China’s ageing population makes valuable investment gap for Aussie investors

As the world’s most populous country ages and smaller families struggle to support parents and grandparents, Australian investors could capitalise on China’s changing aged care policies and needs.

By 2020, China’s population is predicted to reach 1.4 billion, 248 million of whom will be aged over 60, and China’s National Health Commission projects there will be a need for 40 million beds in community facilities and nursing homes to accommodate this ageing demographic.

Traditionally, Chinese culture placed the responsibility of caring for older family members on the younger generation – but times are changing and younger people do not feel it is their obligation to look after their older family members on a full-time basis – pushing China to embrace Western aged care practices.

China’s 1980 to 2015 one-child policy means many families are also significantly smaller than they once were and for some older people, there is no other option but to access professional aged care.

Changes to China’s demographics, in addition to existing pressures on the global medical industry, have caused the Government to accelerate their development of an aged care system, a sustainable pension system, and promote the construction of aged care facilities.

This has presented a unique investment opportunity for Australian aged care stakeholders, as Chinese national policy directives are urging Local Chinese Governments to apply preferential policy treatments for private-sector development of elder care facilities, such as tax exemptions. 

These policy reforms, coupled with rising consumer demand and purchasing power have caught the attention of investors from all over the globe and countries such as Australia, France, Japan, the United States of America and the United Kingdom have sought to lead the way in pursuing investment opportunities in Western-style senior housing in China.

Sydney-based property and infrastructure company, Lendlease, put $280 million USD into their most recent aged care development in China, Ardor Gardens, which opened on the outskirts of Shanghai 17 months ago. They plan to establish 5,000 retirement units in the next five years.

“The market will likely be completely different 10 years from now,” Lendlease’s China President, Ding Hui, told The Sydney Morning Herald. 

“If you wait for ten years before starting to think of buying land, learning, training up a team and developing a business model, very likely you would have missed the opportunity.”

The culture clash

About 90% of elderly Chinese are cared for at home. Only about 7% rely on community-level assistance in day-care and other facilities, and only 3% live in retirement homes.

Costly nursing homes are out of reach for most elderly and are generally frowned upon, with many judging the use of such facilities as a sign of children not fulfilling their duties.

But Louis Lim, Chief Executive of Singapore-based urban space solutions provider, Keppel Land, told Reuters that the stigma around retirement homes in China is declining.

“You have one child with two parents and four grandparents. To take care of so many people becomes more challenging,” he said.

When Ardor Gardens opened, 70-year-old Yu and his wife decided to move in.

“It was my long-held view that we should live in a retirement community. My daughter was very happy we found this place,” Yu also told Reuters, giving only his last name for privacy reasons.

“This kind of community is needed in China because the elderly population is changing, and the lifestyle of the elderly is also changing, so we need more options.”

Ardor Gardens has a 15-year membership fee of 990,000 yuan ($143,000) for a one-bedroom unit, coupled with a 4,600 yuan ($650) monthly payment covering management and health care fees. 

Monthly rental prices at Keppel’s Nanjing project will be about $3,000.

“It’s not a cheap product but with the growing affluence in Asia we do see a large number of seniors who would find the product affordable,” Mr Lim said.

Government-run nursing homes with basic facilities in Shanghai and Beijing are much cheaper, at about 2,000 yuan ($290) a month. But the average pension there is just over 3,000 yuan a month, so they also remain unaffordable for many older people.

Both Keppel and Lendlease have big plans to expand in China’s aged care market, particularly in the areas that are already developed.

The fastest growth in China’s aged care sector has occurred in well-developed provinces and municipalities where the pressures of an ageing population are more acute, including Shanghai, Beijing, Guangdong, Jiangsu, Zhejiang, Hunan, Hainan, Hubei, Shandong, and Sichuan, Hebei and Tianjin.

But investment is not without risk, with executives citing a shortage of skilled staff.

China’s aged care sector lacks skilled nurses and casual care workers, and those available often have little industry experience. The National Health Commission reported that only 50,000 aged care workers and 38,000 medical care workers in China had vocational qualifications.

“We need to be looking at how we solve the supply issue, both in terms of sourcing for labour and also training the labour to make sure we are able to provide the services we are promising,” said Lim.

Furthermore, the success of the investment relies heavily on attitudes changing towards aged care – something that hasn’t fully happened yet.

Shanghai resident, 75-year-old Ren Jihai, dismissed the idea of going into retirement living.

“My daughter absolutely wants to see us every day,” Ren said. “Family affection is very important.”

Despite recent favourable policy developments, China’s aged care industry is still in its infancy. There remains a significant shortage in expertise and infrastructure to keep pace with demand from China’s growing middle class, but Australian investors could make a mark by helping Chinese culture accept aged care practices and better care for their older people.