Chen Dongsheng knows a thing or two about riding China’s economic waves. For the past 30 years, Chen has leveraged his connections — he’s married to Mao Zedong’s granddaughter — in order to read the political tea leaves, and he’s successfully cashed in in the process. In 1993, he co-founded China’s first auction house, China Guardian Auctions; the year after, he launched Zhaijisong, one of the country’s largest logistics and delivery firms; and in 1996, he founded Taikang Life, a major insurance player that has since become the largest shareholder in New York-based auction house Sotheby’s. 

In recent years, however, the billionaire appears to have shifted his focus to a new opportunity: nursing homes.

In 2021, he wrote a book, The Era of Longevity, about China’s eldercare industry. And in April, Chen Dongsheng became chairman of Taikang Pension Insurance, a subsidiary of Taikang Life that operates retirement communities across China. Taikang Pension was founded back in 2007, but Chen didn’t previously play a role in the company. His interest seems to have grown, however, now that Taikang Pension is the fastest-growing segment of his extensive empire. Between 2018 and 2022, the company saw a fourfold increase in its net profits.

“With the aging population [in China] becoming more serious, Chen Dongsheng likely foresaw that the government would prioritize the elderly care industry,” says He-Ling Shi, an economics professor at Monash University in Melbourne, Australia, who focuses on Chinese economic and social reforms. “As a result, he made some personnel adjustments. This is essentially a signal to society that Taikang is a pioneer in this field.”

(Taikang Pension did not respond to requests for comment.) 

Indeed, China’s demographic crisis is not without opportunity for entrepreneurs like Chen. The country is aging considerably faster than similar countries, with the proportion of the population aged 60 years and over set to increase from 12.4 percent in 2010 to 28 percent in 2040. The number of elderly care facilities in China has already doubled since 2018, and by 2035, demand for nursing home beds is projected to rise from the current 8.4 million to 12 million. 

To help take care of such a massive shift in the population, Beijing is calling for vigorous development of ‘the silver economy.’ Earlier this year, the State Council of China issued the “Opinions on Developing the Silver Economy and Enhancing the Well-being of the Elderly,” which emphasizes transforming vacant and unused spaces into elderly care institutions, and even calls for creating silver economy “industrial parks” across the country. 

“Developing the silver economy, meeting the multifaceted needs of the elderly, and properly resolving the social issues brought about by an aging population are related to the overall national development and the well-being of the people,” it says. 

An excerpt from ‘Opinions on Developing the Silver Economy and Enhancing the Well-being of the Elderly’, released by China’s State Council, January 15, 2024. Source: State Council, translation via China Law Info

China’s business community is paying attention. Chen has told Chinese media that the elderly care industry is “a core strategic industry,” with Taikang Pension “looking 30 to 50 years ahead.” China’s silver economy, meanwhile, is expected to grow from around $982 billion (roughly 6 percent of GDP) to $4.2 trillion by 2035 (about 10 percent of GDP).

But while China’s silver economy would seem to be a gold mine for early entrants, many say the nascent industry is still far from a sure bet. Regulatory hurdles, stagnant pensions, stubbornly low occupancy rates at nursing homes, staffing issues and China’s broader economic woes mean that many elderly care providers are struggling to make ends meet. A 2022 paper by the Beijing Academy of Social Sciences noted that, as of the end of 2019, only 4 percent of Beijing’s elderly care enterprises were profitable, while 63 percent were losing money. Even a business mogul like Chen is having a tough time: After early explosive growth, Taikang Pension reported a loss of 2.6 billion RMB ($359 million) over the past year and a half.  

Indeed, Xu Zhiyi, the investment director of Beijing Fangyuan Jinding Investment Management, says many in the space are still hesitating. Three days after Beijing released its ‘Opinions on the Silver Economy’, Xu says he attended a conference on the elderly care industry in Shanghai. The venue was packed — a sign, he says, of interest in the industry.

“Compared to last year, we have seen a significant increase in consultations this year,” Xu Zhiyi says. “But while there are many interested individuals, fewer are willing to invest. Everyone seems to be waiting and observing.”

SILVER TSUNAMI

Cai Dongdong, a 57-year-old former hospital administrator, is one of the many children in China now struggling with the realities of caring for aging parents: Both of her parents have Alzheimer’s disease and need around-the-clock care.

But when Cai began looking for a nursing home near her home in the Tiantongyuan neighborhood of Beijing, she was frustrated that there weren’t any options. It was 2013, and her mother had just suffered a hip fracture — Cai says she wanted to be close to her parents to check in on them easily. So, she decided to open a nursing home herself. 

She applied for a nursing home certificate and renovated a vacant apartment on the first floor of a residential building in Tiantongyuan. She hired staff and in just three months, she opened the doors to her parents — the first of seven residents in the home.

Cai didn’t realize it, but it was the dawn of China’s nursing home industry.

In 2013, the number of elderly people in China surpassed 200 million for the first time; at the same time, the working-age population began to decline. The city of Beijing issued its first official document, “Opinions on Accelerating the Development of the Elderly Care Service Industry,” to promote the development of home-based and community care options. While the specifics were vague, the document laid out that “Urban master plans must include care service facilities,” while rural areas should convert farmyards and unused school buildings into elderly care facilities.

Cai’s operation, Beijing Welfare Home Elderly Care Service, qualified as ‘a micro-nursing home’. She received modest government subsidies (around $150–$200/month), gained attention in national media, and quickly expanded her operations. In just a few years, she had opened seven more homes, eventually offering 80 beds to elderly care patients. Her oldest patient, she says, was 106 years old, and she charged between $555–$625 per person per month. It was hardly an empire, but she says she felt motivated by the work. 

“I felt optimistic and confident about this business,” she told The Wire China over a WeChat voice call. “There was a clear need in the community, the market was there, and at that time, the government was supportive. They encouraged me because they saw that I was helping to address community issues.”

In China, about 90 percent of the elderly receive care at home; around 7 percent depend on community institutions like adult daycare centers; and only 3 percent live in nursing homes like Cai’s. This structure is often referred to as the “9073” by the government and industry, and it reflects a cultural belief in China that putting elderly parents in nursing homes reflects irresponsibility on the part of children. Even Chen Dongsheng, the billionaire founder of Taikang, admitted that it was a challenge to persuade his mother to make the move to one of his facilities, which are more akin to five-star hotels than a traditional nursing home. 

“She asked, ‘If you send your mother to a nursing home, won’t people blame you?’” he recalled in a recent interview.

But even if China’s cultural resistance to nursing homes doesn’t change, its demographics will. With the number of people over 80 expected to increase from around 32 million now to 132 million by 2050, the demand for community care facilities and nursing homes is expected to skyrocket even if the ‘9073’ ratio remains unchanged.

The burgeoning silver economy has been unfolding in China’s consumer goods market as well. In some supermarkets in China, the selection of powdered milk for seniors is larger than that of baby formula, and analysts have pointed to stronger growth rates in sales of adult diapers over baby diapers. Elevator installations are also reportedly on the rise to help seniors stay in their apartment buildings, and a tech company that once developed tracking devices for young children is now also creating products to locate elderly parents.

The Fudan University Institute of Aging estimates that, in 2050, China’s silver economy will represent 35 percent of total national consumption and about 12.5 percent of GDP — double what it is now.

Regulation is where entrepreneurship comes to die in China… Your risks multiply because markets change and state intervention and state regulations change dramatically.

William C. Kirby, a professor at Harvard Business School

Wang Xiaolong, who operates 20 elderly care institutions across China under the name Cuncao Chunhui, says he is seeing the transformation firsthand: Last year, he bought a newly-built kindergarten in Xi’an which he plans to convert into a nursing home. 

“No one anticipated that China’s birth rate would decline so sharply,” Wang Xiaolong told The Wire. “Many kindergartens are now grappling with what to do next.”

Wang, who also entered the elderly care industry in 2013, says his new nursing home will have the capacity for 100 beds once his renovations are complete.

The sudden ballooning of nursing homes, however, is at risk of being popped by Beijing’s many attempts to regulate them. Over the past decade, Cai Dongdong says that the Beijing government has issued more than 200 documents related to the elderly care sector to various departments，including government agencies and industry associations.

“Often, before the government has time to implement a new policy, another one is issued,” she says. “New regulations come out every month. Do you think it’s feasible to implement them all?”

“Regulation is where entrepreneurship comes to die in China,” notes William C. Kirby, a professor at Harvard Business School. “This is the lesson of Chinese private enterprises back many centuries: Your risks multiply because markets change and state intervention and state regulations change dramatically.”

Kirby adds that local government regulations can differ from national regulations — something Cai Dongdong says she is currently battling.

After years of steady growth, Cai says her operations are being threatened by changes to the city’s firecodes. In April 2023, illegal construction at a hospital in Beijing’s Fengtai District caused a devastating blaze and resulted in the deaths of 29 people. It was the worst fire in Beijing in several years and prompted authorities to investigate 41 public officials.

Since then, Cai says, staff from the Beijing Civil Affairs Bureau unexpectedly visit her homes. After passing government inspections every year for the past 10 years, she says she is now being told that many of her homes do not meet the required fire safety or surveillance standards. 

Cai says she has relocated the elderly residents, hired workers and mortgaged her own house in order to pay for the necessary renovations. But after submitting updated documents for registration, she says government officials told her there were new requirements to meet, and that six of her facilities would be closed. 

With only two nursing homes left in operation, housing just a dozen elderly residents, Cai says the irony of the situation is especially frustrating.

“I’m operating in debt. But I recently heard that the government has started encouraging the operation of nursing homes again,” Cai says, crying. “I really feel lost.”

UNCERTAIN FUTURE

Thanks to longer life expectancies, virtually every country in the world is dealing with an increase in older populations. But unlike China, many have had years to prepare. It took the United States, for example, seven decades for the proportion of its elderly population (age 65+) to double from 8 percent to 16 percent. In China, because of the one-child policy, a similar shift happened in just 23 years.

The timing matters because developing countries, which tend to be younger, need to grow their economies before such a demographic shift happens. When the U.S. reached its “aged” status, its per capita GDP was nearly $60,000; China’s, by contrast, was just over $10,000.

“China entered an aging society when it was still economically at the middle-income level,” Chinese economist Wu Jinglian wrote in the preface to Chen Dongsheng’s book. “This left us no choice but to face more and greater challenges brought by ‘growing old before becoming rich.’”

Chen’s retirement homes are unlikely to help much considering they are priced out of reach for most Chinese citizens. But even “affordable” retirement homes are currently priced out of reach for many. In 2022, the national average monthly payment for the public employment pension was 3,500 RMB ($500). After a quick search on a website that lists nursing homes in Beijing, fewer than ten institutions were priced below this amount and most far exceeded it. Cai, for instance, says she currently charges 5,000-7,800 RMB ($710–$1,110) per person per month. The situation is even more challenging in rural areas, where a retired farmer’s pension is significantly lower than that of urban retirees.

Pensions could be increased, of course, but experts note China’s pension system is already in peril: Data from the Ministry of Finance shows that 11 of China’s 31 provinces are facing deficits in their pension budgets, and the Chinese Academy of Sciences forecasts the pension system could run out of funds by 2035.

The gap between the average pension and the cost of running retirement homes could also be covered by state subsidies, but He-Ling Shi, at Monash University, says that oftentimes subsidies at the local level fail to materialize, “making it difficult for low-end facilities to be established.” Indeed, Cai says she has received subsidies from Beijing inconsistently and tries not to count on them.

That kind of uncertainty, says Annie Xiao, a former investment professional in the health industry in China, permeates the industry. “No one in China is truly willing to invest in this area,” she told The Wire. “Nursing homes require significant initial investment and need specialized equipment, nurses, and doctors, making it quite challenging to recoup that investment.”

Staffing is another hurdle. A 2023 study involving visits to eight private nursing homes found that none were staffed with trained caregivers. “We have no qualified staff,” one operator in the study bemoaned. “The older people are more vulnerable. The care staff can’t respond well if there are some unexpected situations that happen with the older person.” 

Based on professional care standards, China needs more than 10 million caregivers to take care of the approximately 45 million disabled elderly individuals in the country. But as of 2021, the country counted only 500,000 professional caregivers. In Japan, by contrast, which has a much smaller elderly population but an equally dire demographic problem, there are close to 2 million caregivers.

To spur growth, decrease barriers to entry and incentivize providers in the industry, Zheng Gongcheng, a professor at Renmin University of China, has long advocated for a more comprehensive legal framework in China. At this year’s legislative session, in March, Zheng proposed the “Elderly Care Services Law” for the third consecutive year. 

“The lag in elderly care legislation has led to numerous adverse effects,” Zheng noted in a media interview. “Market entry for service providers is challenging, and the lack of legal norms results in significant regional policy differences. This has resulted in a lack of nationwide elderly care providers, making it impossible to achieve true chain operations.” (Zheng did not respond to requests for comment.)

In September, the Minister of Civil Affairs said the legislation would be accelerated. 

…the Chinese government has always said that ‘the state will help support you in your old age’… But suddenly, it has all become private investment. The people will definitely say, ‘How have you not kept your promise?’

He-Ling Shi, an economics professor at Monash University in Melbourne, Australia, who focuses on Chinese economic and social reforms

He-Ling Shi says the crisis could compound if the government waits much longer. “After economic reform [in 1978], the Chinese government has always said that ‘the state will help support you in your old age,’” he says. “But suddenly, it has all become private investment. The people will definitely say, ‘How have you not kept your promise?’” 

As Beijing attempts to figure out a plan, foreign investment seems interested in stepping into the void. In 2021, Lendlease Corp Ltd., a Sydney-based real estate and infrastructure company, invested $280 million in Ardor Gardens, a luxury retirement home in Shanghai. The company has said it plans to open an additional 5,000 retirement apartments across prosperous cities by 2028. Panasonic, the Japanese company, has also launched its first retirement complex in Jiangsu Province.

While luxury retirement homes seem to be finding residents, the occupancy rates at more modest homes remain stubbornly low. In July 2023, a central government report revealed that there were 571 elderly care institutions in Beijing with a 38 percent occupancy rate. Meanwhile, the Anhui Provincial Department of Civil Affairs said that the occupancy rate for private elderly care institutions in rural Anhui was only 38.8 percent in 2019, leading to a “serious waste of resources.”

Some nursing homes in China are even attempting to fill their empty rooms by offering discounts to young people — provided they spend time with the elderly residents. This summer, a public nursing home in Hangzhou, in Zhejiang Province, began recruiting young people for its ‘Accompany the Elderly Program,’ promoted by the local Civil Affairs Bureau. From 260 applicants, the nursing home selected 15 young people who are required to provide 30 hours of companionship per month in exchange for free accommodation in a vacant room.

Intuitively, the program makes sense for China: the culture emphasizes that younger generations are responsible for looking after the elderly, and China’s younger generations are facing a battered economy as well as historically low marriage and birth rates. For many, living in a nursing home for reduced or free rent is appealing. 

In fact, China’s young people could be far more ready to embrace nursing homes when their time comes. With the youth unemployment rate reaching 21.3 percent in June of last year¹Some Chinese scholars estimate the figure could be as high as 46.5 percent., a new phenomenon of “youth retirement homes” (青年养老院) has emerged across China. Featuring bars, karaoke and billiards halls, residents at these homes are in their 20s or 30s, and many previously worked in large cities. 

In the village of Mandu, for instance, in a remote yet beautiful area of Yunnan Province, 31-year-old Lu Boke established Wen Chao (问巢) in 2022 after hearing so much about ‘elderly care.’ On a small plot of land at the foot of the mountain, he rents out 12 rooms for a monthly rent of 1,500 RMB ($206) to individuals under the age of 45. A white banner on the wall of the home reads, ‘Please lie down’ — a reference to ‘lying flat’ and young people’s rejection of China’s hustle and striving culture.

Although residents typically come for a short respite — not actual retirement — Lu Boke said in an interview with Chinese state media that these homes may help young people gain an early understanding of the concept of retirement and group homes, potentially planting the seeds of change for the ‘9073’ rubric. 

“For the post-90s generation,” Lu said, “who are the only children in their families, the youth retirement home also encourages them to start ‘huddling together for warmth’ in preparation for future elder care challenges.”

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