities depending on the ownership of the land, assets, facilities, service staff and management expertise.

For example, the government owned institutions should take care of the people with little income. The institutions owned by the government but run by private operators should focus on people with low and middle income. The privately-owned institutions should focus on people with middle and high incomes.

The planning should also give the investors a clear outlook on the return, as well as a reasonable pricing for the consumers.

Also, because many seniors lack information, they need corporations that can both manage senior assets and purchase senior services for them. These corporations will largely promote the development of the senior industry by offering deliveries and connecting the producers and the consumers.

Yang Yansui is the director of the Research Center of Employment and Social Security at Tsinghua University; Hu Naijun is a researcher at the same center.

(China Daily 05/10/2013 page7)