CBBC - China Britain Business Council - CBBC ......This research on potential business opportunities...

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ENABLING BUSINESS OPPORTUNITIES FOR UK COMPANIES IN CHINA’S ELDERLY CARE MARKETS

Transcript of CBBC - China Britain Business Council - CBBC ......This research on potential business opportunities...

Page 1: CBBC - China Britain Business Council - CBBC ......This research on potential business opportunities and advice for UK companies in China’s elderly care sector was carried out by

ENABLING BUSINESS OPPORTUNITIES FOR UK COMPANIES

IN CHINA’S ELDERLY CARE MARKETS

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EXECUTIVE SUMMARYThis research on potential business opportunities and advice for UK companies

in China’s elderly care sector was carried out by China-Britain Business Council

(CBBC) with funding from the British Embassy Beijing. CBBC is working in

close partnership with Healthcare UK / UK Trade & Investment (UKTI) to

investigate the commercial and collaborative opportunities for UK organisations

in the sector. This cooperation will include arranging a trade mission to China,

scheduled for mid January 2014.

UK Organisation Information Gathering

In July 2013, CBBC, in conjunction with Healthcare UK, started the process

of asking a range of UK organisations across the elderly care sector to

provide a synopsis of their expertise. These organisations included those

specialising in architecture and design; training and education; healthcare

provision; operations; and technology. Expressions of interest in the

potential opportunities in the Chinese elderly care sector were also sought

from these organisations.

A month later, questionnaires were sent out to 52 targeted UK-based

organisations soliciting opinions on the perceived opportunities for UK

companies and the challenges facing the development of the sector in

China. In total 20 responses were received.

Chinese Organisation Information Gathering

CBBC reached out to local government officials and Chinese companies in

10 Chinese cities asking for summary details of the elderly care market in

those cities as well as introductions to Chinese elderly care related government

organisations and companies who might be interested in potential

opportunities with UK elderly care companies. Forty of these companies

and organisations responded to our request for introductory information

on their elderly care lines of business and potential interest in UK expertise.

Experienced Insight and Advice Gathering

CBBC organised a UK-China Elderly Care Forum in August 2013 attended

by 50 senior representatives from elderly care related companies and

organisations – both Chinese and British. The same week, CBBC attended

Careshow Shanghai, the leading annual elderly care conference in China.

Over the next four weeks CBBC met and interviewed 18 experts from these

two events with extensive experience in elderly care in China – both British

and Chinese.

INTRODUCTION CONTENTS

1. BACKGROUND

1.1. Demographics1.2. Government Support

2.1. Supply Shortage

2.2. Market Segments

2.3. Service Segments

2.4 What China’s Elderly Want

2. MARKET LANDSCAPE

3. CHALLENGES & OPPORTUNITIES

4.1 More Than a “Land Deal” is Needed Focus on Quality Care Offerings

4.2 Get in Now – to Study and Understand Local Market Dynamics

4.3 Start Small, Learn and Adapt

5.CLOSING REMARKS

4.4 Localize and “Partner Up”

4. ADVICE & RECOMMENDATIONS

3.1 Land Use and Elderly Care

3.2. Brand Value and Understanding

3.3. Training and Education

3.4. Competition

3.5 Digital Health

3.6. Dementia

3.7. Intellectual Property Rights (IPR)

3.8 Community Care

3.9. Speciality and Health Services

3.10. Intergrated Product and Service Solutions

Table of Chinese companies Interested in UK expertise

LIST OF FIGURES

Figure 1.1 China-global elderly population comparison Figure 1.2 Accelerating growth in elderly populations Figure 1.3 Self-care ability of the elderly population Figure 1.4 Caregiver Demand and Supply

Figure 1.5 Population Pyramid in China Figure 2.1 Services Demand and Supply Figure 2.2 China’s Elderly Care Market Segments

Figure 2.3 Care Preferences of the Elderly Figure 3.1 Elderly Care Value Chain Figure 4.1 Business Development Steps in China

LIST OF TABLES

Table 1.1 Physical health status of elderly by complaint Table 2.1 Comparison of Three CCRCs in China Table 2.2 Surveyed Elderly in Tianjin Table 3.1 Opportunities by Function and Segment

INNOVATION IN ACTION ARTICLES

A Case of Successful Government Leadership in Tianjin China Senior Care – ‘Service at the Top’ Friendship House – delivering specialized ‘memory loss’ care

A Home-grown Model in Fuzhou for Comprehensive Care

UK Design... Adapted Locally... With Strong Partners

Lessons Learned by a Leading Chinese Elderly Care Operator

Design and Planning Opportunities

Effectively Incorporating UK Experience into China’s Markets

Quality In-home Care is a Major Opportunity

A Few Segment-specific Regulations to Know

The UK has a Great Opportunity to Develop and Deliver “Trustworthy“ Care

Training Focused on the “Value” of Quality Elderly Care

UK Companies Should Play to Their Strengths

Meeting the Challenges Creating a Viable Business Model

“Notes from the Trenches”

Leverage (and Localize) UK experience

Understanding Your China Customer and Partner Needs

Key Success Factors: Localization Flexibility & Equitable Partnerships

EXPERT INSIGHT ARTICLES

List of UK Companies’ “China interest”

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6.END NOTES Page 86

(Cover photo courtesy of

Cherish Yearn Shanghai)

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EXECUTIVE SUMMARY BACKGROUND

“Over the next two decades, the

rate of ageing in China will be at

its fastest and social stability and

elderly housing will remain key

topics of focus”

(Choi, 2012 in CBRE, 2012)

1.1 DEMOGRAPHICS

The number of China’s elderly will increase by about eight million a year over the next five years3. Fig-ure 1.2 compares elderly population numbers and growth rates in the UK and China between 2011 and 2012 to help illustrate just how massive this increase is – the growth rate in China is almost double that in the UK and the Chinese rate is based on total numbers several-fold larger than those in the UK. This growth is largely due to a projected increase in an individual’s life expectancy from 75 years in 2010 to 80 years in 20504.

Figure 1.2 Accelerating growth in elderly population Source: Smith, Four Seasons, October 2013

China has the largest elderly population in the world with 194 million people, or 14.3% of the total population aged above 60 at the end of 2012 and over 300 million estimated by 20241. The country also has one of the most rapidly ageing societies in the world with a projected increase in the elderly (60+ years of age) from 12% in 2010 to 34% or more than 400 million in 20502 exceeding the total populations of Germany, France and the United Kingdom combined. The World Bank (2010) estimates that only Japan will have a larger elderly population as a proportion of its total population (see Figure 1.1).

1950 1970 1990 2010 20300

20

30

40

50

10

2050

JAPAN

CHINA

USA

AUSTRALIA

Population aged 60+ % total population

Figure 1.1. China-Global Elderly Population ComparisonSource: Chen et al, 2012: 1

The number of Chinese citizens over the age of 60 is projected to grow from 14 per cent of the

population (just under 200 million) today, to up to one-third of the total population by 2050. At the

same time, the one child policy has created a 4:2:1 family structure – four grandparents and two parents

for one working child - and also led to a decline in the number of people of working age (15-59 years)

in the country – important for economic activity to support elderly care - for the first time in decades.

The Chinese government is keenly aware of these demographic pressures, understanding that this

group needs to be taken care of effectively to reduce economic pressures to pay for their care and

mindful of the potential for social instability. State level policy is clearly focused on rules and incentives

to substantially increase both the scope and quality of care and healthcare for the country’s growing

elderly population. Government targets by 2015 strive for 90 per cent of seniors to be cared for at

home; 7 per cent to be cared for in the community; and 3 per cent to be cared for in institutions. Over

the past few years, the government has encouraged private enterprise and foreign expertise to join in

to help reach these goals.

Feedback from research for this report identified areas where UK companies have opportunities

across market segments, and raised advice and recommendations for UK companies on market

entry strategy and business development in China. In a nascent market just being opened to direct

foreign investment, there are indeed needs and therefore opportunities across all segments. Our

research however, suggests that for most UK firms, the main opportunities currently should be

investigated in the high-end segments of the market – i) high quality or luxury lifestyle and retirement

services and properties for wealthy, active ‘younger’ elderly, ii) highly specialised care and medical

products, services and systems for the elderly, and iii) higher-end elderly care homes and service providers.

UK firms interested in China need to be very clear that the supportive resources for their offerings (e.g.

human resources), the enabling infrastructure (e.g. logistics chains), and the understanding and expectations

of seniors and care providers in China regarding quality or specialisation that UK companies have to

offer, is often vastly different from what UK companies are used to in their home markets.

Therefore, UK firms are advised to study and learn China’s unique market dynamic and current levels

of care expectations and then welcome a degree of flexibility and adaptation to their current business

models and service offerings in order to gain access and growth in China. To accomplish this and

achieve success, UK companies are advised to start small - in order to adapt and learn at a manageable

scale - and work with local experienced partners in China to more effectively tap into genuine

opportunities and more productively navigate through China’s more fragmented markets.

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2011 20210

100

150

200

250

50

2011 2021

Popu

latio

n (m

) / C

AGR

%

Years

19

2

11

30

125

50

1753.6%

1.8%

3.4%

UK CHINA

5.2%

Accelerating Growth in Elderly Population

China-Global Elderly Population Comparison

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As China ages ever more quickly, the

resulting care needs of the elderly

demographic are also snowballing in

scope and speed. According to the

China National Committee on Ageing

(CNCA) and other government bodies,

20 per cent of those over 60 have

some sort of disability and require

assistance (see Figure 1.3), 16 million

have completely lost the ability to

function in daily life, and 50 per cent

of seniors aged 80 or above are unable

to take care of themselves5.

Table 1.1. Physical Health Status of the Elderly by Complaint (Zhao et al, 2013)

“There is a need and obviously

a great potential opportunity to

develop skills and service levels

to manage primary geriatric care

needs for the elderly”

Joshua Kurtzig, United Family Home Health

Elderly care in China suffers from a large gap in the supply of front-line

care and medical workers. The majority of seniors live in their communities

and need to make the trip to community clinics, community nursing homes

or hospitals to receive care. However, at the community level the work-

force – e.g. general practitioners, social workers, nutritionists, occupational

therapists and nursing care workers – falls far short of what an increasing

number of the elderly demand in terms of both numbers and coverage.

China requires not only extensive training and skills development

programmes for elderly care professionals and care workers, in order

to increase the coverage and quality of care, but also scholarly

exchange and managerial training in order to measure knowledge

of this field, adopt it and adapt it to China’s nascent, fragmented

elderly care sectors8.

“One thing is for sure in the demo-

graphic context of China (which has

over 160 million people over the

age of 65) - any new developments

are likely to be ten times the scale of

those we see in the UK.”

Roger Battersby, PRP Architects

For Beijing-based Joshua Kurtzig, who leads United Family Home

Health’s “in-home” care services in Beijing, Shanghai and Tianjin, training

geriatricians and hospice professionals is one of the most urgent require-

ments for effective elderly care in China. In addition to the government’s

laudable early efforts at promoting primary care through the training of

front-line care givers, Kurtzig would like to see the government focus on

improving the management of the workforce and the clinical specialties

required to develop core teams of comprehensive clinical care.

Physical health limitations

Poor general health

Some kind of disability

Assistance needed for basic daily activities

Some area of bodily pain

Hypertension

31.8%

38.1%

23.8%

33.4%

54.0%

The above percentages translate to 44 million elderly who require assistance with their basic daily activities, 61

million who experience bodily pain and nearly 100 million who have hypertension. Women are in poorer health

than men across all of the above measures. Physical health problems escalate with age: for example, 10 per cent

of 45- to 50-year-olds require assistance with daily activities, against over 25 per cent of those in their late 70s

and over 50 per cent of octogenarians.

Memory assessments made during the survey indicate that cognitive ability declines rapidly with age. The report

stresses that preserving cognitive function is important for “extending working life, managing chronic illnesses,

maintaining social relations and avoiding being victimized by financial fraud.7”

Figure 1.3 Self-care Ability of the Elder PopulationSource : China Research Center on Ageing, CBRE

HEALTH AND CARE NEEDS ‘GROW WITH AGE’ A GAP IN CARE PROVISION FOR THOSE WHO NEED IT

Supply gap of7 Million paramedics

Supply of 3 million out of which only 1 million are professionally qualified paramedics

?

Total Demand =10 million personnel

Table 1.1 highlights findings from an extensive survey conducted during 2011 and 2012 covering over 17,000 elderly,

both urban and rural, across 28 provinces in China and offers useful data on elderly people’s and wellbeing .

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Self-care Ability of the Elderly Population

Self-careElderly80%

Partly-disabledElderly14%

Fully-disabledElderly6%

Severe fully-disabled

Moderate fully-disabled

Mild fully-disabled

Figure 1.4 Caregiver Demand and SupplySource : Kleinman & Chen, Fung Global Institute, 2012, PA Consulting

Demand-supply gap: Paramedics/nurses in China in 2011

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Feedback from numerous interviews and questionnaires suggested that simply copying “what worked in the West” in rolling out training and management regulations and processes will not work in China. These experts made it clear that training and managing competent teams of careworkers, and then giving seniors easy access to these teams, is a difficult long-term process. However, they also stressed that since the UK has thorough experience in creating and managing precisely these sorts of systems and programmes, the opportunity is too great not to investigate, at least.

Increasingly, governments, scholars and business have made impressive attempts to create and roll out comprehensive elderly care through hospital care, outpatient clinical care, private nursing homes and in-home care provision. Examples of such, which provide answers to the question of how to train the elderly care work-force, can be found in Innovation in Action: Hetong on page 18 and Innovation in Action: La Care Group on page 65. In all of these examples, the twin challenges of training skilled care workers and professionals and managing these resources in flexible networks so that the elderly can access them easily are the biggest obstacles to overcome.

China’s one-child policy largely resulted in the oft-cited “4-2-1” family structure, which means that one child may

be responsible for taking care of two parents and four grandparents – or, put another way, one working couple

may have four parents and eight grandparents to care for.

Figure 1.5 Population Pyramid China. Source: Chen CBRE 2012

Figure 1.4 illustrates the pressure that “4-2-1” places on the younger generation, both children and workers. The blank boxes represent the age breakdown of China’s population in 1990, showing plenty of younger children to take care of older parents. The red and blue boxes outline the projected age breakdown of the population by 2030 – far higher numbers of seniors with far fewer younger people to care for them, as a consequence of the one-child policy.

There are an estimated 221 million Chinese migrant workers9 and 40 per cent of elderly people’s families do not live in the same village as them10. The ever more demanding careers of younger workers are also causing noticeable change within urban families, as children are relocated to other cities for work. According to Irene Wang of CBRE China, at the end of 2012 China had about 100 million “empty nesters” – parents living alone because children have moved away – or approximately one-half of all China’s elderly.

Coupled with the reduction in the number of children - who often live away from their parents - China’s one-child policy has led to there being fewer people in the workforce who can support seniors through pension systems. Chinese men retire at 60, women at 60 (white-collar) or 55 (labourers). In 2012, for the first time, the size of China’s “optimal working age” group of 15-59 year-olds shrank. As this trend continues, today’s average of 4.9 Chinese of working age per retiree may reduce substantially to as low as 1.6 workers per retiree by 2050, estimates Robert Pozen, an lecturer at Harvard Business School11.

CHANGE IN TRADITIONAL ELDERLY CARE ROLES AND ATTITUDES

The increasing migration of children away from families and the more

demanding career paths they pursue are leading to a change in attitudes

towards elderly care. This creates pressure on these children, who have to

seek alternatives to ensure their elderly relatives are properly cared for.

There is a cultural stigma attached to institutionalised care for the elderly

in China, as children are seen to have failed in their filial duty by sending

parents there. Moreover, existing facilities are often considered unsatis-

factory as regards environment, service, prices and location12.

“China is currently going through

an extremely rapid transition from

a traditional society, where fami-

lies looked after their own elderly

generation, to a more Western sat-

ellite family situation. This is being

driven by increasing affluence and

social mobility, rapid urbanisation

and - not least - the legacy of the

one-child policy, which has made

traditional structures unsustain-

able, a couple in their thirties often

having to care for four parents and

up to eight grandparents.”

Roger Battersby, Managing Partner, PRP Architects

FEWER CHILDREN, LIVING FURTHER AWAY FROM PARENTS AND GRANDPARENTS

SHRINKING WORKFORCE

The bright spot in China’s changing family dynamics stems from the

increasing incomes of families. By 2020 roughly 50 per cent of Chinese

households are expected to have an income of at least €10,000, which

indicates an increased ability to afford elderly care13. Recent reports have

looked at the higher income earners estimating that by 2025 there will

be 18.6 million households possessing the minimum monthly disposable

income to afford high-end elderly care while approximately 22 million

Chinese elderly should be able to afford high-end elderly housing by 2020,

10 per cent of whom currently live in Tier 1 cities14. China’s growing urban

middle class is expected to be a driver of elderly care as they will be the

first generation that will expect quality options in their retirement lifestyle

and then elderly care requirements as they age and have the willingness

and capacity to pay for such services and programmes.

RISING INCOMES

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0-4

10-14

30-34

40-44

50-54

60-64

70-74

80+

Male Female86 42

024 68

% male 1990% female 1990% male 2030% female 2030

Population Pyramid in China 1990 - 2030

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1.2 GOVERNMENT SUPPORT

“The Chinese government clearly

appreciates the size of its demo-

graphic problem and the less than

adequate condition of its exist-

ing aged care industry, so they’ve

passed a number of new policies

- including the recent opening-up

to foreign direct investment - which

have now been handed down to

loca l gove r nments . The loca l

authorities are responsible for their

implementation and for getting

local investment.”

Dr. Eamon McKinney, CEO, CBN Care Group

China’s Five-Year Plans are the central government’s overriding strategy

documents for economic and social development in the country, and they

must be considered closely by anyone entering any sector in China.

Regarding elderly care, the current 12th Five-Year Plan, which covers 2011-

2015, calls for a social safety net of basic health services for the elderly.

It sets out elderly care objectives with high-level guidelines for increasing

the number of elderly care beds, and developing a elderly care services

industry, as well as proposals to increase pension coverage by 100

million people15. The development of elderly care also takes an indirect

lead from a number of the Plan’s important healthcare goals, for example

(1) to strengthen public healthcare infrastructure, (2) to strengthen health-

care service networks and reform the public hospital system, and (3) to

develop a comprehensive medical insurance system, among others16.

The Chinese government has also set targets for a breakdown of elderly care by sector type: 90 per cent home

care, 7 per cent community care and 3 per cent elderly care institutions. For community and institutional care,

China aims to increase the supply of beds in government-owned retirement homes to six million by 2015, roughly

double the number in 2010.

both government and business, stressed that neither local authorities nor local investors and businesses have a clear handle on how best to set regulations that offer clear support for developing the workforce skills, the care services levels, and the sustainable business models that will drive qualitative growth in elderly care. Interestingly, a number of elderly care officials and executives pointed out that as the private sector gets more involved with various investment and care service models – through both public private partner-ships and commercial investment - local governments will be very interested in care provision schemes that are successful and would indeed look closely at supporting roll-outs of proven models and services

There is no doubt that demographic trends and the “9073” targets are driving huge demand and hence substantial potential opportunities. The nascent stage of elderly care, with little resource infrastructure or regulatory and administrative oversight, means that local governments are really in a research and exploration mode with respect to regulations and incentives, as they strive to roll out comprehensive elderly care coverage. Feedback during the UK-China Elderly Care Forum and the Careshow Shanghai conference in August 2013 suggested that while the State-level policy and guidelines are well thought-out and developing at an accelerating pace, the real challenges remain in interpretation and implementation of the guidelines and targets at the local level. A number of experts, from

12th 5-Year Plan on Elderly Care

Relaxed norms for land usage and resources: The plan relaxes norms for land usage and resources for elderly care organisations. The Plan allows for elderly care facilities in newly-built communities, utilisation and renovation of unused housing owned by hospital, enterprises and villages for extending elderly care services. It also permits the renovation and utilisation of premises and facilities like recreation centres, sanatoriums, hostels, hotels etc. for the purpose of providing elderly care services. Cities which have limited land resources are encouraged to start small scale nursing homes within communities.

Encourages private sector participation: The plan encourages participation of private sector service providers. The plan details out various modes for private investment in China i.e. government assisted, government purchase of private service and government subsidies and allowances. The plan also encourages the private sector players to participate in management and operations of elderly care institutions. It also promotes the use of any model which allows the private sector to share resources with the government.

Streamlining the fund flow for the elderly care industry: The plan seeks to expand the funding channel for elderly care and encourage new financial products/services for the elderly. This includes expansion of credit volume for development of elderly care facilities and interest discounts for loans extended. The plan also encourages private equity and real estate funds for elderly housing funding. (Source: Research on Elderly care in China, 2013, PA Consulting Group)

“9073”

A PRAGMATIC APPROACH - SUPPORTING WHAT WORKS

Community and in-home care - The majority of China’s elderly attain basic care at home from family or from

welfare-supported or low cost provision from government subsidised community centres, or by visiting the

community centre (and then a hospital for clinical or medical needs if required).

Public institutions – The majority of public institutions are public nursing homes and social welfare homes. These

are fully funded by government bodies such as the Ministry of Civil Affairs and various agricultural cooperatives.

Charges to residents are relatively low and institutions provide collective accommodation only. Most provide

services to the elderly who are capable of taking care of themselves independently or require only minimal

assistance for their daily living.

Private institutions – These institutions include private nursing homes, elderly apartments and Continuing Care

Retirement Communities (CCRCs). Private nursing homes provide skilled nursing care for fully or partially disabled

residents and consist of collective or dormitory style accommodation. Elderly apartments and retirement

communities usually provide high quality living facilities with healthcare support to affluent seniors. There is a huge

range of institutions claiming to provide homes for seniors, but only a few genuine projects are currently operating

in China. Most differ only minimally from general housing developments. Although several schemes bill themselves

as CCRCs with added elderly care services, most are in fact a mix of independent and assisted living facilities.

Elderly care in China is served through three main channels

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Source: CBRE, CBBC research

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Family members should be concerned

about the spiritual needs of the

elderly and should not ignore or

neglect them, and those who live

apart from them should visit often”

From the July 2013 Law on the Protec-tion of the Rights and Interests of the Elderly

Foreign investors have used different strategies, from seeking a property developer as a partner to take care of the

development side, to trying to do it all on their own. In fact, owing to the cost of running elderly facilities, it may be

very difficult for a WFOE to turn a profit independently. Cooperation with local partners is often necessary, or at least

recommended, in the long run, but there are potential obstacles to deal with. For example, local partners are often

property-driven, whereas many foreign investors are not willing to venture into the property segment. The

management of this uneven partnership may be crucial to UK companies’ success. Finally, one partner often requires

an equity stake, which means that UK companies may need to offer more than pure consultancy services or management

contract offerings if they are to attract local partners19.

The State Council published “the Opinion to Accelerate the Development of Elderly Care Service Industry” on

13 September 2013.

(The Chinese information can be seen at http://www.gov.cn/zwgk/2013-09/13/content_2487704.htm)

The recent announcement by the Ministry of Civil Affairs that investment

in elderly care would be opened up to foreign investors has a number of

implications for UK investors. Technically a foreign company may run

facilities solely as a WFOE (wholly foreign-owned enterprise), but if

medical services are included there is a further l icensing approval

procedure. UK firms should be aware that municipal-level bureaus of

commerce, civil affairs and health still must wait for central authorities to

authorise new regulations before they proceed, and that the interpretation

and implementation of these rules may vary from place to place.

Analysing the latest central government elderly care policy statements

In September 2013, the State Council promulgated its Opinions on Promoting the Development of the Elderly Care Service Industry (Circular No. 35) (“Opinions”). Opinions set down by the State Council are deemed as guidelines for other government departments and local authorities to implement by introducing their own detailed local regulations. Opinions may contain very specific rules (e.g. preferential treatment for not-for-profit facilities), which are usually national legislation, and also more generalist policies whose local implementation is flexible.

Michael Qu of Co-effort Law Firm in Shanghai and Joseph Christian, Asia Fellow, Harvard Kennedy School, and

Founder and Principal of China Elderly Housing Advisors, LLC shared their views on what these high-level di-

rections mean for private investors and operators, and the potential business opportunities they signal.

([email protected], [email protected]) (A more detailed article can be found at

http://www.lawviewer.com/upload/file/13811127441866.pdf)

The Opinions (Circular No. 35) (“Opinions”) have already drawn a lot of attention from the public – both praise

and criticism – and from many different interest groups. The overarching purpose of the Opinions, we believe, is

to facilitate in comprehensive fashion the government’s achievement of the “9073” policy objectives by the end

of 2015.

Promising future for experienced elderly care facility operators

According to the Opinions, private-invested facilities can expect:

(a) lower barriers to entry and less red tape in business approval procedures in the areas of capital, premises, personnel, etc.;

(b) encouragement of private investment from foreign capital, supporting family-based, small-sized facilities, as well as large-scale and chain brand expansion – and everything in between;

(c) in addition to some less important exemptions from, or decreases in, administrative charges for the establishment and operation of facilities, the central government urges relevant functional authorities to introduce tax preferential treatment, in particular in respect of business tax and corporate income tax;

(d) in the more developed cities, hundreds of publicly operated facilities will be restructured in the near future, and the management of these facilities will be handed over to private operators. We applaud this because it may enable the government-invested facilities to be operated in a more efficient and marketable way than before; and private operators will not have to worry about significant investment in facilities and infrastructure (which will be funded

Increasingly Focused Policy Guidance From The National Level

Opinion on the Development of Senior Care Industry (2006 State Council) Regulations on licensure and administrative measure for senior care facilities (not exactly any one of the specific laws below) www.lawviewer.com/upload/file/13735030049369.pdf

12th Five-Year Plan on the Development of Chinese Senior Care (2011) www.lawviewer.com/pdf/China_Senior_Care_Industry_Insights_en.pdf

Construction Plan for Establishment of Senior Care Service System (2011-2015) (2011 State Council) Implementation Opinions on Encouraging and Guiding Private Capital to Invest in the Senior Living Service Industry (July 2012)www.lawviewer.com/upload/file/13499307105740.pdf

In addition to China’s 12th 5-Year Plan, noted above, examples of China’s ongoing progress in policy and

regulations include the 2011 Foreign Investment Industrial Guidance Catalogue’s placement of elderly care

facilities, occupational skills training and home service in the ‘encouraged’ category, and foreign-invested

medical institutions in the ‘permitted’ category. In July 2013 China announced The New Law on the Protection

of the Rights and Interests of the Elderly, most notable for a clause allowing parents to sue children who do not

visit regularly, and for opening up elderly care to foreign direct investment.

Feedback from Chinese and western elderly care executives and officials reminds us that there is still a long way

to go by emphasising that current incentives and regulation and especially the implementation of rules at local

levels are not only inadequate to effectively guide and develop the industry, but that many of these rules also

work at cross purposes to one another. Both foreign and Chinese industry participants reported their confusion

and frustration while trying to navigate regulations, and the headaches can multiply when assessing local

implementation across multiple market segments and regions. There is also often puzzling delineation between

rules on higher acuity (e.g. assisted living, nursing, clinical) elderly care and the regulatory guidelines covering

elderly housing /retirement facilities and services. An example is apparent in in-home healthcare - the Ministry of

Commerce promotes investment and expertise from foreign home-healthcare providers, but the health authority

is wary of allowing elderly non-medical care take place in the home. (For further details see Expert Insight: Notes

From the Trenches on page 70).

IMPROVING POLICY AND REGULATORY INCENTIVES… WITH MORE STILL NEEDED

p12 p13

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Government subsidies are to focus on those elderly who need them most, i.e. the disabled who cannot afford the

necessary care (the Ministry of Civil Affairs says 36 million seniors are disabled or partially disabled, and health

requires special attention). For the others, the solution will be marketisation or private investment and participation.

Blending of medical and elderly care

The foremost question that residents of a elderly care facility will ask regards the medical care that will be

provided. The Opinions state that:

(a) local authorities shall support elderly care facilities to establish their on-site clinics, provided that the facilities meet mandatory requirements. Also, hospitals above grade two are required to increase the number of beds for elderly patients;

(b) cooperation between hospitals and elderly care facilities is to become more active, and innovative models, such as remote diagnoses and in-home services, are expected to appear in the marketplace;

(c) social insurance coverage in elderly care facilities is expected to be broadened; and the implementation of cross- region social insurance reimbursement will encourage more elderly to choose to live in other cities – which is particularly good news for the tourism industry;

(d) physicians, nurses and other professional staff in elderly facilities are expected to enjoy the same policies as those in hospitals in respect of qualification requirements, performance exams, etc. This means opportunities for career development in a elderly care facility will be similar to those in a hospital.

Some other lessons

- it is advisable to look at the local policies that will be introduced in the pilot schemes for local implementation of these Opinions (pilot cities or regions still to be confirmed).

- the Opinions emphasise the development of the whole elderly care industry rather than only a few specific segments. Companies with superior integration capability and resources will have a chance to grow to be real giants in the industry, if our expectation is right.

The “reverse mortgage” scheme

The Opinions mark the first time that the government has used the words “reverse mortgage” - it was usually

referred to as a “house-for-pension” scheme in the past. There are differences between these two, as a reverse

mortgage, as implemented in many Western countries, is by definition a more formal legal arrangement whereby

a bank or other lender is granted a mortgage on real property. The reverse mortgage scheme has been advocated

by experts in China for many years; but so far there has been no supportive legislation on reverse mortgages, so

in the Opinions, it is referred to only as a “pilot” scheme.

As opposed to the long term care (LTC) insurance which we expect will have a large market in the future, the

reverse mortgage is, in our opinion, likely to be attractive only to a very small minority of elderly, probably those

living alone with no spouse or children. One may argue it is a good approach to unlock paper appreciation of

the real property owned by the elderly so that they can provide support for themselves in retirement, and there

are survey results indicating the willingness of the elderly to accept this concept, but we believe that this will

not be a good segment for insurance companies or foreign-invested companies to tap into. A large portion of

the wealth of many elderly Chinese has been invested in real property, due primarily to the lack of alternative

investment opportunities, and they want very much to leave their properties to their families, a desire that could

be thwarted by mortgaging their property. Also, we note that the experience with reverse mortgages in Hong

Kong and Taiwan has not been at all encouraging.

by the government), but will be able to focus more on the operation and service side. Private operators with more experience and public recognition will have a better chance of winning government bidding and gaining sustainable and reasonable profit through this arrangement with the government;

(e) as an extended business for facility operators, the training of care-givers and guidance to care-givers within the community is also encouraged in the Opinions. Is that a sector of the business that many foreign operators are aiming for? We definitely believe so, since the “9073” policy will require a large number of trained care-givers, of which there is a critical shortage in China today, whether the elderly citizen is part of the 90 per cent who will be cared for in the home, the 7 per cent who will be cared for in community service centres or the 3 per cent who will live in elderly care communities.

Local developments supporting in-home care delivery

In February 2013, Shanghai promulgated the Assessment Standards of Level of Care for the Elderly –the first

such Assessment Standard of its kind in China. The Standard uses the international appraisal tool of Activities

of Daily Living (ADL) plus appraisal criteria for cognition to outline certain factors that may affect elderly’ daily

living competence along parameters such as independence, cognition, emotional behavior and vision. The

scheme also sets up background parameters of ‘living environment’. These two measurements are analyzed for a

preliminary conclusion of a elderly’s daily living competence, which then leads to four types of appraisal results

and three corresponding levels of care needs.

The main purpose of the appraisal mechanism is to first technically identify whether care is indeed required,

and second to associate identified needs to a corresponding service (either community-based home care or

institutional elderly care). Additionally, the scheme can provide a technical basis for allocating the elderly care

resources. For example, indigent and disabled elderly can be accordingly assessed on care need(s) and, where

necessary, determine subsidy requirements. Those who turn out to reach the need level of mild, moderate or

severe, and those left-alone elderly who have chronic disease will be provided with special subsidies. Higher-age

seniors who qualify under the scheme can be provided with professional home care service, the costs of which

will be substantially borne by the government.

(Source: China Elderly Housing and Care Newsletter)

Local governments have been directed to cater their pension services, long-term care and basic living subsidies

to those who need them most. Payments may go directly to seniors - contrary to the previous setup, under which

payments went to nursing homes, which then provided the care. There have also been calls recently for local

governments to set up assessment programmes to “evaluate elderly citizens’ needs in each community”20.

A number of Chinese companies we contacted for this report mentioned that their strategies and business models

in elderly care are still being developed and in a number of cities, they were waiting for new regulatory announce-

ments that are expected in late 2013 or early 2014.

p14 p15

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The MCA and the State Committee on Ageing (State Council) believe elderly care should be better provided for by the national social security system, since increasing the number and quality of services relieves the health insurance system. The Ministry of Human Resources and Social Security (MHRSS) and Ministry of Finance (MOF), however, claim that the funds to do this are not there; it is already a struggle to finance the five social benefits currently tied to social security (including pension and medical coverage), so long-term nursing home care should not be thrown into the mix22.

The Chinese government is focused on caring for elderly people who cannot afford to pay for basic care or for those who are incapable of caring for themselves and require specialised help – and opening up elderly care to private participation to help cover the rest on a commercial basis23.

Feedback from CBBC interviews suggests that many current elderly are not very amenable to spending on care homes since they have lived frugally their whole lives and would rather place wealth in banks or cash for their children. This generation also argues against their children, with requisite wealth and disposable incomes, paying for their care or retirement housing for the same reason. For the private driven elderly care home industry to really

In recent years, the PRC government has displayed increased focus on healthcare services by significantly expanding

the coverage of public pension and health insurance programmes, strengthening social safety net programmes

such as the Minimum Living Standard Guarantee Programme, expanding various programmes and services for the

elderly, and raising social awareness about the need to assist the elderly24.

Pension payments averaged RMB 1,900 in 2012 for company retirees (MHRSS)25. Among the elderly, 65.9 per cent

are covered by the New Cooperative Medical Scheme provided to rural residents, 16.3 per cent by Urban Employee

Medical Insurance, 6.3 per cent by Urban Resident Medical Insurance, 3.9 per cent by government medical

insurance and 1.3 per cent by private medical insurance26.

Government policy could be expected to provide for investment and preferential fiscal and procurement policies.

In Nanjing, Jiangsu province, two subsidies are available: for construction (RMB 5,000 per bed for newly

constructed homes in urban areas, RMB 4,000 per bed in the suburbs and RMB 3,000 per bed in the countryside)

and for operational facilities (RMB 80-120 per person per day)27. (For a more detailed example of local government

regulatory incentives, see Qingdao Local Incentives on page 16.)

About half of China’s 31 provinces cannot meet the cost of funding pensioners and rely on financing from central

government. It is estimated that in China, some 40 million civil servants, doctors, teachers, and researchers at

state-affiliated institutions are not required to contribute to pensions, which pay up to 95 per cent of their salaries

in their retirement. By contrast, workers in other professions pay 8 per cent of their salaries, while employers

contribute 20 per cent, yet they are paid only 40-45 per cent of their salary in retirement. This is thought to be a

source of public discontent28.

Who approves what?

Ministry of Civil Affairs (“MCA”)—licensing and administration for elderly care facilities

National Health and Family Planning Commission (former Ministry of Health, “NHFPC”)—administration on medical

related issues

Ministry of Commerce (“MOFCOM”)—approval for foreign investment

Administration for Industry and Commerce (“AIC”)—business registry for for-profit business

China Insurance Regulatory Commission (“CIRC”)—regulate insurance companies’ activities in respect to elderly housing

Ministry of Housing and Urban-Rural Development (“MOHURD”)— construction standard for elderly housing

Ministry of Land Resources (“MLR”)—land use right polices for elderly housing

State Administration of Foreign Exchange (“SAFE”)—foreign exchange (paid-in capital, foreign debt, etc)

controlling National Development and Reform Commission (“NDRC”)—approval on project construction

Ministry of Human Resources and Social Security (“MOHRSS”)— caregiver qualification

(Source Michael Qu, Co-effort Law Firm)

In 2012, local officials announced a “Proposal to promote further and stimulate the ageing-care service industry

of Qingdao”. The document calls for 1) an information system to be set up by 2015 that will support 100 per cent

daytime elderly care in urban residential communities and 50 per cent coverage in rural communities, and 2) a

total of 50,000 elderly beds of which 30 per cent should be allocated for medical and disability care.

Proposed incentives include a variety of government subsidies provided either for each bed, each resident or

each community care house, as well as exemptions from, or reductions in, business tax, income tax, urban

construction maintenance taxes, property and land utilization taxes, and other tax and administrative charges for

certain elderly care homes. Charitable donations to elderly care homes will be tax-deductible.The plan includes

eight new urban care houses with at least 800 beds each, 20 upgraded rural care homes with at least 100 beds

each, and 125 community-level elderly care homes.

A sample of local elderly care regulatory developments - Qingdao

Reconstruction of the Qingdao Mu-

nicipal Social Welfare Institute with a

60,000 sq m construction area and RMB

360 million investment. This will be a

comprehensive elderly care home with

facilities for 1,600 beds, medical care, a

university and an entertainment centre.

An upgrade of the Qingdao Special

Care Hospital, including a new construction

area of 240,000 sq m with total invest-

ment of RMB 140 million. The hospital

will focus on the treatment of chronic

geriatric and mental diseases and will

have 400 beds.

An upgrade of the Municipal Welfare

Lottery Elderly Care House, which covers

12,000 sq m and has investment of RMB

80 million. The house is specially designed

for completely disabled elderly people,

with 400 new beds having been added.

take hold in China, several experts noted that the next generation – people now in their 50s - will be the ones who as a whole will be able and far more willing to spend money on retirement lifestyles, elderly living services, and increasingly specialised health care as they age.

There are a number of specific areas for upcoming legislation and regulatory development that Chinese and

western executives anticipate will be addressed soon. These include: clarification of details for preferential

policies (e.g. land, tax and subsidiaries); further details in local regulations on “for-profit” licensing; guidance on

financial support for the elderly and long-term care insurance; and more detailed regulations affecting business

models involved in elderly housing (e.g. memberships)21.

WHO WILL PAY FOR ELDERLY CARE? SENIORS, THEIR CHILDREN OR THE GOVERNMENT?

PUBLIC INSURANCE COVERAGE AND PENSION SCHEMES

Three example projects are:

p16 p17

Source: CBBC research

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2.1 SUPPLY SHORTAGE

MARKET LANDSCAPE

The elderly care industry is still at a very early stage of development, with about 100,000 elderly housing institutions in China as of the end of 2010 providing a total of just 3.2 million beds. This is equivalent to just 2 per cent of the country’s elderly population as compared with 5-7 per cent in the USA, Australia and Japan30. The consequence of this is an estimated demand-supply gap of 8.8 million beds31. There is much demand for expansion and a projected doubling in size of the elderly housing sector over the next five years32 as the government is targeting 30 beds per 1,000 seniors by the end of 2015.

In 2011, nursing homes in China had the capacity to address the needs of only 1.8 per cent of the elderly population. This grave shortage in supply has helped to encourage the Chinese government to relax foreign investment regulations and also fund the development of nursing homes to boost the supply of beds to 6 million by 201533.

Speakers at CBBC’s August 2013 UK-China Elderly Care Forum lamented the shortage of beds while pointing out that the vast majority of the 3-4 million beds currently available are publicly subsidised at very basic levels, for example RMB 1,000-1,500 per month plus RMB 100-200 per month for food and minimal, uncomfortable care – this is “not really where the industry wants to be”.

Recent guidance from China’s State Council in September 2013 pointed to ongoing clarification in the

functions various government departments closely following the above roles. In addition to the Ministry of Civil

Affairs (MCA) positioned in the dominant role and the Development and Reform Commission responsible for

industrial planning, the Finance Department is responsible for financial support, and the National Committee on

Ageing (under MCA) heads coordination with all other departments29.

Tianjin University of Traditional Chinese Medicine on elderly dementia research. Through collaboration like this,

Hetong has innovated. It created its own feeding equipment and food supplements for the elderly in hospices

who can no longer swallow and who require specific nutrients in their food, and it also developed its own design

for special low-cost nursing beds for these high-need seniors. Additionally, Hetong Elderly Care Occupational

Training School has trained over 15,000 staff across China since 1998, covering junior, middle, elderly and

technician levels of nursing, management, housing and community staff in elderly-care organisations.

We finished our conversation by discussing the main challenges for Hetong when expanding and advice for UK

firms. For Ms Mu, the shortage of qualified personnel, especially in the areas of dementia and long-term care for

the very old, is a challenge but also an opportunity. As for UK firms, she explains that “we provide strong training,

guidance, advice and other support to the local markets, and can be a good collaboration partner for UK firms

with expertise in the services we focus on.”

Supply gap of8.8 Million Beds

Supply of only3.2 Million Beds

?

Total Demand =12 million beds

Figure 2.1 Services Demand and SupplySource: Kleinman & Chen, Fung Global Institute 2012, PA Consulting

Innovation in Action: A case of successful government leadership in Tianjin

Mu Tianjun is vice-president of Hetong, a Tianjin-based non-profit organisation playing a pioneering role in China’s efforts to provide seniors with healthy activities, care and medical services. CBBC spoke to Ms Mu in

Tianjin in September 2013. ([email protected], http://www.hetong.org.cn)

Hetong was founded in 1995 by both private investment and local government organisations to provide community-

based healthcare services for the elderly in Tianjin – something that had never been done. Over the course of 18

years, Hetong has grown into a multidimensional organisation with business and non-profit arms that are strictly

dedicated to providing elderly care across all segments – in-home, community care, independent and assisted

living, and specialised clinical and medical services. Hetong does not regularly receive any public finance or

allowance, and profits must be put back into the development of services and care.

Under the oversight of an executive committee comprising three core elements – Hetong Elderly Welfare

Association, Hetong Private Non-enterprise Organisation and Hetong Elderly Public Welfare Foundation – the

organisation is involved in eight main areas: elderly care facilities, elderly care services, medical treatment and

public health, elderly care training and curriculum development, nutrition and meal catering and delivery, laundry

and sanitary services, the supply of products for the elderly, and management consulting.

Asked about the key to the company’s success, Ms Mu cites two factors. One is the executive committee: “Once

changes or new projects gain consensus among our devoted and committed executive committee, we are able

to make adaptions or instil better practice swiftly.” The second is international learning and cooperation: “We

have made, and continue to make, extensive efforts in learning advanced methodologies and successful cases

from countries with deep experience in our core service areas, and have successful cooperation with experts from

Germany, Austria, the USA and Japan,” she explains.

Hetong owns three long-term elderly care homes in Tianjin, two in Beijing and one in Sichuan, all of which

provide personalised care with an emphasis on elderly people who cannot take care of themselves, as well as

hospice care and dementia. The average age in the homes is 82. Just 8 per cent can move freely on their own,

42 per cent depend on wheelchairs and 22 per cent are confined to bed. As Ms Mu explains, “We positioned

ourselves from the beginning as non-profit, targeting disabled elderly and those with dementia – much-needed

services in China - and our growth and success have proven we are on the right track.”

Hetong has a very deep community-level presence. The Hetong Elderly Welfare Association, for example, has

30 member companies, 5,000 individual members and 5,000 registered volunteers, all creating and delivering

activities, entertainment, care, meals and services in the community and in seniors’ homes. The group works

closely with Tianjin Yanan Hospital to provide floors for hospice care, care for senile dementia, a pressure sores

outpatient service and nursing outpatient services, as well as a cooperative programme with the hospital of the

p18 p19

Demand-supply Gap: Nursing Home Services in China 2011

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Independent living, or gated communities, which includes Continuous Care Retirement Communities (CCRCs),

retirement housing where the elderly live in their own homes or apartments within these communities.

Assisted living or supported housing, which often means apartments within elderly care homes or living

facilities, with extra care services provided such as bathing and movement assistance or mild dementia support.

Nursing homes or hospitals, which cater to those requiring assistance or medical care up to 24 hours per day.

“In-home” care, which generally consists of quite basic care for the elderly in their own home and at a low price,

often subsidised by the government in the case of those with low incomes.

PRP Architects label the first two segments as “independent housing”, the third as “institutional care”, and the fourth simply as “in-home”. The UK has been moving from institutional (hospitals and nursing) towards independent/ assisted for some time, which provides useful lessons for China as well as opportunities for UK firms. (For a more detailed discussion on opportunities for UK companies in these segments, see Expert Insight: Design and planning opportunities on Page 27.)

As Battersby explains, institutional and in-home care is very community or neighbourhood-based, and developing in-community care delivery is a major goal both for advanced economies and for China. A newer in-community model that is gaining attention – to some extent in China and a lot in Holland – is the integrated or intergenerational community. This can be an exciting model for a solution in China’s cities. For example, with seniors right in the community, their family, children and schools are near by and they can all be a very regular, close-knit support network between relatives and neighbours. In-community models are really the domain of the local governments and NGOs for delivery and subsidies. However, there is an important design and planning element to this, and more opportunities should be found by expanding intergenerational programmes into broader community care hubs which support and deliver community and in-home elderly care.

Throughout CBBC’s conversations and interviews with both Chinese and foreign investors, facility operators and service providers, segments were often discussed in terms of low/mid/high end. Table 2.3 illustrates monthly fee ranges for elderly housing or nursing homes that equate to different levels of care, service and luxury.

2.2 MARKET SEGMENTS“It is essential to understand that the ‘China’ market is finite. Sure,

demographic numbers and trends are huge but for investors and companies

it boils down to: can people pay, and at a price that enables you to make a

profit? If not, no market can exist!”

Steve Koon, CEO La Care Group

Eighty per cent of elderly healthcare institutions are currently public nursing homes and social welfare homes,

fully funded by the MCA and various agricultural cooperatives34.

Elderly care market segments

Low-end - free (welfare) to RMB 4000/month

- welfare, very basic, poor quality

- in-home / community / public nursing

Mid-range

- RMB 3000-9000/month

- some degree of medical care available

- nursing home, retirement

communities, CCRCs

High-end

- RMB 10,000/month or above

- higher-quality services, luxury,

specialised medical

- nursing home, retirement

communities, CCRCs

The majority of foreign elderly care companies and executives are interested

in the high end – both in terms of high fees and income (and the higher

quality service and specialised care that correspond to higher fees) and

the healthier financial margins that high-end service models create. A few

of the British and foreign executives we spoke to questioned the viability of

demand in the highly priced, highly specialised segments, at least in the

near to mid-term, being more focused on selling products and services

into the much lower-margin, but far broader, mid-range area with

specialised training programmes, robust data and communications

capabilities and ehealth/telehealth/telemedicine offerings. The local Chinese officials we contacted were most interested in the low end. It is

“At the high-end market level, mon-

ey is not an issue, rather the resi-

dent wants to feel at home, they

want quality hands-on care, not

tele-medicine. They want to know

the community and care givers in-

deed care about them as well as

care for them.”

Mark Spitalnik, CEO, China Senior Care

There are many ways to define elderly segments and these segments can have several combinations of sub-

segments. Figure 2.2 provides a useful generalisation that illustrates both the levels of care and the care costs for

nursing homes, housing and retirement living. Roger Battersby, managing partner of PRP Architects, succinctly

outlines segments from the housing angle. He describes four broad segments:

Source: CBBC Research

their responsibility to achieve care coverage targets of 97 per cent of their citizens (90 per cent in-home and 7 per cent via the community), and their focus is adequate, publicly subsidised, low-cost care for the majority of China’s elderly – mainly those require financial assistance to be able to afford care, or who are unable to take care of themselves.

Chinese investors, operators and service providers span the whole gamut of segments from high-end luxurious property portfolios containing an elderly care element right down to grassroots, community-level public-private partnership and volunteer models.

p20 p21

China’s Elderly Care Market Segments

Figure 2.2 China’s Elderly Care Market SegmentsSource: CBRE

LEVE

L O

F CA

RE

Ass

iste

d liv

ing

Inde

pend

ent l

ivin

gSk

illed

nur

sing

car

e

Low-end Medium-end High-end

TARGET MARKET

PRIVATENURSING HOMES CONTINUING CARE

RETIREMENT COMMUNITIES

PUBLICNURSING HOMES

SOCIAL WELFARE HOMES

SENIORAPARTMENTS

Higher level of carePrivately fundedRental-based

Mostly rural areas

Mainly independent living

Fully funded by public entities

Rental based

Mostly urban and

suburban areas

Mainly independent living

Fully funded by government

Rental-based

Independent living

Private funded

Individual apartments

Sale or rental-based

All levels of care

Mostly privately funded

Individual apartments

Sale or rental-based

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The CCRC landscape in China

The following is an informal market study assembled from information in Bromme Cole’s 2013 book “Enter the

Ageing Dragon… Musings on the nascent elderly living industry in China”.

Continuous Care Retirement Communities (CCRCs) can be loosely described as gated, campus-style residential

complexes with a market-driven mix of 1) independent-living residences for active seniors; 2) assisted-living units

for seniors who require a degree of support in their daily activities; and 3) access to skilled nursing care for frail

or infirm elderly who require frequent assistance or acute medical care.

CCRCs operate in the mid-range to high-end segments. “High end” is roughly defined as facilities with member-

ship fees of RMB 1.5 million or higher, or a unit sales cost of at least RMB 20,000 per square metre. “Mid-range”

refers to those with membership fees of RMB 500,000 to RMB 1 million, or a unit sales cost between RMB 10,000

and RMB 20,000 per square metre.

The CCRC landscape in China to date has by and large been characterised by batches of large retirement-

housing or independent-living developments popping up all over the country - largely emphasising elderly

accommodation as apposed to tailored elderly care services.

No. of units

No. of hospital beds

Accommodation size

Occupancy rate

Fee ranges

Distance from city centre (approx. in car)

Services and amenities

Accommodation size

Cole’s verdict

Cherish Yearn Yanda General’s Garden

600

300

108 m²

58 m²

80 %

Entry fee RMB 450,000 – RMB 890,000;Monthly fee RMB 23/m² - RMB 53/m²

60 minutes from down-town Beijing

Monthly fee RMB 68/m² (independent) – RMB 206/m² (nursing)

50-yr lease RMB 12,000/m² (independent);Monthly fee RMB 116/m² (nursing)

30 minutes from down-town Shanghai

Close to down-town Beijing

3-hole golf course; hot-spring clubhouse; traditional Chinese medicine clinic; man-made forested park

3000-bed hospital; 200-bed geriatric nursing facility; places of worship

Activity spaces and rooms; library; computer centre

After teething problems, now achieving success through competitive pricing and well-balanced services

Overbuilding and high land costs have made it difficult to fill places

Costly villas not well occu-pied; cheaper, well-serviced assisted-living units doing well

1200

3200

123 m²

66 m²

20 %30 % (own villa)75-80 % (assisted living)

43 m²

750 m²

160

280

Table 2.1 highlights a few observations on three well-known CCRC-type elderly care projects. Cole judges that Cherish Yearn is currently the most impressive, having a high occupancy rate and vibrant residents involved in many individual and group activities. (For a more detailed look at Cherish Yearn, see the Yu Yao Lai Interview below.)

Bromme offers a gloomier prognosis for Yanda Golden Age, which is hampered he says by its remote location and high capital costs caused by overbuilding. Meanwhile, General’s Garden gets a mixed grade – i.e. struggles in selling high-priced retirement villas, but enjoying strong occupancy and reputation in its assisted living facilities, which Cole says was largely helped by a quality care programme originally drawn up by an experienced Austra-lian firm.

According to Cole, there are few, if any, truly successful high-end elderly living projects in China… yet. Moderately successful CCRCs - where success means “improving occupancy rates and service quality while not yet cash-flow-positive” - are few and far between.

He says that no truly 5-star operator is yet involved in China, which leaves residents without top-class service; and CCRCs also face the problem that they may have arrived a generation too early - Chinese elderly people aged 65-plus are children of the revolution, meaning that they are thrifty even if wealthy. “The ones who will spend money on high-end comfort and services are those born in the 70s and 80s, who are still years away from requiring and being willing to pay for these high-end care services,” Cole believes.

He advises UK entrants to focus on the mid-range to high-end segments of the market, suggesting that foreign investors, operators and owners stick to smaller, more defined projects that focus on where there is higher demand, namely in higher-acuity types of care and services, such as dementia and specialised geriatric care.

Table 2.1 offers a brief comparison of three well-known, large Chinese CCRCs studied by Cole in 2012.

Expert insight: Lessons learned by a leading Chinese elderly care operator

Mr. Yu Yaolai is President of Shanghai-based Qin He Yuan (Cherish Yearn), the oldest privately owned elderly retirement and care community in China. The comprehensive serviced community includes 1000 units amongst 15 buildings, a clubhouse, hospital, canteen, hotel, retail shops, and shuttle services for residents. Mr. Yu spoke with CBBC in August 2013.

CBBC: A number of attendees at CBBC’s UK-China Elderly Care Forum in Shanghai complimented you and Cherish Yearn as one of the very few elderly care communities in China so far to be doing well. Can you briefly introduce Cherish Yearn?

Cherish Yearn was established in 2008. It is a private ‘elderly membership’ club or community targeted at

residents in their 50-60s who seek a comfortable, active lifestyle. We designed space to facilitate residents’

interaction with one another as in a real community. We provide (and help residents organise) numerous

activities, and have a number of retail outlets. We also offer medical care as needed in our hospital on site which

Cherish Yearn also owns and operates.

Westerners would call us a continuing-care retirement community (CCRC). Roughly 80% (or 800 units) are

serviced apartments while the other 20% are used by members of the public, that is, not our members or full-

time residents. Currently we have 1600 members or an 80% occupancy rate. Memberships in our ‘community’ or

‘club’ range from RMB 500,000 to RMB 1 million membership fee for a unit and that is refundable or transferable

after a 5 year holding - less 10% administration fee depending on the size/extent of services included. There is

also an annual fee for the use of the apartment which ranges from RMB 37000 to RMB 78,000 depending on size

and amenities.

p22 p23

Table 2.1

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2.3 SERVICE SEGMENTS

Two main functions that were often cited during our research as needing

advancement in China were comprehensive elderly care facility operations

and the management systems and knowhow for the various elements of

operation - staffing and human resources, resident assessment and care

programme development, care delivery, buildings maintenance and

vendors, finance and accounting.

The UK has developed world-class elderly care operators and management

systems, both large and small. In China, operators will often need to

collaborate with real estate developers and Chinese elderly care facility

owners. Such partnering can create excellent opportunities, but effectively

working together will not be an easy task.

For example, any Chinese partners will clearly see benefits in leveraging

UK experience. There may be very dissimilar initial viewpoints on what care

programmes should include and how they should be managed which will

mean very different outlooks on how to train, what to charge, or how to

assess the costs/benefits balance of quality delivery in geriatrics in China

versus how this is handled in more developed economies. UK operators

will need to understand the wide gaps in how doctors, nurses and care

givers are trained and compensated in China, versus in the UK, as well as

the much lower level of resources (e.g. training and human resources, and

supply chains) or the less developed infrastructure (e.g. buildings quality,

equipment and products) in China compared with the UK.

There has been painfully little success in foreign investors and operators

‘going it alone’ in China. China Senior Care, a new foreign-invested and

managed, very high-end elderly care home is being set up in Hangzhou,

offers an interesting case study for planning and adapting quality care

provision to a specific market segment.

“I think what the Chinese inves-

tors, developers and local authori-

ties are struggling to understand is

the difference between an investor

and an operator in the building and

running of a quality elderly care

programme”

Eamon McKinney, CEO, CBN Care Group

OPERATIONS AND MANAGEMENT

CBBC: Could you share some of the main challenges in building and running Cherish Yearn?As the owner, land costs are a major risk. The elderly care sector, and related policies, are now starting to

develop very fast and therefore so will market segments and different service offerings. Also, policies and local

regulations will be evolving and changing quickly. So the potential for land costs being reduced considerably at

some point must be carefully considered and managed – both for our current properties and also for our future

growth. For example, if a policy creates much reduced land cost for investments into this sector, then we might

be a little stuck because of the higher costs we paid earlier versus a new competitor paying a lower cost.

Another main challenge is manpower. It is costly in both time and money to train very good, fully-skilled and

knowledgeable care employees, but we do this to assure our residents are happy, active and receive excellent

care. Retaining our qualified and experienced staff can be difficult as more and more competitors enter the

market and target our highly skilled care workers in order to save the costs of developing them themselves.

As policies, markets and competition develops, it is also very necessary for us to focus a lot of energy on

cooperation with the best partner organizations to both i) maintain our quality standards as we expand with many

other care facilities and communities, and ii) continually research and develop and deliver better services that

markets require. We work extremely closely with hospitals, for example on services, and with training institutions

for skills development.

CBBC: Are British operators or elderly care service providers potential competitors for you or potential partners?For foreign or British operators, in my view, it’s less a direct question of whether to team up with Chinese

partners or not, and much more a strategic decision on what they need to accomplish in China in order to

effectively adapt their models (which work well in their home markets) to work here. China has different regions,

pricing points, elderly (and their families) needs and expectations.

Similarly, investors must be clear what they are allowed to do as far as the extent of services (for example lifestyle

versus medical) is concerned and they must be flexible to tailor their traditional business model in the same way

as operators. I suggest foreign investors team up with a successful operator here. Cherish Yearn is one of a

small number of successful local Chinese operators. Having said that, we also seek international operators with

which to cooperate here in China. We are a useful partner for market access and localised operations models for

delivery in China. Well-known international operators can help us internationalise our quality of care and develop

our brand together.

We are also interested in UK expertise as we develop higher-end and quality elderly care services. For example,

as we work with more hospitals to help them operate specialised higher-end elderly care through dedicated beds

and floors, we can help British firms bring in specialised training, acuity care services or design expertise along

with us.

As a final point, there will be huge needs here for many years. While we have problems and success that have

let us gain extensive experience with Cherish Yearn, we are moving forward with rapid expansion in numerous

provinces to gather and maintain market share. We are doing this in many ways – land, franchising, outsourcing

contracts for other elderly care property owners - to help protect us against the risks in policy developments. We

will also look at co-investment in other facilities and communities as well as to solidify business relationships and

gain value and create a more balanced business model overall. We can be a strong partner for top UK elderly

business providers to work with.

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Recruitment, Training and Operations - The biggest questions of all are: who is going to operate and manage the care home and programmes, and who is going to recruit, train, retain and develop the care giving teams? Spitalnik stresses “highly qualified and specialised training costs [money], so if you cannot charge fees that cover those costs then your business won’t work.” Staff turnover will also be a big challenge, he says: “Ultimately you will need to charge high-enough fees to pay staff well, as well as paying for continuous replacement and training – because your highly skilled and experienced workers will be prime targets of competitors.”

Once his new model is established, Spitalnik plans to roll out the model to other cities, adapting to local markets and the needs of the clientele as required. “The model should replicate and scale well so long as the showcase development executes properly on all cylinders, thereby validating the model.”

China Senior Care (CSC) is a very high-end, self-contained facility scheduled to open in Hangzhou in autumn 2014. The home will cover 13,500 sq m, include 64 beds and be located a 40-minute drive from the city centre. Fees at the home will be in the RMB 40,000 per month range, plus services and medical care charged according to usage. Foreign investors, developers, operators and service providers involved in China’s elderly care sec-tors need to consider carefully which care level segments - and which business and care models within those segments - might provide the best opportunities. After spending three years researching the market, starting in 2007, Spitalnik saw a need and therefore an attractive opportunity at the “luxury” end of elderly care in China – the very top. He founded China Senior Care Inc. in 2009. The rationale? “High-net-worth individuals have the spending power for a high-quality elderly lifestyle and medical care services for their elderly parents. Currently in China, though, these parents are sent to high-priced geriatric wards in hospitals as there are few suitable alternatives. I want to attract these people into a luxury, more prestigious lifestyle and care facility that feels more like home,” Spitalnik explains. CSC focuses on the very high end of service levels, although Spitalnik related some challenges he faced and suggestions for UK firms that are universally relevant, regardless of the service functions provided or market segments targeted.

Funding – If you want to run and own the whole project then you will need to raise money! CSC raised US$20 million, first through high-net-worth individuals whom Spitalnik convinced to invest in his company to get started, and then through institutional capital needed to secure the financial backing to build and develop the project.

Land and Location – “If you have the land or if your Chinese partner has land, great. But I needed 10 mu (6,666 sq m) – too small to require a developer - and I needed to work very hard with local government to acquire the land,” says Spitalnik. Given a choice, many elderly would rather stay with or near their family, friends and neighbourhoods, and therefore you must carefully consider where your location will be in order to meet the desires of the target residents. “My model and facility may not work in Shenyang, for example, because the addressable high-end market – size, expectations – may be much different from what I know in Hangzhou.”

Design – Spitalnik says he needed to ask himself, “how do I design so that high-end users will come to my facility instead of alternative high-end services at hospitals?” Generally, high-end geriatrics in China means hospitals which are very institutional and medical-oriented, but not comfort or happiness-oriented. He stresses that the needs and expectations of China’s elderly can be very different from a design point of view from those of Western elderly, to which Western architects and designers are often accustomed. “It is essential that architects and designers, and the developers that hire them, work closely with experienced operators right from the beginning to ensure that designs take into account practical, physical details of operations,” he explains. “I’ve seen a number of great designs and plans fall down a number of steps due to small, simple details that just didn’t match how residents wanted to interact or needed to move in day-to-day operations.”

Care Model – For this high-end model that Spitalnik is creating, he is focused on carefully moving from the “institutional” feel of hospitals towards a genuine “caring” offering. He emphasises that in an institutional setting, even if medical care is outstanding, if the person is miserable owing to the closed atmosphere or a lack of interesting activities and interaction, then the institution can feel like a prison. If delivered properly, there is definitely a high-end market for a happier “home” feeling supported by a high ratio of caring staff and meaningful interaction with other residents.

Elderly housing in China is generally “BIG” when compared to the UK as

far as numbers of beds and size of facilities are concerned. Interviews with

design and architecture experts experienced in China suggested that from

a design and planning point of view, there is certainly an opportunity to

incorporate much UK experience regarding size of units, space per bed,

access channels or integrating elderly care into the community infrastructure.

Additionally, a wider focus on designing customised care relevant to

specific needs – as opposed to simply adding capacity to meet demand –

is needed, but feedback suggested that it requires coordinated efforts to

explain this concept well to the market.

A number of architects and operators CBBC spoke with mentioned that the

education also must flow in the other direction, meaning UK operators and

designers also need to understand that what Chinese elderly might want

and require – as per cultural expectations and infrastructure requirements

in China - may well be far different from what UK firms are used to in their

home markets.

“It is essential that architects and

designers, and the developers

that hire them, work closely with

experienced operators right from

the beginning to ensure that de-

signs take into account practical,

physical details of operations”

Mark Spitalnik, CEO, China Senior Care

Roger Battersby, Managing Partner of UK-based PRP Architects, spoke to CBBC in August 2013 during the Care-

show Shanghai conference and offered insights into the development of China’s elderly care industry and what

that means for UK companies. ([email protected])

Battersby: The elderly care market is still in its infancy compared to many Western countries. Most of the existing

facilities and indeed the government’s Five-Year Plan are focused on institutional care establishments to cater for

those needing more intensive 24-hour care.

Elderly housing focused on a more aspirational lifestyle - as a choice to be exercised by older people - is almost

non-existent. If we take the UK market as indicative of the housing and care needs that could be applicable to

the Chinese market, there are great opportunities across the board as follows:

Expert Insight: Design and planning opportunities

Innovation in Action: China Senior Care – “Service at the Top”

CBBC spoke to Mark Spitalnik, CEO of China Senior Care, a luxury complete care, elderly care home that will open during autumn 2014 in Hangzhou. (www.csc-del.com, [email protected]) Mr Spitalnik also serves as director of the China Chapter of the International Association of Homes and Services for the Ageing (IAHSA - http://iahsa-china.org).

DESIGN AND PLANNING

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1. Homecare for those either choosing to stay put in their own homes or unable to afford alternative provision. In

the UK and in most other countries this accounts for over 85 per cent of older people with care needs.

2. Independent living, i.e. housing designed to inclusive standards and located close to amenities and at the heart

of communities. This product is ideally suited to “younger” older people who wish to downsize to accommodation

that is more suitable and more easily maintained. It is currently underprovided in the UK but fast becoming the

focus of new development for older people’s housing.

3. Assisted living/extra care. These developments can vary considerably in scale from small community-based schemes

with around 40 apartments to retirement communities with 200 to 300 units. Essentially they offer people their own

apartments within a wider community which shares a range of communal facilities as part of a lifestyle “offer”.

4. Institutional nursing/care homes for the very frail needing 24-hour care. Here the accommodation consists of

bedrooms with en-suite facilities and a range of shared communal facilities. Nursing/care homes have become the

preserve of the extremely frail or those with dementia and the average stay is not much more than a year.

5. CCRCs (continuing care retirement communities) pioneered in the United States and subsequently adopted in

many Western countries. These larger-scale developments offer a range of different typologies on a single site to

cater for all ages and levels of dependency. They are very often gated communities as opposed to being integrated

into communities.

China is currently providing funding to its local authorities to develop a new generation of nursing/care homes.

However, it is looking to its private-sector developers to meet the needs of the rest of the market. This strategy

is not dissimilar to the situation in the UK, where the large middle market neither qualifies for state support nor

can afford alternative housing. So they are stranded in their own homes, often under-occupied, depending on

home-care services for support. The difference in China is that much of the housing stock is unsuitable for the

needs of its ageing population. Invariably the private-sector developer targets the top end of the market, where

the profits will be greatest. The general trend in the West over the past few decades for elderly housing and care

has been to move from the “institutional” towards a more aspirational, housing-based “lifestyle” product.

For me there are four big questions facing the Chinese market:

i. Is it ready for this shift from the institutional to housing-based solutions?

ii. Is Chinese society ready to change its perception that moving (or supporting one’s parents in a move) to an older

people’s housing community is not a cause for shame but for celebration, in terms of helping them make a new

start in life and new friends?

iii. Will it opt for large gated communities of older people or will it seek to integrate its housing for older people

within its general residential communities? Or indeed adopt a twin-tracked approach?

iv. Is the market ready for the relative complexity of elderly people’s housing, which involves housing management

and care provision functions in conjunction with the simple development of an appropriate housing product?

I believe that there are opportunities across the board for UK designers and developers who are experienced in

this field. Those who can come together to provide an integrated solution will be in the strongest position of all.

Oft-cited examples of opportunities for specialist product and service providers CBBC heard were diabetes,

dementia and other psychological ailments. With 114 million diabetes sufferers35, China is estimated to have the

largest diabetic population in the world36. As such, there is significant potential in diabetic care for healthcare

clinics and pharmaceutical companies. There are around 10 million dementia sufferers among the total

population but 93 per cent of dementia cases in people aged over 60 go undetected37. In terms of psychological

ailments, 40 per cent (74 million) of China’s elderly display high levels of depressive symptoms38. Care for such

patients could be provided separately from or in connection with dementia-related facilities. Other types of

specialist care addressing physical and physiological ailments, especially for older seniors, were cited by numerous

experts we spoke to as strong opportunities for geriatric needs and for higher acuity medical and clinical

products and services.

Expert Insight: Effectively incorporating leading Western experience into China’s markets

Following a 23-year career spanning the complete elderly housing service chain in the US, Jim Biggs has spent

the past two years with Chinese developer Vcanland leading the development of Friendship House, an innovative

dementia and memory loss elderly care residence services programme in Tianjin, China. CBBC spoke with Mr

Biggs during a visit to Friendship House in September 2013. ([email protected])

CBBC - From your experience both in the West and in China, what are the main market challenges or differences that UK elderly care companies need to recognise when entering the Chinese market?Lack of trained staff - there is currently a perception that caring for the elderly lacks prestige or status. We work

hard finding and recruiting care workers who actually care, and who are passionate about helping others and

caring for the elderly with memory loss as a trained profession. That sometimes means extra costs for room and

board, and often extra specialist training, which we as operators and owners are prepared to pay for in order to

create and deliver a quality care culture and inspire and retain our valuable staff.

Market dynamics are different in China - and then different again right across China. The vast majority of

Chinese healthcare revolves around “Level 3” hospitals and government-run nursing homes. For British firms,

understanding this system and then customising your product or service to those market needs and expectations

that are not covered by the local hospital and nursing-home networks is a big and challenging process, but

something you need to do. That takes time and resources for things like market research and due diligence on

potential partners, which is far more difficult to accomplish than what you will be used to in your home country.

Brand value recognition - there are currently several providers that are having a difficult time filling even half of

their beds or memberships. This can sometimes be a location issue, but quite often it’s a value mismatch issue

because the markets (i.e. residents) they are targeting aren’t willing to pay the higher rates that the provider of

a Western brand wants. At this stage of the market’s development, it is a difficult job to demonstrate the value

of your Western brand in China. The elderly care and healthcare sectors in China do not really know your brand,

no matter how big you may be back home, so to an extent you need to build a new brand by creating and

effectively delivering quality, specialist care that fills a gap that is not already served. By carefully demonstrating

your value, you will quickly learn what care levels and pricing points your market will support and at that point

your brand will be marketable.

SPECIALIST ELDERLY CARE AND HEALTH CARE PRODUCTS AND SERVICES

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An example may be useful to tie together these points. There is certainly a lack of elderly care rehabilitative professionals in China, such as physical therapists or occupational and speech therapists. A British firm providing these Western professionals would indeed fill a need that is not covered well by the current hospital and nursing-home elderly care networks. The brand would need to be well marketed, but initially also verified through quality care delivery to those segments of elderly care patients and residents who are willing and able to pay. But also remember that the support infrastructure – translators, nursing resources – also must be part of the package to ensure smooth delivery and results.

Lastly, more Western brands are bringing some degree of equity into their China business alongside their Chinese partners. There are two reasons that I’ve seen for this. First, the Chinese side sees “just the brand” - and the experience, know-how and expertise that goes with it - as too risky since it is not known in China and so does not agree to cooperate without equity. A second reason stems from a few early foreign entrants being dropped by Chinese partners after the Chinese partner had used their “foreign brand” in their proposal to achieve government approvals.

CBBC – At launch in late 2013, you will first operate six beds and then expand to 26 – why so conservative? Conservative it was, but more importantly smart - and the decision is based on a strong desire to provide quality care, to make sure we can walk before we run, and not to overwhelm untested staff. The theory is that once we have our training, processes and care delivery systems in place and smoothly providing for six, and then 26, we can carefully scale up and provide for many more. Additionally, we didn’t want to start with a much larger facility of say 100 or 150, and a far higher capital outlay, only to find that at least in our first pilot facility in Tianjin the market only demands 25 or 30 beds.

CBBC - Friendship House does its own in-house training. How would you advise UK firms, many of which specialise in elderly care training, design or operations related to dementia-related care workers, on market entry strategies in China? I would suggest working with experienced, reputable consultants to help you segment, size and price the potential demand for your offering among the segments that will be willing and able to pay. They will also help you to navigate due diligence, rules and regulations, and the partner negotiations that will all be essential to structuring agreements and contracts. On dementia and memory loss care specifically - or any highly-specialised level of elderly care or elderly clinical care - there is a huge gap between demand and supply in China. British firms will identify plenty of opportunities in these gaps. I suggest they get professional assistance to find partners and develop models that can be localised, and to deliver a form of service that meets the need at pricing that attracts the customers.

In 2012, the Ministry of Civil Affairs issued a regulation to support private elderly home care through subsidies,

purchasing of services, coordination assistance, and public standard endorsement. To help realise its target of 97

per cent provision of elderly home care services delivered in-home or in the community, central government policies

urge local governments to encourage companies to provide seniors with an e-commerce platform, social service net-

working, call-centres and a healthcare consulting service. While there are potential time and cost gains to be made

from integrating remote monitoring services and telehealth services, in-home care for bathing, moving and dietary

services will still largely be delivered by relatives or care staff on a regular or on-demand basis39.

Expert Insight: Quality in-home care is a major opportunity

Joshua Kurtzig is General Manager at United Family Home Health (UFHH), a foreign-invested firm delivering

specialised in-home elderly care and clinical services in Beijing, Shanghai and Tianjin. Mr Kurtzig spoke to CBBC in

September 2013. ([email protected] / www.homehealth.com.cn).

CBBC: In-home elderly care provision is very new in China. What are some of the challenges for service providers?The biggest challenge from the regulatory side is that in order to provide medical services in the home, you need to have a medical licence. And that means you essentially need to be a hospital in China. There is really no private company opportunity whereby medical licences can be attained for medical in-home service. My company is part of a medical and hospital business — United Family Healthcare — with the requisite licences and excellent experience gained from over 15 years in China. Foreigners, and Chinese firms for that matter, can freely get involved in non-medical service provision in the home. In the West we often call this “home personal care”. It includes things like bathing, walking, physical therapy and moving people – all things that “in-home” elderly patients require.In China, there is clear demand for both medical and non-medical service delivery in the home, be it one hour a week or 24 hours a day, to achieve effective care. In most countries you can do a little bit of both, but in China the medical work is restricted to the licensed entities only.

CBBC: Do you have any advice on market entry for UK firms who can provide in-home care but are new to China?There is no licence per se for in-home care in China, so as long as you are not offering medical or clinical-related services, theoretically anyone could set up non-medical in-home services. More and more Chinese hospitals are open to working with foreigners as joint-venture (JV) partners for any number of services, including elderly-related care. The hiccup in this strategy comes when the JV, being a newly registered entity, must go through the application process for its own medical licence - even if the Chinese JV partner already has one. So this is an option to consider and may be a helpful move, especially with a strong hospital partner, but be careful you’re not just shooting yourself in the foot by doing a JV.

There is definitely an opportunity for UK firms with expertise in this area. I am interested in speaking to British professionals about dementia or Alzheimer’s treatment. Dementia in China is not widely recognised as a problem – though this is starting to change. To a degree - and this is similar to the way we used to do things in the West - there is an inclination to tuck these people away and not really deal with them through care. From a regulatory point of view, there are some hoops to jump through as far as whom to work with to deliver training. The bigger issue though, I think, is whether people will buy and pay for the training, since there is a lack of awareness. It can be tough to get companies or care providers to spend money on dementia awareness, qualifications and care training when either they or their customer base don’t realise it’s a problem.

CBBC: Do you have any suggestions as to what China could do to improve the quality and scope of care in the home?Train geriatricians and hospice professionals. Geriatric primary care, e.g. heart disease, Alzheimer’s or pulmonary disease, means arranging to see different specialists scattered around various clinics, companies or hospitals. There is a need and obviously a great potential opportunity to develop skills and service levels to manage primary geriatric and dementia care needs for the elderly. I would like the government to focus much more on improving the management and clinical side of comprehensive geriatric care coverage as a specialty. It will be a long-term effort to get this expertise engrained, but the government has already started by promoting primary care, and the demand in China will mean a ready market for providing it. The government could also improve incentives for insurers to underwrite elderly care policies. People need options to pay for in-home services, especially as they age and require more specialist help. Although the insurance system is indeed developing in China, there is a gap for

involvement in geriatric care or long-term care.

COMMUNITY AND IN-HOME PRODUCTS AND SOLUTIONS

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A major strength of the UK healthcare sector is the vast experience in the social care and medical training

system, which includes holistic and wide-ranging sets of skills. Several UK universities, institutions, and companies

provide excellent training, qualifications and assessment programmes that may be trialled in China.

Chinese feedback in our research reflected strong interest in improving all aspects of elderly care worker training

across the board from low-end housekeeping through to highly specialised nursing and clinical skills.

Social Enterprise – the “front-lines” in community focused public private partnershipships

UK company Future Health Care Group (FHCG) and Red Ochre, a leading social enterprise consultancy based

in London, are pioneering an innovative “social enterprise” model for developing and delivering quality elderly

care training services in China.

CBBC: Could you outline what you are doing and what you hope to accomplish? Robert Foster, Co-founder and Senior Consultant of Red Ochre ([email protected]), and Andrew Cowen, CEO

of FHCG ([email protected]): First, some background. Social enterprises (SE) are organisations that use commercial

models to address social issues. Opportunities for social enterprise typically lie within the mainstream economy

where the market is failing, or is not functioning at an optimal level. SEs generally tend to be set up by driven

individuals who see a problem relevant to them, and work hard to solve the problem in the fastest, cheapest

and best way they know how - by creating agile, innovative micro and small to medium-sized enterprises. While

national and multinational companies position themselves to provide for the top end of the market, provision for

the mid-tier community elderly healthcare sector is usually relatively under-developed. In China, this is espe-

cially so at the community or neighbourhood level and also outside Tier 1-3 cities. Traditional businesses would

not see a significant financial return in these segments. However, an SE that is concerned with solving a pressing

problem and doing social good while making money on a commercial basis would certainly see these marginal

areas as opportunities. Typically, SE start small and local, working with local government and communities to solve

a pressing need. The value of SE initiatives is not just in the delivery of care services, but also in the information

these service platforms create and hold. Harnessing this market - by which we mean the SE’s local community

of care givers and receivers, who may number in the tens of thousands - means vast potential. Scaling micro-

revenues or identifying and addressing new service needs dictated by data mining and analysis, for example, can

spearhead exceptional spin-off potential.

CBBC: How are you going to do this?Foster and Cowen: The concept of person-centred care combines knowledge and skills, research, experience and

training. The situation in China is fragmented with too many companies each trying to do a piece, but proper

person-centred care requires a holistic combination of all of these elements. The concept is not properly under-

stood, and therefore the capability is not there and it is hard to develop. Study tours in the UK, exchanges in the

UK and China and pilot training courses in China through local institutions are all part of a well-balanced

programme. It requires time, planning, funding and the collection of required skillsets for training, management

and in-community delivery. FHCG’s goal is to instil this concept and to improve elderly care through better

standards, qualifications and training for elderly care workers. Red Ochre’s goal is to instil best practice through

the SE model. That’s why we are here, working together with local governments in the community, academic

institutions, non-profit organisations and like-minded business partners in China - to let social enterprise lead

the charge.

See also Expert Insight: Training Focused on the “Value” of Quality Elderly Care on page 59)

For a working example of a social enterprise PPP model, see Innovation in Action: La Care Group on page 65

Training Needs in China

Wu Danxing is an Australian-Chinese medical doctor and respected expert in elderly care. Professor Wu is

currently Dean of the Institute of Health Industry at Beijing Geely University. Professor Wu is a strong proponent

of a new ‘medical-combo’ model for effective community–centered elderly health care provision which the

government is beginning to trial. Dr. Wu spoke with CBBC in August 2013. ([email protected])

CBBC: What advice would you have for China to help develop the elderly care industry?First of all, similar to the related health industry in China, we need to help evolve the care mindset from ‘disease

management’ towards ‘health management’. China is only just beginning to consider this newer thinking and

I think Westerners can help because many countries have already gone through, or are now going through, a

similar conceptual evolution in elderly care. The hardware is in place as well as the infrastructure but a capable

service chain is missing.

A second need is in the human resources and qualifications areas. China needs huge development in frontline

elderly care workers, and middle-management of elderly care programmes and facilities. Training is required

across the whole gamut of skills and knowhow – from basic assistance and nursing (bathing, rehabilitation, and

nutrition) to knowledge and skil ls in managing or supporting social activities to safety risk awareness and

handling to medical related needs. Professional managers are also seriously lacking and that level of expertise

requires training in management and operational expertise, a strong grasp of regulatory trends and market

segment dynamics.

How should these people be trained and qualified?The education system in China currently offers a three-year college diploma in “Elderly Service and Management”

through the Ministry of Education. While certain specialised elderly courses are being developed through a few

institutions, for the time being, there are undergraduate degrees or master’s degrees available in China.

The Ministry of Civil Affairs has allocated RMB 20 billion during each of the last two years on subsidised “on-the-

job” training. However, only public run organisations or institutions and their staff are entitled to receive such

training courses. Privately run elderly care entities and their staff cannot enjoy these free of charge services. The

Chinese government advocates these training programmes in the elderly care sector because the benefits for

seniors, their care workers, and society are clear.

TRAINING AND EDUCATION

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Where is the main opportunity here for UK companies with training expertise?Higher end service market opportunities exist right now for UK businesses because the private Chinese local players

realise they require high-end service expertise to compete and develop their brands. From my experience in China

working with western countries, I think the UK needs to up its game and bring a comprehensive “UK” approach

(government agencies, community organizations, and elderly care enterprises). They might not see project

agreements immediately but this kind of strategic pitch is in my view far more likely to bring about real UK-China

cooperation here in the long run. The UK has the healthcare service system, nursing knowhow, rehabilitation

expertise that, as one example, can make a compelling pitch for companies in China. So prepare a comprehensive

arrangement of this combined UK know-how and what value it brings, work with Chinese counterparts to see how

it can fit or adapt to fit to their needs, and demonstrate that ‘in-China value’ professionally through seminars and

exchanges. Doors will open wide.

A recent report says that China’s elderly population “poses tremendous challenges to the national social security

system, to insurance companies, and to individuals”, yet advises that if managed properly, insurers have a strong

prospects to turn the “silver” elderly problem into “gold” as new revenue channels and healthier margins40.

Major domestic insurers are combining their resources to study elderly care projects and services for strategic

opportunities. Insurance companies have been i) assessing elderly care projects for investment – often large

CCRC or other elderly housing developments - and ii) looking to trial elderly Long-Term Care Insurance (LTCI)

products for the elderly as a payment mechanism to help seniors offset housing and service fees.

While insurance companies are not permitted to invest in real estate development projects, the elderly care

domain in housing provides a window for insurers to utilise capital that otherwise would not be used. Governments

also see the benefits of tapping idle capital, and incentives for insurance company investors are developing:

- investment in elderly housing is being strongly encouraged by central government

- insurance companies may invest in the elderly care service industry and medical services

- investment may be through equity investment, financing structure or property purchasing

- a maximum of 20 per cent of insurance assets may be invested in real estate not for self-use,

debt investment for infrastructure facilities and real-estate-related financial products41.

Local governments are sometimes more amenable to insurance investors than real estate developers because of

their longer investment horizons and focus on the ongoing, stable returns of a viable business. “Many of these

insurance investors consider operating these projects as they get started,” Ben Shobert of Rubicon Strategy

Consulting relates, “but in the long run they don’t want to be operators, and instead focus on investment return

and LTCI products.”

Michael Qu of Co-Effort Law Firm cautions insurers and their investors that “paying into an insurance plan that

might not be utilised for 10 or 15 years is not a well-understood concept for the actual elderly care home residents,

INSURANCE

others receiving elderly care services, or the children of these elderly who are footing the bill.” Successfully

getting involved in insurance in China will depend in large part on the effective education of the elderly and the

adaptation of LTCI products to local expectations.

Union Life, a major Chinese insurer and an early entrant into elderly care investments, takes a long-term view. It

is due to open its first elderly housing facility, in Wuhan, in late 2013, and it is targeting the mid-range segments

away from the major cities because of land prices42.

As for foreign insurers, Shobert points out that their advanced insurance products are far too early for the current market

– both in terms of regulations and licensing and also in the understanding and expectations of the elderly clientele. Zhao

Ying of PwC Healthcare works with many foreign and Chinese insurers and while she agrees that it is early, major foreign

insurers are allocating much time and resources into on-the-ground study and discussions. of partners here.

An elderly health insurance pilot in Qingdao

In September 2012, the authorities in Qingdao announced a “Long-Term Medical Care Insurance System”, a

pioneering plan to trial a government-backed long-term care insurance programme. RMB 300 million has

reportedly been allocated to a scheme which aims to reimburse 90-96% of elderly care medical costs incurred in

hospitals, qualified institutions and at home.

The programme will be available to seniors eligible for urban employee medical insurance and “urban dweller

basic medical insurance schemes” and who have lost all or part of their physical functions; are confined to bed; or

who are otherwise unable to take care of themselves due to old age, serious diseases or disabilities and therefore

must accept long term care in an appointed hospital, nursing home, or in their own home.

The pilot scheme has not yet gone live but planning is reportedly moving forward well. It is estimated that up to

2.9 million participants will benefit from the scheme.

Source: Rubicon Strategy Group, CBN Care Group

Services, and advisory services in particular, are traditionally difficult to market and sell in China. Interview feed-

back suggests that UK firms looking at simply a consult ing role may struggle in China. Several Chinese

executives suggested the UK expertise is needed but that UK firms should include other tangible components

to their service - for example, related training content or supporting equipment and processes. UK firms

are concerned with adding in such components into an advisory or consulting package because, in their home

markets, they are often sometimes used to providing and selling such components in addition to providing and

selling their advisory expertise.

Far more positive feedback stemmed from both UK and Chinese companies that have useful Chinese experience

under their belts already. These experts agreed that China is eager to learn from the UK across many areas of

elderly care and elderly healthcare. Advisory and consulting can be successful, yet the UK advisory program

may well require ‘advisory’ help from partners already on the ground that have relevant business, government

and sector or functional knowhow to successfully develop viable opportunities.

ADVISORY AND CONSULTING

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Expert Insight: A few sector specific regulations to consider

CBBC spoke with Michael Qu of Co-effort Law Firm in Shanghai on 30 August. The majority of his work is related to health care and elderly care for foreign and Chinese companies and investors. He also authors the

China Elderly Housing and Care Newsletter. ([email protected])

CBBC: What regulatory obstacles do you foresee for UK insurance companies investing in elderly housing projects, or providing insurance for elderly care homes and services?Foreign insurance firms currently cannot invest in elderly housing projects (other than commercial property for

their own use). Where British insurance providers may have a good opportunity is in LTCI (long-term care

insurance) products. Westerners possess a much higher degree of expertise in creating and managing these

types of schemes than Chinese insurance firms currently do. Several large foreign insurance firms are studying

how to do this now.

Approval from regulators for insurance companies to invest in property is subject to various criteria determined

by the National Insurance Regulatory Commission. The procedure includes the valuation of the company’s

assets, performance history and reputation, as well as the calibre of its personnel. As you can imagine, the smaller

players or newly established insurance companies would be hard pressed to engage in this business at the

moment. My firm has seen a lot of interest in the potential of a reverse merger involving foreigners as a short-cut

for insurance market players. While a pilot scheme is slated for later this year, the regulations are not clear and I

don’t think it is such a good strategy at this time.

CBBC: There is expertise in the UK across many areas of elderly care-worker training, and interest among firms in developing such services in China. How might they do this?Training collaboration in China is certainly a possibility for foreign training providers. There are numerous examples

of foreign providers and experts cooperating with local governments, universities and colleges to develop

education programmes jointly. Local government and schools lead the implementation of these programmes, via

courses at universities, hospitals or elderly facilities, for example. To date, there are limited regulatory oversight

and standards for such courses and therefore many care operators and providers (both foreign and local) look to

instil their own higher-quality protocols and standards in their training courses as a competitive differentiation to

attract residents, patients and service and operational partners to their facilities.

From a legal point of view there are a few general models to utilise in order carry out such cooperation, but it is

by no means easy. Foreigners can work with local colleges, for example, to create development programmes -

but only the domestic organisation has the legal capacity to provide courses to Chinese care homes or schools

and training institutions. As in any industry, the foreigner needs a close relationship with the Chinese partners to

do this, with both sides’ contribution value and commercial arrangements clearly defined. This can be achieved

via a joint venture, or cooperation on a training programme, or a variable interest entity structure. We have seen

a few such efforts define the amount of royalties or similar usage fees for the foreign input to the training

materials and courses.

CBBC: Do you see opportunities or challenges for UK firms in the in-home care sector?Currently, services foreigners can bring to the table would require fees above what all but a small segment of cus-

tomers could afford. Current in-home care services are rather basic and are often subsidised by the government

directly to customers, but at very low amounts.

The regulations for foreign involvement in in-home care require much clarification. Westerners are confused

about what specific care services they are allowed to provide in the home. Foreign firms are used to far more

advanced ranges of care that they offer in their home countries. For example, doctors in China are currently not

allowed to deliver in-home care services. Neither foreign nor Chinese firms may provide any medical-related care

in the home, unless the company has a medical or clinical licence (such as hospitals have). The good news is that

the government is actively encouraging hospitals and clinics to extend certain medical services into the home,

and “family-doctor” pilot schemes for in-home visits have begun in a handful of cities. A lot of companies will

be following these pilot schemes for potential openings, but remember: regulations are still being clarified and

may vary in different jurisdictions.

2.4 WHAT CHINA’S ELDERLY WANT

Multiple studies have been undertaken assessing the needs, expectations and desires of China’s citizens as they

age. Surveys report findings that 90 per cent of the elderly do not want to move to institutions for cultural

reasons such as the emphasis on traditional family-centred care. Of the 10 per cent who are willing to try

institutional care or housing, two-thirds stressed a desire to be located in the inner city and near their children.

According to LEK Consulting Group, survey results indicate healthcare as the number one criterion for seniors in

institutional housing or care44.

Figure 2.3 Care Preferences of the ElderlySource: Shangai People’s Congress, Special Investigation Team CBRE

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17.4%

55.9%

16.4%

10.3%

Hire nursemaid or usecommunity services.

Take care by family member

No preference.

6.9%

3.4%

Prefer to relocate to city fringe

Prefer to remainin urban area

Care Preferences of the Elderly

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After medical care provision and proximity to children, there were a number of lifestyle choices desired by the

elderly. Interestingly, tourism ranks high amongst preferences for entertainment, cultural and lifestyle activities.

LEK Consulting Group recently reported that:

• The Chinese elderly (around 70%) have expressed a keen interest in availing themselves of tourism services.

• It has been estimated that the elderly accounted for at least 20% of the tourists from China.

• This segment is extremely attractive to investors as elderly/senior citizen tourism is counter seasonal.

• Elderly tourism if developed would help the tourism industry avoid the dip in utilisation outside peak seasons45.

ENTERTAINMENT, LIFESTYLE AND TRAVEL ARE ALL ON SENIORS’ MINDS

234 elderly people completed the survey

60-69 years old

70-79 years old

80 and above

Live with children

Have children but live alone

Have no children and live alone

53.4%

32.9%

13.7%

37.6%

61.6%

0.8%

Tianjin Survey – The Expectations Of China’s Urban Elderly

A recent survey conducted by the National Statistics Bureau in Tianjin offers a glimpse into what over-60s in

Chinese cities expect of care services. They are keen to stay active with hobbies, entertainment and tourism, but

stress that they also require medical care to be available on demand.

Tianjin expects to have 2.73 million elderly (over-60s) by 2020, which would account for 25 per cent of the total

population. The city presently has 38,000 elderly care beds and 800 day-care centres. In 2010 over 60 per cent

of elderly people - 458,000 households – were living without their children in so-called “empty nests”.

Services expected - ‘nursing homes’When assessing nursing homes, “good medical care” was the most important criterion (78.6 per cent of

respondents) who also cited poor quality in existing elderly health care services located inconveniently and

provide poor customer service. A nice environment, good food and close proximity to one’s children were each

noted by over 50 per cent of respondents. Nineteen per cent were open to living in “elderly community”

institutions with expectations for these institutions closely matching those for nursing homes, listed above.

Services expected - ‘in-home’ care Both ‘emergency rescue’ services and a ‘house visit’ service topped criteria for in-home services, each noted by

more than 50 per cent of respondents. Between 33 per cent and 50 per cent wanted a care hotline, meal delivery

service or housekeeping. Roughly 20 per cent were interested in each of sports and entertainment, a day-care

centre, someone to accompany them to the hospital, purchasing daily necessities or psychological consulting

services. Several respondents also judged current in-home care service to be disproportionately costly bearing

in mind the low quality and the narrow scope of care options.

Tourism, cultural or recreational servicesMore than 50 per cent would like city sightseeing or country farmhouse tours. The most popular cultural

and recreational pastimes were reading newspapers and books, exercise and folk art - each noted by more than

33 per cent of respondents. Music, calligraphy and painting, TV, Internet, photography and dancing were cited

by fewer than 25 per cent. Respondents felt that there were too few cultural and recreational options available

and that, similar to ‘in-home’ care, poor service is typical across the board.

Insurance and health advisory servicesMore than 50 per cent expressed a desire for advisory services with health advice cited by 78 per cent, health

insurance advice 71.7 per cent and accident insurance advice 60.4 per cent.

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Table 2.2 Surveyed Elderly in Tianjin

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CHINESE COMPANIES WITH UK INTEREST TABLE

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Map of Chinese Project Locations in China

Beijing

Guangzhou

Chengdu Chongqing Nanjing

Qingdao

Shanghai

Shenyang

Shenzhen

FuzhouGuiyang

Yancheng

Healthcare UK is the joint UK Trade and Investment (UKTI), Department of Health and NHS department

charged with supporting the NHS, healthcare companies and related organisations to export to China

and other international markets. It has invited a number of healthcare companies to work together on

a UK offer for elderly care with a set of propositions to discuss with Chinese governments, investors and

potential partners. This is designed to respond to the demand identified in the report and to opportunities

found by UKTI staff and UK and Chinese organisations in the country.

Contact: Chris Born, Healthcare Specialist, Healthcare [email protected]

UK SUPPORT RESOURCES FOR ELDERLY CARE IN CHINA

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CHALLENGES AND OPPORTUNITIES

Opportunities by Function Opportunities by Segment

Figure 3.1 Elderly Care Value Chain Source: China Britain Healthcare

The nascent stage of China’s elderly care industry means many gaps and challenges need to be dealt with in

attempting to improve and extend the scope and coverage of care. These challenges in turn often create attractive potential opportunities in almost all aspects of senor care in China. The strongest theme in our research feedback centred on comments that i) there has been very little foreign company success in elderly care in China to date and therefore it is difficult to clearly discern specific opportunities by product, service or knowhow that will work in China, and ii) a simplified value chain chart in Figure 3.1 helps to illustrate where UK firms might consider where and how their expertise might fit into the industry by function or service. UK firms should also consider where and how among specific market segments they might best find genuine opportunities. A number of general and specific opportunity areas often mentioned to CBBC during our research are briefly summarized Table 1.1.

Architecture, planning and design Efficient use of space for both communal and independent

activity.

Specialized space serving dementia and other special

needs elderly

Products, equipment and technology Elderly nutrition, clothing, and grooming

Specialized medical devices and diagnostic equipment

ehealth/telemedicine and related data management

software and platforms

Specialist training and education, and servicesSpecialist training of elderly care workers at all levels – from frontline grooming/dietary care givers up to special-ized medical and mental health professionalsEducation programmes for local governments and compa-nies in implementing and managing comprehensive care

delivery services

Operations, managementComplete care facility operations

Management of training and delivery of specific types of

care services

In-home / Community Centresehealth and telemedicine equipment/data/software. Strong government support and extensive cost cutting potential.Training and delivery of community-based medical and non-medical care specialists

Nutritional, pharmaceutical products

Specialized medical, luxury retirementHighly specialized medical and trained personnel

Luxury products, amenities, and travel services

Nutritional, pharmaceutical products

Independent/Assisted Living, CCRCsOperation and management of ‘add-on’ clinical and

medical facilities within elderly care facilities and com-

munities

Training of specialized elderly care workers

Nutritional, pharmaceutical products

Nursing homes and HospitalsOperations and management of dedicated elderly care

services and wards within hospitals

Training and management of specialized medical,

mental health, and nursing and elderly care professionals

Nutritional, pharmaceutical products

Feedback and discussion we have had suggest that the Chinese recognise the need for elderly care expertise

across-the-board, but at present do not have domestic providers or investors that provide holistic or full-service

healthcare services. Several people CBBC spoke with commented on the importance of learning from the failings

of recent endeavours. Early foreign investors made the mistake of focusing too much attention on stand-alone

healthcare facilities or real estate, per se. The need to provide a ‘full care service and management package’ is

now more widely appreciated.

Most experts we met were clear that an important point for UK companies is that current models that you are

used to, and successful with, in your home markets cannot be directly implemented and reproduced in Chinese

markets due to numerous reasons – these include cultural differences, less sophisticated and more fragmented

supportive infrastructure and resources, and very different expectations and understanding on what quality

elderly care entails, can accomplish, or should cost. We outline below a number of specific challenges that were

repeatedly mentioned during our research, and where applicable, related potential opportunities to consider.

3.1 LAND USE AND ELDERLY CARE

Land development has been a major channel for municipal governments in China to develop their local

economies over the past two decades. Residential and commercial development of land to house families and

businesses has been the major driver. The Chinese government increasingly requires the inclusion of elderly care

commitments in order for land developments to gain approvals. Feedback during CBBC research pointed to an

important related concern. Many early elderly care projects have been unsuccessful partly due to emphasis being

placed by the developers and investors on real estate or land projects, seeking quick property sales or rentals, as

opposed to creating viable elderly care businesses focused on longer-term yet lower margin returns.

It is challenging, and expensive, to be investing in land-use in China. The opportunity for UK firms, cited by

several experts we spoke to, would be focusing on the elements effective, quality elderly care provision UK firms

can bring, and not in getting involved in a land-use deal.

Analysing the latest central government elderly care policy statements on land-use

The central government is unequivocally opposed to using elderly living as a guise to acquire land-use rights to engage in real estate development, and this policy is reflected in the Opinions. However, to some extent and in some cities, developers have obtained land-use rights on the promise of providing elderly living within their developments; but in many cases, the elderly living consists of little more than towers designated for elderly citizens, with few if any amenities. From the developers’ perspective, though, there are still opportunities that can be found in the Opinions, in that:

(a) there must be at least 0.1 square metre per person of elderly service facilities in newly built residential communities. This mandatory requirement is the minimum level, and of course developers may choose to build more premises for elderly living purposes;

(b) based on pilot schemes in many cities, the central government now urges the State Land Resource Bureau to introduce nationwide the designation of land specifically for elderly care service. In addition, the Opinions direct local governments to provide construction land for for-profit facilities “in priority”. Judging from their practice in cities such as Beijing, Qingdao and Guangzhou, developers with more experience in elderly living will have a better chance of acquiring the right to use land for elderly living at less than the market benchmark price;

p54 p55

Building &Construction.

Devices &Equipment.

Management,Training, IT,standard.

Services &Products

Master Planning& Design.

Elderly Care Value Chain

Table 3.1 Opportunities by Function and Segment Source: CBBC Research

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3.2 BRAND VALUE AND UNDERSTANDING

“The elderly care and healthcare

sectors in China do not really know

your brand, no matter how big you

may be back home, so to an extent

you need to build a new brand by

creating and effectively delivering

quality, specialist care that fills a

gap that is not already served”

Jim Biggs, General Manager, Friendship House

The opportunity: UK organisations have excellent, often world-class,

advanced, highly specialised expertise and services to offer and benefit

just about any aspect of elderly care in China.

The challenge: The market in China, being far less developed than in the UK,

and working on sometimes far different expectations and understanding of

more qualitative care offerings, does not know UK brands. Therefore

China entry requires successfully educating target market segments,

with offerings that the market will be able to understand, learn the benefits

of, and then believe in enough to agree to pay for them.

Many experts we interviewed suggested that higher-t ier market

segments will be quicker to see the value that UK brands represent and

more amenable to pay for such. Eamon McKinney of Qingdao-based CBN

Care Group sees “strong opportunity for Brit ish expertise to lead

rebranding in the market here by creating and delivering trustworthy

elderly healthcare. This can be done through operators, and also through

training care workers and trainers.”

(c) it encourages the investment of private capital in the renovation of existing buildings and facilities for elderly care service purposes. The complexity of land issues still remains; that is, whether the acquisition of industrial land from the government (as opposed to the use of existing buildings) to develop elderly housing will be legitimate; or whether it will be possible to sell strata title (i.e. real property title for a particular unit of housing, which can be individually owned) of apartments being built with such land-use rights;

(d) a portion of agricultural land located in rural areas and possessed by villagers can also be used to construct elderly housing. However, the Opinions do limit the purpose such that it is “for the benefit of elderly residents in rural areas”.Source: Qu & Christian, October 2013

Expert Insight: The UK has a real opportunity to develop and deliver “trustworthy” care

CBBC spoke to Dr. Eamon McKinney, CEO of Qingdao-based CBN Care Group, following our UK-China Elderly Care Forum in Shanghai in August. Dr. McKinney can be reached at [email protected].

CBBC: During our Elderly Care Forum panel discussion you mentioned a “reality check” on the market here for UK companies entering China’s elderly care industry. Could you briefly recap what you meant?McKinney: Let’s start with the big picture. The Chinese government clearly appreciates the size of its demographic problem and the less than adequate condition of its existing elderly care industry, so they’ve passed a number of new policies - including the recent opening-up to foreign direct investment - which have now been handed down to local governments. The local authorities are responsible for their implementation and for getting local investment.

While local officials know all about property deals and land value, they do not understand well how to develop and deliver quality elderly care. Over the last say 30 years, local authorities have provided incentives for foreign manufacturers to come in, set up, buy land rights, build factories and sell their goods, often via export, which has raised local GDP, land values, and economies in cities and economic development zones all over China. Problematically, local authorities may expect foreign elderly care investors and operators to come in, buy land, build something and sell things. There is precious little attention given to investing and building quality elderly care delivery. The “reality check” for British firms, then, is to think carefully about what the local markets and stakeholders are trying to accomplish. If it is a land-deal under the guise of elderly care, then you’re going to be in trouble.

CBBC: What should these British players be doing?McKinney: Let’s talk about operators with globally recognised skills and a reputation for operating and managing all flavours of elderly care and medical services, nursing homes or retirement communities. I think what the Chinese investors, developers and local authorities are struggling to understand is the difference between an investor and an operator in the building and running of a quality elderly care programme. We’ve spoken with a lot of the big operators and a lot of smart investors, both Chinese and foreign. There is plenty of investor capital but little interest in Chinese-only elderly care projects, mainly because they are not interested in property or land deals and they want to see a reputable foreign operator involved in the project doing what they do best – expertly operating elderly care programmes and facilities.

As another “reality check”, you should compare costs and revenue models in China with those in your home market or other emerging markets. Most countries have ageing populations and every elderly care business has got opportunities in their own country - a market that they understand and trust. These other markets may not get as much press as China, but they may well provide more reasonable time, margin and return horizons for your business.

CBBC: You talked about trust, or the lack thereof, in elderly care and healthcare in China. Can you explain? McKinney: Before any of us start making any money in elderly care here – be it foreigners or Chinese - we will need to provide trustworthy elderly healthcare. Currently in China, elderly care workers and facilities provide a very low level of care, minimal skills, inadequate training and very low pay, so there is little incentive for care workers to learn or to stay on and there is little satisfaction by the elderly who are on the receiving end of insufficient care. So without real skilled, caring care workers, you can build all the capacity you want but you’re not going to build a care industry that engenders trust.

There is little trust in the elderly care healthcare systems by the Chinese who require these services. There’s going to have to be a complete rebranding before anybody gains any confidence in it. We can shout all we want about how trustworthy our British care provision will be but no-one will believe us until we have quality facilities on the ground and expertly delivered programmes administering care before we can build that trust.

I see strong opportunity for British expertise to lead rebranding in the market here by creating and delivering trustworthy elderly healthcare. This can be done through operators, and also through training care workers and trainers. Higher-tier market segments will understand and pay for such quality care.

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“Elderly care management and care worker training is weak compared to the West. The Chinese really struggle

with understanding the complete concept of successful training. They do not see the integrated picture of

bringing together content, learning styles, developing staff, qualification and monitoring of post-training care; the

synergy between training staff, staff retention, career paths, service provider value propositions and last but not

least, the creativity in applying new ways of working to specific target audiences with varying needs and goals.”

Andrew Cowen, CEO, FHCG

3.3 TRAINING AND EDUCATION

Training Chinese staff in learning and utilising UK training, content and methods, and then implanting them

back into the Chinese system – e.g. designing preventative care and medicine programmes, implementing care

pathways deeper into the community and in-home segment, dementia assessment and care plan guidelines –

were common areas of need in China (and hence potential opportunities) mentioned by UK companies during

CBBC meetings and presentations during events. Government officials CBBC spoke with emphasised two

Expert Insight: Training focused on the “value” of quality elderly care

Andrew Cowen, CEO of London-based The Future Health Care Group UK Ltd (FHCG), has been studying the Chinese

elderly care market for over five years and recently announced his first collaboration there. Mr. Cowen joined

CBBC’s UK-China Elderly Care Forum, Shanghai in August 2013 where he shared some of his experience with us.

CBBC: What are some of the main challenges for UK elderly care training service providers in China?The elderly care industry in China is a totally different animal from any other sector that I have ever encountered

throughout my business experiences across a number of different vertical markets. The elderly care sector is not

like manufacturing widgets. It is much more complex evolving market, without any prior models to rely on or

refer to. No one knows what will work or not. It is going to take some time for any clarity and even longer for any

certainty to become apparent in this market.

China’s current elderly care sector suffers from low levels of quality, compliance and service, as well as users’ or

clients’ appreciation and understanding of what quality means and what it looks like. While speaking in Shanghai

at a conference, I asked an audience of over 200 Chinese professionals, “who wanted to live in a Chinese nursing

home when they’re older” – not one hand went up. Current levels of care do not inspire confidence, coupled with

poor facilities and understanding of quality and inadequate training. This means opportunity for UK companies.

At the top end the 2-3% is where currently all the investment is going - not in services, but generating value via

real estate development. Not in my view sustainable.

Elderly care companies and organisations at the low to mid segment level in China undertake poor and minimal

training due to the low level of care expectations, low fees leading to low margins (when there are margins), and

care workers quickly leave for slightly higher paid enticements from competitors or other options in other

sectors. How can you improve quality of care if you don’t do training and why train staff if they are going to

leave? This needs to change. As the industry does indeed take off within a few short years, and it will, the flood

of competition recruiting trained and experienced workers will be enormous. Not to mention the job of attracting

and holding on to trained staff. Again, this means a real opportunity for UK training firms.

CBBC: What can UK firms do?There is a great opportunity for “brand UK” to plant a foothold in all aspects of elderly care, and be flexible

and innovative to develop incrementally. There really aren’t any proven care models yet, so it will take us time

and trial to develop these. But this instability offers embryonic opportunities for innovations from brand UK. But

we also need to educate the market so Chinese stakeholders will appreciate the value we are bringing and

understand that what we are bringing is not a single product that is given to a elderly person, but it is a whole

range of concepts consisting of products, processes, procedures, and innovations spearheaded especially in the

SME market, all working together. This is where UK SMEs can differentiate ourselves and demonstrate impact.

CBBC: What can the UK government do?Through my efforts here to date, I’ve seen the French, Germans and some Scandinavians all invest heavily in

supporting their SMEs to break into this market. The UK has some of the most innovative and creative expertise

and entrepreneurial spirit, and much of that innovation comes from SMEs. We would like to work more closely

with the UK government to help us communicate our value by organising study trips and exchanges, and setting

up pilots to get UK expertise tested and tried here. How do you communicate with the customers to justify a

price premium for higher value unless people understand the value they are getting?

Although training and education opportunities abound, a major issue is how to effectively connect quality training

and qualification programmes from the UK with regulatory incentives, human resource systems and training delivery

channels in China – all at costs and formats that specific market segments will accept. Different segments all

have varying levels of training requirements, varying ranges of fees and costs that can be absorbed into business

models, and varying levels of understanding and acceptance of the benefits of quality training – be it for better

care of the elderly, or for creating competitive differentiation for their elderly care business.

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“Currently in China, elderly care

workers and facilities provide a

very low level of care, minimal

skills, inadequate training and

very low pay, so there is little in-

centive for care workers to learn

or to stay on and there is little

satisfaction by the elderly who

are on the receiving end of insuf-

ficient care.”

Dr. Eamon McKinney, CEO CBN Care Group

essential areas they wish to develop, mainly focusing on improving the

scope and quality of basic elderly care and elderly health care at the

community and in-home care level – i) training and managing deployment

of effective multi-disciplinary teams of specialists (e.g. medical, nutritionists,

occupational therapists) care givers, and ii) developing standards and

qualifications programmes for public and academic training of elderly

nursing and care workers.

The private care home operators and companies in China which CBBC

met invariably labelled increasing specialised care training ‘across the

board’ as areas they would like to adopt western expertise in in order to

differentiate themselves in quality of service that they can compete with in

order to steadily climb into higher-priced segments of elderly care delivery.

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“As the industry does indeed take

off within a few short years, and it

wi l l , the f lood of compet i t ion

recruiting trained and experi-

enced workers will be enormous.

Not to mention the job of attract-

ing and holding on to trained

staff . Again, th is means a rea l

opportunity for UK training firms.”

Andrew Cowen, CEO Future Healthcare Group

UK firms have extensive opportunities to create value throughout under-

served areas of elderly care through higher quality and higher specialisation.

As these UK firms begin in China, they will almost immediately notice very

versatile and entrepreneurial Chinese firms learning, developing and

offering similar (and likely less sophisticated) offerings to the same market

at lower price points. While local competition needs to be monitored and

dealt with, UK firms will certainly have advantages in the intangible

delivery processes and management of their offerings.

A number of experts we spoke to during our research pointed to other

western companies as the competitors UK firms need to be concerned

with at an early stage. The rationale being that Chinese stakeholders are

looking to the UK in the same way as they are looking to other western

companies and expertise – “foreign” know-how and experience that

China’s elderly care industry needs to learn from. The challenge for UK

firms as they begin their China forays will be in marketing themselves and

their value versus, for example, French, American, Scandinavian and

Australian firms more so than competing against Chinese firms.

3.4 COMPETITION

A brief sampling of international efforts

Companies from Germany, the Netherlands, Australia, Norway and several other countries have also announced a number of preliminary agreements, projects, training programmes and service exchanges in China. UK organisations need to be aware that potential competitors from a range of different countries are also actively interested in the Chinese elderly healthcare sector. Below is a summary of a few efforts at present in China.

USA: China Elderly Care is a high-end nursing and elderly living care facility in Hangzhou run and invested in by

US individuals and capital. The home will open in 2014, include 64 beds, with a projected rental model of RMB

40,000/month plus service fees. For more information, see Innovation in Action: China Senior Care on page 26.

Beijing United Family Health is expanding a suite of in-home care services in Beijing, Tianjin and Shanghai. For

further details, see Expert Insight: Quality in-home care is a major opportunity on page 31.

China Elderly Housing, a Hong Kong subsidiary of US-based elderly care operator Emeritus Elderly Living,

co-invested with Shanghai Kaijian Huapeng Elderly Care Co., Ltd. into a project company to operate a elderly care

facility in Pudong, Shanghai. Right at Home(R) International, Inc., works on a type of master franchisee license

agreement in Beijing where they provide elderly a number of in-home care services, with expansion plans in Chengdu,

Wuhan, Hangzhou, and Changchun.

Denmark: A new elderly care and rehabilitation programme in Sichuan, coined “The DCare Projects”. Over two

dozen Danish companies have visited China, supported by the Danish government, to meet and cooperate with

Chinese firms for the project, expected to be operational in 2015. The Danish city of Viborg has signed an agree-

ment with Banan District of Chongqing, with Viborg providing training and operation consultation to the elderly

care sector in Banan District. Denmark branded eight elderly care companies under their national banner at the

Careshow Shanghai Conference in August 2013.

mhealth (a major component of digital health) is defined as the provision of healthcare or health-related information through mobile devices - phones, tablets, wireless implantable devices - and applications such as remote monitors, online consultations or wireless access to patient records46. China’s estimated 850 million mobile users have shown great interest in mhealth, as have medical professionals – and it is supported by the current Five-Year Plan. Consumers want access to care, information on drugs and treatment, and lower costs. Doctors want to be able to communicate easily with hospitals and patients and to gather data efficiently. mhealth has been used globally to reduce hospital visits, doctors’ visits and costs. Successful vendors provide solutions to users, a sustainable ROI to stakeholders and revenue to themselves.

Related to mhealth, ehealth/telehealth/telemedicine are often used interchangeably and refer to applying IT and digital equipment and software to enable management of data and delivery of care services. The big question, as always in China, is who will pay? Buyers and subscribers may include any or all of local government (via public insurance schemes), private insurance companies, hospitals, elderly care and housing facilities, research centres or the individual. Challenges include creating a practical solution, aligning key stakeholders and creating sustainable business models. Opportunities identified during interviews and questionnaires for UK providers include Electronic Health Record (EHR) interconnectivity, primary care data and communication systems, clinical decision support systems and telemedicine products and interface applications.

The September 13, 2013 Opinions set down by the State Council specifically mention e-health especially for in-home elderly care provision, stating that for the development of home network information services local governments should support enterprises and institutions via the Internet, networks and other technical types of service model, and develop the old platform to provide “human” services for the elderly47. (See Innovation in Action: A home-grown model in Fuzhou for comprehensive community and in-home care coverage on page 65 for an example of an intriguing IT/e-health opportunity in community and mid-level institutional care.)

One hindrance to the introduction of e-health is government restrictions on data flow and digital access. UK company questionnaire feedback suggested that “one of the main challenges China faces is the flow of data and making sure that the government can access and utilise sufficient data to support the delivery of healthcare.” CBBC interview feedback labelled two other challenges. At the low end and largely government funded segment, ehealth/telemedicine equipment and data management is seen more as a cost-cutting measure by replacing workers and therefore UK firms are cautioned that low pricing points may not make this segment viable. Regarding high-end segments, our feedback reminds UK firms to consider ehealth and telemedicine as ‘enablers’ and secondary to other opportunities such as in developing highly specialised care givers, providing higher-end medical equipment, or designing more luxurious facilities.

France: Colisee Patrimoine Group (CPG), the fifth-largest nursing home operator in France, is in the process of

opening its first nursing home in Southern China’s Kunming - offering 700 beds, a daycare centre, and retirement

centre with medical assistance. CPG has also signed a contract with the Beijing Social Administration Vocational

College to train professional nursing staff. Major French nursing home operator Orpea Group is well into planning

for a number of care home facilities in major Chinese cities targeting high-income families.

Japan: Numerous Chinese consortia are working in China on comprehensive care worker training programmes –

both government and private business projects. One example - Japanese company Masen Group and Chinese

corporation RK Properties are cooperating to provide care services and staff training.

Sweden: An elderly care home pilot project by Swedish-Singaporean backed firm Econ-SCA Health Management

Co Ltd in Zhabei District of Shanghai.

3.5 DIGITAL HEALTH

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China has 61 geriatric hospitals and nearly 300 rehabilitation centres, but few hospitals have expertise in dementia,

and many rehabilitation centres and nursing homes do not accept dementia patients48. About 3,000 nursing

home beds are available for dementia sufferers nationwide, according to reports released at a conference on

Alzheimer’s in Beijing in September 2013, with even fewer set aside for the nation’s estimated 9.19 million

diagnosed with dementia/Alzheimer’s.

• 93 per cent of dementia cases in

Chinese people aged 60 and over

are undetected, according to the

British Journal of Psychiatry.

• China has the world’s largest de-

mentia population, and it is growing.

It is estimated that there were 9.19

million people with dementia in

China in 2010, compared with 3.68

million in 1990.

• Only 14 per cent of early dementia

pa t i e n t s a n d 3 3 p e r c e n t o f

a d v a n c e d dementia patients in

Ch ina seek med ica l t rea tment ,

according to the Shanghai Medical

Association. There is a misconcep-

tion that early symptoms of dementia,

such as loss of memory, are a

normal part of ageing.

China’s Dementia Challenge

Mark Dodds, CEO of Beijing-based TLD Design Services, works closely with dementia-focused UK designers

and planners, and emphasises the feedback he receives daily from Chinese clients and seniors on the lack

of dementia-specific attention in China. Seniors and their families struggle to find dementia-specific care and

services, especially for later stages of the disease, as many homes and care centres do not accept dementia

residents or patients. Hong Li, China project director of the British non-profit group Alzheimer’s Disease

International (ADI), points out: “The primary caregivers for more than 70 per cent of all dementia patients are

spouses, who typically themselves are also up in years.” Spousal caregivers “are already quite old, too,” Li said,

“and many are becoming unwell themselves49.”

At the community and in-home care level, local government organisations, academic institutions and NGO’s

welcome UK support in elderly dementia related training programmes for family-members and volunteers, an

important focus for governments to expand dementia care. At mid and high-end segments, few care facilities

or retirement communities provide dementia related care yet many identify dementia as an opportunity for

specialised and higher-fees services that can differentiate them. UK firms have an opportunity to work with local

operators and companies to establish trials for dementia related support in equipment, training and design.

3.6 DEMENTIA

SOURCE: UKTI

Innovation in Action: Friendship House - delivering specialised “memory loss” care in Tianjin

Half of seniors over the age of 85 have some degree of dementia. China has a huge need for programmes and care pathways that will identify elderly with various stages of dementia, train specialist dementia nurses and caregivers, and deliver effective, affordable care facilities and programmes.

Friendship House (FH) is a new 26-bed dementia and memory-loss elderly care and rehabilitation home based in Tianjin, China. FH innovatively combines international standards with local market needs and infrastructure to pioneer a high-end elderly dementia care service model in China. FH is a new brand of specialist care developed by Vcanland, a leading Chinese real estate development company that invests in, creates and manages top- quality elderly care nursing homes, continuous care retirement communities, and specialist geriatric and medical services and facilities. The design and layout of FH are based on the concept of a family home. Roughly half of the space is for residents’ private rooms, and the other half consists of various spaces designed for both group and individual activities. The home has six beds on the first floor, 10 each on the second and third floors, and office space and staff training space on the fourth floor.

Jim Biggs, Managing Director of FH, has led the development of FH for two years, after a 23-year career in elderly care housing in the USA. The essential formula that Biggs and Vcanland have implemented focuses on applying international standards and seamlessly combining three core elements: practical design and space utilisation; highly trained caregiving teams; and robust, flexible and personalised care programmes.

As Biggs explains: “Research in best-practice dementia care suggests that seniors with memory loss can easily feel overwhelmed and quickly get distracted with too much activity around them, including at night time as they become tired. We therefore focus on private rooms for residents instead of a more traditional nursing home setting with maybe five or six people or sometimes many more in a single room. Having said that, though, we certainly don’t envisage the elderly spending a lot of time in their rooms while they are awake, and that was our driver to create plenty of activity space, which enables group, individual or one-on-one activities as desired.”

Biggs stresses that sunlight, connections to family, and healthy food are all integral to excellent care at FH. The home includes a safe, spacious outdoor courtyard, lounges and areas for family visits and interaction, and a great deal of planning goes into sourcing and preparing healthy local food for residents. “Certain diets are very good for seniors with memory loss. Diet cannot cure the disease, but it certainly can slow down the progression, which extends the independence of residents and helps make it a little easier for families to deal with,” he explains.

According to Biggs, extensive planning went into the private rooms, especially the shower and toilet areas. “Bed-rooms as well follow best practice, from the size and function of beds to the handles on windows and drawers, to the colour scheme. The shower area includes extra space, as we envisage care workers helping residents with these tasks.”

Staffing levels are among the highest in the industry at 5.3 nursing hours per person per day. As a comparison, “assisted living” averages two hours and Alzheimer’s (an acute level of dementia) 4.5 hours.“Assuring the highest quality of care is essential to creating a trustworthy brand for FH. The staff teams are led by an experienced nursing professional, while the main caregivers are younger, energetic workers who genuinely want to be in the industry and to develop skills towards a career.” Biggs stresses that finding and training such a committed, motivated, care-team is very difficult - but also essential to effective care. He uses the highest international standards to recruit, train, manage and monitor care delivery and performance, and he has also created an in-house nursing and care assessment tool.

Friendship House will be launched officially in late 2013. Vcanland expects this first location to be a showcase home that will improve the value of the brand, serve as a site for R&D to improve service, and provide a training centre for the staff of future Friendship Houses in China.

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“We hear questions on IP concerns a lot. It really comes down to knowing and working together with Chinese

partners who can operate in China effectively. If both parties are trying to accomplish the same goals and grow a

business together, the IP problem will not be an issue, because the Chinese side needs the foreign expertise and

IP that people will pay for, and the Western side needs the local partner’s ability to localise, execute and deliver.”

Jockey Leung, CEO, Joyway Investment and Development Ltd.

Guarding and protecting Intellectual Property Rights (IPR) is an important consideration for any western company

in China in any sector and the challenges for elderly care companies are very much the same as for anyone.

Finding and building relationships with good business partners, creating and monitoring execution of clear

contracts, and maintaining control of the value (essential product componentry, service delivery integration

knowhow, operational process expertise) you bring are all common and essential things to achieve.

3.7 INTELLECTUAL PROPERTY RIGHTS (IPR)

3.8 COMMUNITY CARE

To date elderly care in the community, and by extension in-home care, has been the domain of the government.

The goal has been largely to provide a basic level of elderly and medical care to as many elderly as possible

and especially those that cannot afford care or who have special physical and medical needs. More recently,

companies such as Hetong (see page 18), United Family Home Health (see page 31), and La Care Group (see

page 68) have all displayed initial success at identifying opportunities and developing sustainable models that

serve the community/in-home segment. Challenges include integrating social enterprise and public private

participation, underdeveloped licensing and approval regimes for medical/clinical related care provision, and a

lack of trained specialist caregivers based in the community allowing easy access to care for elderly.

Opportunities at the community care level can be widespread – for example, ehealth equipment and data

management to track medication and coordinate volunteers and care professionals, training and education for

mental health and medical specialised care programmes deployed via community centres, or management and

delivery of a comprehensive in-home service (physical activity, bathing, nutrition, and nursing). UK firms interested

in this area will need to consider the long-term business potential due to the low fees characteristic of this

segment and be able to operate within the government mandated rules and oversight in local communities.

Wu Danxing, Dean of the Institute of Health Industry at Beijing Geely University, sees genuine opportunity right

now for UK experts working at local municipal levels in design, development and management of care systems

and operations that deploy ‘neighbourhood GPs’ and teams of specialised care professionals through well

managed, clear care pathways based right in the community. Professor Wu and other Chinese organisation leaders

mentioned UK expertise will certainly be welcomed by municipal communities for adopting (and adapting where

necessary) various elements of ‘neighbourhood GP’ such as creating a blueprint for such a comprehensive

system, implementing programmes to train and upgrade qualifications for the professional, and identify the

necessary management procedures.

Innovation in Action: A home-grown model in Fuzhou for comprehensive community and in-home care coverage in China

Steve Koon is CEO of La Care Group in Fuzhou, Fujian province. He has spent the last several years working in communities in Fuzhou, the capital of Fujian province, developing a model to deliver elderly care provision across the whole city for seniors who cannot afford care, except through very low government welfare payouts. His care platform includes a centralised call centre and more than a hundred community-based service centres scattered across the city, which provide care both in the service centres and at home. They provide emergency medical care with the promise that someone will be at the patient’s home within 15 minutes.

The “Fuzhou” modelKoon describes three innovative features of his “Fuzhou” model: one, it includes a hybrid market scheme – a market-based solution combined with a welfare-subsidy solution; two, it offers coverage for multiple segments of elderly care – in the low and mid-tiers; three, it is a public-private partnership (PPP) – government welfare for elderly people is paid through the Fuzhou model platform to serve the needy, poor, low-end groups. The company is a social enterprise (SE) that designed and developed a novel PPP with local authorities. Koon stressed that only through this type of set-up – which works hand-in-hand with local community welfare and clinical organisations, district authorities and NGOs – can he develop his hybrid market-welfare business model to help seniors who cannot afford private care.

“We developed a PPP to kick-start our work, because in China with a commercial model in these tiers you have no brand, no credibility and cannot even provide service on a 100% commercial model because the government doesn’t allow it. Low-end services are seen by both low-income elderly and the government as belonging to the government or charity domain of social welfare. Therefore government will not allow strictly commercial enterprises in this domain,” he says.

Koon focuses on two of the three main elderly care market segments (high, mid and low end) as defined by the price of services and the disposable income of the elderly requiring care. The high end caters to the wealthiest group, and provides many levels of service and many high-fee payment models. The mid-range makes up 20 to 30 per cent of the market, offering lower levels of care at lower fees to middle-income people who could pay for a high level of service, but choose not to do so. The low end includes over 50 per cent of China’s elderly, who are in government-run nursing homes, hospitals or community care centres largely funded by welfare, which provide low-level, very basic care and medical services to seniors who do not have the means to pay.

According to Koon, only the high-end segment currently offers viable investment opportunities: “There is the high-end and high-fee tier that wealthy elderly can afford and [which is] therefore clearly market-driven. To create a model that will effectively cover the low segment and then expand into the mid-level, though, we needed to creatively develop a business model that works within the lower margins and the welfare subsidy structure, but which could be run as a viable business and be scaled sustainably. And this is exactly what we’re doing.”While serving the low end as an SE is a very difficult process, Koon notes that this is also what gives his model its added value, because they are not just serving those who can pay but the majority of the elderly population, who cannot pay. There is strong local government support for this type of proven model.

Is there a viable commercial model at the low-end segment? Yes there is.Features of Koon’s PPP philosophy were learned from the UK, where PPPs have developed well thanks to governments purchasing the services of SEs. In Koon’s case, the government will purchase his services – that is, subsidise La Care Group’ service on behalf of the elderly who use various levels of care at rates between RMB 50 and RMB 200 per person per month. Elderly people at the low end can also join with low-cost membership, and add fees for services used. The ultimate goal for the Fuzhou model involves serving two market levels through two stages. First, complete coverage of the low end, namely those who cannot pay for care – which the model is currently doing.

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Very obvious opportunities for UK companies exist in the high-end and specialised elderly care and elderly health care services because they are the biggest revenue generator50. The majority of UK companies and Western experts with Chinese market experience to whom we spoke advised UK firms to focus on what they do well – mostly highly specialised products, services, training and operations and management. While these are areas that are not serviced well in China - hence the exciting oppor-tunity - it is important to remember that they are also areas that are not well understood in China. Several of the Expert Insight articles in this report highlight the time, resources and energy required for UK firms to persuade the market of the value of your offering.

“That target segment (for foreigners)

is where the highest acuity need –

requiring specialist care or services

– and the highest ability to pay over-

lap. This is mostly seen in things

like dementia and rehabilitation for

strokes or after hip repair, say – and

these represent competences that

don’t exist or are not very well repre-

sented in the elderly healthcare sys-

tem in China.”

Ben Shobert,

CEO Rubicon Consulting Group

When they have enough membership revenue from government subsidies, the PPP services can be sustained, the support infrastructure can be improved and then the model can be adapted to other cities.

The second stage, which Koon is just beginning to develop through his first mid-level elderly care facility, uses revenue from the PPP to create higher-value and higher-priced services aimed at seniors (or their children) who are able to pay. Profit earned in the higher-priced mid-tier can be allocated to subsidise and expand the low-end community and in-home services… thus the two-stage cycle repeats.

But to do so, Koon explains that the platform must be secure. First in the process comes “horizontal growth” - his low-end service delivery system. “Once I have my community centre networks in place and people trained, I can then utilise these to develop and sell more and different services.” Second comes “vertical growth” – development into mid-tier services and the know-how and delivery processes that requires.

3.9 SPECIALTY AND HEALTH SERVICES

Clinical and medical provision to the elderly requires proper medical licensing

When looking for guidance on where the demarcation line is as far as allowing WFOE (wholly foreign-owned

enterprise) involvement for non-medical services (e.g. washing, moving, bedding) and medical or clinical care

(e.g. temperature, or needles), this is really more of a licensing issue. You can have a licence in theory to do

nursing-home activities, but it’s a very challenging process. Again, while the regulation may allow you to work in

principle as a WFOE, you might find in practice that you still need to work with joint venture partners to actually

attain the licence. There is a reason that joint ventures exist and it’s not always regulatory. Often just the practice

of executing things effectively here requires you to have a local partner.

Regarding this regulatory landscape, if for example you are working on an assisted living project and services,

you are probably best to try to steer clear from being pushed towards medical institution status. The minute the

conversation moves out of the commercial side of the approval process and moves into the health authorities or

civil affairs approvals then you’re in a very different setting, and that’s where things sort of grind to a halt. The

more you can keep your conversation purely within the commercial departments, such as the Beijing Bureau of

Commerce, the more likely you will get the approvals you need.

Let’s use an example here in Beijing’s CBD area, Golden Heights. This is a brand new Chinese-owned facility with

300 units, perfectly located in the heart of the CBD and catering to the high end. However, the occupancy level

“The market has not evolved enough to want or really even understand the nuances of high-level specialisation

and the delivery of such care, let alone pay for it,”

Bromme Cole, CEO Hampton Hoerter China

There are also major opportunities for an investing country which can provide an integrated offer or “fill gaps”

within the existing range of services in China. The UK, with its internationally renowned NHS model, has strong

potential (coupled with a favourable reputation) to deliver an integrated range of solutions. It would also be

entering a market space hitherto untapped by other countries. Other investing countries have focused on niche

areas of the sector such as CCRCs (USA) or hotel-style elderly communities (France).

is very low. When I was there last, a couple of months ago, their way of delivering what we would call assisted

living was through a “nursing station”. A nursing station is a separate classification of a medical institution, and

therefore the nursing station licence is a little easier to achieve. There are limitations as to what kind of care or

service you can provide from a nursing station, but it has to be a certain size and it has to have certain staffing

levels. Golden Heights uses the nursing station as a service for the delivery of assisted living – high-acuity and

nurse-led – to people living in their home.

(In conversation with Ben Shobert, CEO of Rubicon Strategy Group)

3.10 INTERGRATED PRODUCT AND SERVICE SOLUTIONS

Expert Insight: UK companies should play to their strengths

Jockey Yang is CEO of Shanghai-based Joyway Investment & Development Co., Ltd., which is pioneering community and in-home care services in Shanghai from a platform of four central service centres in the city. Joyway also has a 500-bed nursing home in Xinchang, Zhejiang province. ([email protected], www.joyway365.com)

CBBC: How would you describe the challenges of the Chinese senior market and opportunities for UK firms?Too many people just see the huge market potential and don’t rationally think what is really needed and how to

create strong value by meeting those needs. We’ve spoken to many Chinese investors and also many Western

elderly care practitioners, and many of them are just trying to dive into this huge China elderly care ocean - but

they haven’t looked to see what is in the water, and they haven’t learned how to swim in it. For example, a lot

of Chinese are putting up nursing homes, but this is just going to be 2-3 per cent of the market and the margins

are going to be pretty squeezed.

I suggest that UK companies, or any highly experienced foreign providers, look at getting involved in the high

end of the market, and a big part of that is in specialised services in which China lacks expertise. Some firms

have asked me about targeting the mid-level markets first and then working their way up to higher-margin

segments, but this would probably be more difficult and it would take longer to see proper financial returns.

With their world-class training and education, experience and technological capabilities, UK firms should work

at two strategic levels here. One, attack higher-end segments, where the higher fees will more readily cover the

costs of developing your training programmes, experience and know-how. Two, work together as a value-laden,

comprehensive UK offering supplied by a consortium of complimentary providers. A number of other groups of

European companies, the Danes for example, are doing this with the support of their governments, and they are

achieving results.

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“The market in China struggles

with understanding the complete

concept of successful training. That

is, an integrated picture of bringing

together content, learning styles,

developing staff, qualification and

monitoring of post-training care;

the synergy between training staff,

staff retention, career paths,

service provider value propositions

and last but not least, the creativity

in applying new ways of working to

specific target audiences with vary-

ing needs and goals.”

Andrew Cowen,

CEO, Future Healthcare Group

PwC Healthcare’s Zhao Ying stresses China’s real need, and hence the

UK’s real opportunity, is in “bringing together all the components of

elderly care: people (properly trained care workers who also need to care

about their performance and the residents’ satisfaction), the physical

environment (facilities must be comfortable, elderly-friendly and safe);

and all-round quality (products and services delivered not only efficiently

but also in a truly caring manner).” Ms. Zhao believes in effectively edu-

cating the market about the value of these elements – all integrated to

deliver safe, quality care and satisfied residents. “It took the UK and the

US decades of trial and error to develop their advanced elderly care rules,

support infrastructure and expertise to achieve a spirit of integrated care.

That understanding means that they have an awful lot to offer the industry

in China.”

As an example, my company, Joyway, provides a useful platform for specialist British providers to enter the more

attractive high-end segments. We have found an excellent UK partner for dementia training in the Future Health

Care Group, and we want to meet more British firms with specialist offerings - services, medical equipment,

standards development, and even equity capital. Money is not a problem here: there is plenty of capital looking

for good investments, and we think we offer a good investment.

Expert Insight: Meeting the challenges creating a viable business model

Steve Koon, CEO of La Care Group – an extensive community-level elderly care service provider in Fuzhou

recounts the challenges faced in developing a new public-private business mode. (Also see Innovation in Action:

A home-grown model in Fuzhou on page 65)

CBBC: What are the main challenges you’ve faced?Koon: First and foremost is people development. Because we’re developing a new type of model, and one that is

community-driven at the SE (Social Enterprise) level, it’s very difficult to coax experienced management away from

prestigious, well-paid corporate careers. Instead we train people from the community NGO sector to work closely with

government and NGOs so that they can smoothly deliver, and receive payment for, the services. Finding people who

believe in this work, and developing the specific skillsets needed, is a big job because they are not necessarily going to

be paid as well as in the private sector.

The second challenge is the standardisation of hardware. As just one example, we need a scalable IT system that allows

us to scale the robust data and communication functions of our call centre systems, service delivery channels, and our

service centre network. This is a huge investment for an SE, not just to cover all of Fuzhou but to scale to other cities.

The third challenge for us, and what we are focused on now, is to assure we develop and preserve an established

“core” platform. Our systems must be stable enough to provide the standard of care services we promised,

as well as flexible enough to adapt as we grow across other cities. For example, our “core” needs to be able

to provide the same range of membership packages, achieve the same standard of emergency service delivery,

include a common payment system, and be able to mine and manage data across the whole network. No small

task. Additionally, in China each city has different tax systems, different government structures, different skill

levels and different resources, so we need to be able to adapt while maintaining our secure “core”.

CBBC: And overcoming these challenges?The first goal is 100% coverage of the low-end segment in Fuzhou. Therefore we need a complete platform in

Fuzhou that works. This will be our flagship model to showcase for the country, proving the model, and also to

act as the base for training and R&D, which is needed for us to expand. Second, we are investing heavily in IT

systems – for example, our databases, call centres, membership, data software and hardware all need to be

accessible centrally. Third, we need to guarantee that the market is getting the quality we promise. This is partly

a job of creating and finding good enough products, services, training and skills - but also a job of building trust

in the market for these offerings.

CBBC: Where can UK elderly care providers fit in?In the lower segments where we work, there are certainly opportunities for the UK in equipment - monitors,

systems, tubes that feed people, data monitoring - and specialised “in-home” products that enhance safety or

simplify in-home activities. Be aware, though, that in these lower segments pricing points will squeeze what you

may be able to offer.

Far better opportunities, I think, revolve around the UK’s provision of services, processes or training that serve

the commercial aspects of the model in the mid-tiers. For example, a combination of equipment, services, training and

management applied to community care and in-home day services for residential care homes. We are building

a 600-bed full-time residential care facility. Only firms that can flexibly cope with the pricing margins

and partnerships in the mid-tier will be able to participate. And then possibly the best chances revolve around

e-health and tele-health. As we roll out our services, we will be offering e-health and tele-health services in the

model. UK providers fit into this area very well. There is still pricing pressure in lower tiers, but at the same time

the need for stability, quality control and scalability means you also need quality e-heath and tele-health systems

and services.

CBBC: Why has no one else done what you are doing?I don’t think anyone else has really considered a hybrid market-based solution to cover both the low and

mid-tiers. The welfare mindset is much engrained at the low level among seniors, community care providers

and officials. They are not yet thinking in terms of scalability, but just continuing with local one-off care channels.

Further, the ROI in these low-end tiers is so low, compared with what corporations and investors normally require,

that investors ignore it. Finally, it is tough to replicate, because each local level can be so different with regard to

taxes, regulations, skill levels and support resources. It’s difficult to plan past a local project. And while foreigners

can set up a WFOE, to operate in another city they would then need to set up another entity involving a whole

new set of local approvals, local taxing and local banking – a frustrating way to grow.

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ADVICE AND RECOMMENDATIONS

4.1 MORE THAN A “LAND DEAL” IS NEEDED – FOCUS ON YOUR QUALITY CARE OFFERINGS

CBBC received several useful insights offering general advice and specific recommendations during our elderly

care interviews, meetings and events in China. We briefly outline the four most common recommendations below

punctuated with related interview summaries.

To date, much elderly housing and nursing home development in China

has stemmed from increasing bed capacity and therefore has been closely

tied to real estate development. Our experts’ feedback counsels UK firms

to focus on what they do well in elderly care provision and not get bogged

down in investing in land and real estate. Land development deals require

large amounts of capital up front and often look to quick sales and returns

as opposed to creating longer-term returns through viable businesses. UK

firms are advised to develop long-term business strategies in which their

services and knowhow add value and care levels that are not currently

present in the target markets. When land use is an integral part of the

”The ‘reality check’ for British firms

is to think carefully about what the

local markets and stakeholders are

trying to accomplish. If it is a land-

deal under the guise of elderly care,

then you’re going to be in trouble.”

Dr. Eamon McKinney,

CEO, CBN Care Group

Expert Insight: “Notes from the Trenches” with Ben Shobert

CBBC sat down in Beijing with Ben Shobert, who is CEO of Rubicon Strategy Group and a well-known expert on

China’s elderly care and health industries. Ben can be reached at [email protected] and he

blogs at www.healthintelasia.com.

CBBC: Can you briefly lay out China’s elderly care landscape for UK firms considering this market?The first thing I want to say is that you need to get involved in something more than a real-estate transaction. Right now there is too much interest in this sector from the Chinese real-estate developer community, which is driven less because they recognise and want to serve the demographic need, and more because the Chinese government has said to developers “if you develop a component of elderly housing into the project then you can get the land.” China needs administrative procedures and assessment processes for elderly care land-use that promote sustainable elderly care. This doesn’t currently exist, so UK firms are basically looking at a clean slate regarding regulatory and administrative procedures.

The second point to make is that there are still inadequate incentives and regulations, and the ones that are in place work at cross-purposes for foreign companies. Great examples of this exist in in-home healthcare, where China’s Ministry of Commerce wants to see inbound investment and expertise from foreign in-home healthcare providers, but the Ministry of Health’s concerns over letting elderly care take place in the home get in the way of much of the sort of nurse-led home care that would most benefit China. In general, there continue to be disconnects between the higher acuity elderly care rules - what we would think of as assisted living - and the regulatory schemes that encompass elderly housing in general.

model, our feedback almost unanimously advised UK companies to structure their participation with Chinese

partners to have partners deal with the land while UK companies concentrate on their care related value and

expertise. Operators in particular were advised to consider strongly a management model in which they would

receive management fees from owners of the property and land. Although, a few experts added the caveat that

in such an arrangement, the Chinese side will often want some degree of equity capital injection from a UK partner

to show commitment and share a degree of the financial risk.

Most elderly homecare industries in developed economies are a by-product of a very vibrant national hospital system that wants to rationalise bed capacity and has determined that in-home care is actually more cost-effective or more efficient, not to mention a solution that families and patients like more. China is struggling with how to evolve the elderly homecare industry - China right now on the hospital side is focused on just building capacity; the thinking about homecare as a mechanism for rationalising capacity doesn’t exist. That’s a problem. Given that China’s national committee on ageing has said 90 per cent of all elderly care is going to be delivered through home care, the country can’t afford to allow this disconnect to persist. More needs to be done to make homecare like that which is available in the UK accessible to foreign investors and operators. Today that is primarily a regulatory challenge; however, once the regulations are streamlined, issues specific to marketing and customer acquisition costs will be next up.

The third thing I would mention is the excitement and noise being made about the new central government policy allowing WFOEs, or foreign direct investment, into elderly care. This is indeed a welcome move that reflects the government’s desire to bring in foreign expertise to help develop this industry. Practically speaking, though, there is still a lot work that needs to be done as concerns clarifying and implementing regulations and administrative and approval procedures for certain licences or land, for example, before we get too enthusiastic about the industry being truly fully open to foreign investment.

There are a lot of reasons you will need or want local partners that have nothing to do with the regulatory issues, but instead reflect realities about how the market works here. Referral sources, marketing and logistics, HR pipelines and training systems are just a few examples of tasks that can prove daunting and time consuming on one’s own. There are foreign companies that want to go on their own, which is admirable, and some I think have the know-how, relationships and market understanding from several years here already, so they may well be successful. But to generalise slightly, going into a nascent industry that is just opening to foreign investment, and entering markets and segments that don’t really exist yet - but that are undoubtedly coming - is a tall order

for anyone to do on their own.

CBBC: Are there specific market segments or service-level tiers where you see opportunities for UK companies?Operators that have come into the market – foreign operators specifically, and specialist service and product providers more generally – have obviously made the decision to focus on the part of the market where they have a degree of confidence that they can make money. That target is where the highest acuity need – requiring specialist care or services – and the highest ability to pay overlap. This is mostly seen in things like dementia and rehabilitation for strokes or after hip repair, say – and these represent competences that don’t exist or are not very well represented in the elderly healthcare system in China. These companies focus on the high end, where there is a need and where the clientele will be able and willing to pay. Many of these foreign firms are adapting to local dynamics, for example doing shorter-term stays but higher-intensity care than what they are used to doing in their home markets. At this stage, that is often the only way to go.

You also need to determine who your customer is. Is it the elderly, their children or government support? At the high end, wealthier individuals can all pay, but varying expectations across different regions, different cultural thinking, different supportive infrastructure, levels of competition and local regulations are all going to have a say in answering the “who pays” question. And these variables will all be in flux as models, competitors and service qualities change and improve.

Don’t assume marketing is going to be easy. If you come in with big eyes seeing hundreds of millions of seniors, thinking you will offer something unique, build capacity and have them flocking to your door, you will be in serious trouble. The market is in a very nascent state and does not yet understand what your great quality and

service is or why they might want to pay for it.

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4.2 GET IN NOW - TO STUDY AND UNDERSTAND LOCAL MARKET DYNAMICS

“You must ensure that your offer

is understood and valued by the

Chinese decision-makers, and can

be delivered within the constraints

of local infrastructure and at a price

the customer – the project owner,

the care company or the local

academic institution – can afford”

Peter Jeng, Managing Director,

China Britain Healthcare

Several experts we spoke with shared a view that the elderly care market

is at an early stage of development and there are a few years of important

progress needed - in regulations, administrative procedures, training

standards and qualifications, and supportive infrastructure – before the

market will be able to support uptake and growth of UK firms’ (and other

western companies’) expertise and specialised offerings. However, UK

executives interested in China are advised to get involved now through

research, visits, and meeting with local companies and government

officials. Figure 4.1 outlines four steps companies should try to achieve.

Lastly, be conscious of how your opportunities in China relate to and compare with other emerging markets you

might enter. Objectively weigh up your options regarding the challenges, opportunities and potential, because

other markets may well prove easier, clear and quicker concerning decisions and milestones that meet your

strategic and balance-sheet requirements. Beware of your board pushing you into China because they are

enamoured of the headline demographic numbers specific to China’s ageing. Yes, the country is getting old fast.

Yes, that could be a compelling commercial opportunity. But don’t simply assume either that getting a quality

product in China is easy, or that you are certain to be filled to capacity as soon as you open your doors.

Learning the local dynamics was judged as essential by all of our interviewees to help strategic decisions and assessment of potential opportunities. UK firms are cautioned though that the work involved gathering such information in a nascent, fragmented marketplace can be time consuming and difficult – but well worth the concerted effort. Therefore, UK executives should consider making use of knowledgeable experts and companies on the ground to help assure their efforts are efficient and useful. Knowing how to match service quality expectations, enhancing their operational capabilities and understanding consumer preferences will be key to succeeding in this market.

The study and learn phase may well lead certain companies to decide that China entry may not be a sound option for them. Feedback from a number of our expert interviews touched on cautionary notes advising UK executives not to ‘get blinded’ by China’s huge numbers of seniors and large supply gaps. They emphasised the benefits of also considering other countries where care needs are rising and where potentially many key market elements - such as regulations, resources, and elderly care expectations - might be more advanced or more attractive for a UK company’s specific expertise and specialisation.

Feedback during our interviews and events almost unanimously urged UK companies that have indeed engaged

in the study and analysis of local dynamics and made the decision to enter the market to some degree to start

small, and for two main reasons.

1) The vast differences between the UK and China

in the infrastructure, resources and rules that each

country’s elderly care industry relies on mean that UK

firms will need to employ extra time and effort to get

things done, and a higher degree of flexibility and

adaption and expectations on how (and how fast) to

get things done. For these reasons, launching with a

larger as opposed to smaller scope of business (e.g.

a 200 bed facility as opposed to a 50 bed facility, or

a comprehensive service of 10 services rather than

one or two), may well mean biting off more than you

can chew due to the larger amount of changes and

adaptations that will need to be done as you trial,

learn and adapt your offerings.

2) Focusing energy and resources on a smaller-scale

effort, gaining market acceptance and achieving sustainable

returns and operations provides the best opportunity to

roll out the offering into welcoming projects and regions.

Since all areas of China’s elderly care industry are in early

stages of development and learning through trial and

error, the market is on the lookout for whatever works

well or delivers improvements. When models, services,

or products and equipment are successfully delivering on

stakeholder expectations, at quality the market accepts,

and at fee structures that maintain and grow a business

– regulators (under pressure to meet targets in beds and

service coverage) and investors and companies (seeking

improved market share, competitive advantage and returns),

will be interested to roll out such successes.

4.3 START SMALL, LEARN AND ADAPT

p72 p73

Step 1: Study local markets - learn local market dynamics, constraints and opportunities

Step 2: Build relationships – learn local decision-makers’ needs and requirements

Step 3: Localise – consider whether your strategy, planning and offering can fit or be adjusted to fit, with local dynamics and needs.

Step 4: Start small – be flexible to build and adapt on a small scale to validate your offering or business model.

Business Development Steps in China

Partner up – Throughout these steps, get to know and work with the complete market-entry and development process, get to know and work with experienced, knowledgeable local partners (advisors, local companies and off icials. )

Figure 4.1 Business Development Steps in China Source: CBBC Research

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Expert Insight: Leverage (and localise) your UK experience

Zhao Ying is Associate Director for PwC healthcare where she focuses on business planning and operation management for health services and elderly care sectors. CBBC sat down with Ms. Zhao in Beijing in September 2013. ([email protected])

CBBC: What opportunities do you see in practice for British firms in China in elderly care?We have spoken to a large number of Chinese real estate developers and Chinese insurance companies who are committed to elderly care. Many of these firms are travelling around the world to visit and study care homes design, operations, service packages and the investment models as well as financial models that build and pay for elderly care. Definitely, there is opportunity for foreign facility operators and certain care service providers. Many insurance companies are investing in elderly care facilities.

CBBC: What advice might you have for UK elderly care professionals about China?Foreigners must take time to understand various segment dynamics and think carefully how their contributions and offerings might best fit into some of these segments either as their product or service is, or through morphing their offering as needed to fit. For newcomers, it is helpful to look at the market from the point of view of two basic channels here for service provision. - Care services embedded into elderly care facility operations – very capital intensive, need to have or integrate the service expertise/scope - Care services sold or co-delivered through community care/in-home care providers – easy to start small/ niche services and slowly expand so long as the fee/pricing model provides enough of a margin at scale to sustain your business.

A very good way to get into the market is finding a suitable local partner who possesses either clientele or a platform that foreign players can play a role in. Therefore, market information gathering, business relationships dialogue, strategic discussions and eventual structuring of your cooperation agreements must be carried out thoroughly from the beginning. The specific terms need to provide an incentive for both sides (you and your Chinese partner) reflecting that both parties are on the same page with similar expectations – for example, who will provide what, to what level, at what standard etc. and that the revenue model is sustainable with costs and returns acceptable to both sides, and how the company or brand should develop and expand should your initial, small-scale attempt prove successful. And really, this is not different from any Sino-Western cooperation in any sector – if you don’t do your research, due-diligence, relationships and negotiations properly early on in your foray into China you are doomed.

If a self-development approach is taken then I would suggest that westerners start small, try your model out and re-jig as necessary, gain traction and then build on that, all with lower capital outlay, and in a more manageable bite-size chunk to iron out the kinks and bumps that you will inevitably encounter.

CBBC: Considering the needs in this sector you mentioned and the amount of work foreigners need to put in, getting into elderly care in China sounds like a colossal effort? Sure, you will need to balance the great potential with the great effort China requires since the China market is just at its start of building care capabilities. By that I mean bringing together all the components of elderly care: people - staff must be properly trained but also need to care about their performance and the residents’ satisfaction and happiness since currently there is no such sustainable staff compensation system well developed; physical environment - facilities must be comfortable, elderly friendly and safe; quality in all – products, services delivered not only efficiently but in a caring manner. All of these elements need to be integrated to deliver safe, quality care and satisfied happy residents. It took UK and America decades of trial and error to develop their advanced elderly care standards, support infrastructure, and expertise to achieve a ‘spirit of integrated care’ - bringing that understanding means they have an awful lot to offer the industry here.

“While the UK has plenty of useful expertise and experience to offer, we must recognise the market and regulatory

differences between the UK and China, meaning local clients often having different needs and expectations than

one might first presume. Without a competent local partner it is very hard for a UK-based firm to offer the kind of

responsiveness and comprehensive local service the market demands.

Mark Dodds, CEO, TLD Design Consulting

“For foreign or British operators, in my view, it’s less a direct question of whether to team up with Chinese

partners or not, and much more a strategic decision on what they need to accomplish in China in order

to effectively adapt their models (which work well in their home markets) to work here. China has different

regions, pricing points, senior (and their families) needs and expectations.”

Yu Yaolai, President, Cherish Yearn.

Innovation in Action: UK design …adapted locally …with strong partners

In September 2013, York-based DWA Architects and Beijing-based TLD Design Consulting jointly realised the

master plan for a new “elderly person care village project” in Foshan, Guangdong province. The design caters for

750 elderly with severe and terminal care needs plus 450 independent and assisted-living apartments. The keys

to success, the companies said, were DWA’s in-depth expertise in efficient architectural design and its ability to

deliver high-quality operations and care, combined with TLD’s full-time presence in China and localised service

expertise.

The project derives from an inventive collaboration between local government and a local Chinese charitable

foundation. Their express intent is to show that public-philanthropic-business partnerships can be used to create

and run high-quality specialist care that is affordable for local people.

The local government will provide the land and the foundation will pay for and build the facility, with the goal that

operating the care facility and programme will be self-sustaining. The stakeholders especially want to provide

specialist dementia care, something many privately invested residential care facilities do not do. Mark Dodds,

CEO of TLD Design Consulting, knew that DWA Architects offered many of the strengths that were required,

and so the pair were able “to adapt our combined expertise to the needs of the project, and to design in a

high degree of operational flexibility through the use of an architectural modular design strategy, based on UK

dementia design standards wherever possible.” For example, although there was a requirement to use mid-rise

buildings, special care was taken to provide easy access to the outdoors for all residents, despite their differing

needs, on all floor levels and in all weather conditions.

The project is scheduled to start in early 2014. China is increasingly supportive of both non-profit and for-profit

contributions to elderly care among the lower-priced segments. It will be important to see how this pioneering

collaborative effort takes hold and if it can be replicated elsewhere.

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Expert Insight: Understanding your Chinese Customer and Partner Goals

As Managing Director of China Britain Healthcare, a medical healthcare consulting firm, Peter Jeng splits his time between the UK and China. CBBC sat down with Peter in Shanghai in September 2013. ([email protected])

CBBC: What advice might you give British elderly care firms entering, or at least investigating opportunities in China’s elderly care markets?The most important thing to think about is that China is so big. With hugely different local capacities, needs and cultural expectations for elderly care right across the country, you really need to work with decision-makers at the local level. My top suggestion regarding China – that is, Chinese investors, developers and care providers – is to carry out proper, professional feasibility studies. This is not done nearly enough, but it is essential in order to understand clearly the potential customer base – numbers, incomes and care needs – and support infrastructure, as well as resources for finding and developing care workers and inherent gaps in training and other services. Far too many Chinese – and a few foreign – elderly care projects in China, be they nursing homes or retirement-community projects, have failed because the projects were too big, or they offered too many services, or not the proper services, at quality levels that did not match the requirements and pricing expectations of the target markets.

For British operators and investors, I think the best I can suggest is to learn what the local government and investment decision-makers want to accomplish with their elderly care developments, homes and companies. Once that is clear, then you need firstly to analyse carefully whether your plans for elderly care housing and care services related to these goals will be supported by local market dynamics; and secondly to figure out whether you, as a British service provider or operator, have the flexibility and resources to customise your model or offering to the local plans. The only way you will be able to do this is by using experienced people on the ground here that can develop relationships, gain the essential information and help guide strategy and moves for you.

CBBC: Aside from the major operators, the UK has a deep pool of innovative, successful and world-class SMEs delivering specialist know-how and services in many areas of elderly care. Where or how do these smaller companies start?The other area in which we Britons can add huge value is in specialised elderly care services and products provision - training, IT platforms, e-health software and hardware, design and many others. The challenge is in reorganising your offering(s) into a service that meets local needs and fits the business and service model of specific projects. You must ensure that your offer is understood and valued by the Chinese decision-makers, and can be delivered within the constraints of local infrastructure and at a price the customer – the project owner, the care company or the local academic institution – can afford. Successfully accomplishing all of this is a very tall order for any company, let alone an SME, so again, my suggestion is to go through an experienced, trustworthy party on the ground in China.

CBBC: At CBBC we increasingly receive questions about the recent policy announcement allowing foreign direct investment in elderly care. Could you explain what it means?This regulation is welcome and a good sign that there might be further government support for foreign involvement. But practically speaking, no foreigner will be able to do this on their own. They need local Chinese partners that can help navigate the local government, logistics and service fulfillment channels. This structure is far more fragmented than that which foreigners are used to in their home countries. I would recommend, as I said earlier, that British firms work with someone on the ground who can help direct them to quality, viable projects and customers. At China Britain Healthcare, we have been successful over the last four years acting as that experienced partner.

“There are a lot of reasons you will

need or want local partners that

have nothing to do with the reg-

ulatory issues, but instead reflect

realities about how the market

works here. Referral sources, mar-

keting and logistics, HR pipelines

and training systems are just a few

examples of tasks that can prove

daunting and time consuming on

one’s own”

Ben Shobert,

CEO Rubicon Strategy Group

Feedback during our events and interviews cited recommendations for UK

companies to localise their in-China efforts in three ways.

1) UK companies are advised to be open and flexible in order to adapt their expertise and offerings to viably fit into China’s markets. The models and specific offerings UK firms successfully employ and operate in current markets are reliant on the supporting resources, regulations, infrastructure systems, market expectations creating those markets. China’s markets are less developed – for example lower levels of training, less clear channels and rules for approvals and delivery of services.

2) Secondly, UK companies will need to adapt and localise their marketing messages promoting their products, services, value and benefits in order to properly make an impact with seniors, their children, and Chinese care providers. Elderly care is not well understood in China, with the benefits and value of many specialized services and higher quality methods of care and lifestyle delivery services either unknown, misunderstood or under-valued by the current market stakeholders. UK firms are advised to spend time and effort to learn the levels of understanding and acceptance of their offerings in China and to be prepared for extra efforts required in formulated a message that effectively gains traction with target audiences.

3) While cited as more of an overriding ‘doing business in China’ instruction, rather than a specific elderly care industry lesson, teaming up with experienced partners possessing on-the-ground expertise and relationships was the most oft-mentioned aspect of localisation. Capable partnerships were described as important for a number of possible reasons which we summarise as: i) getting past certain regulatory barriers (e.g. education and medical rules); ii) helping clarify local market dynamics, opportunities, and communication between UK firms and local stakeholders; and iii) providing needed contributions and fulfillment in areas in which the UK side is not expert or qualified in (e.g. government procedures, land use rights, local logistics or recruiting).

4.4 LOCALISE AND “PARTNER UP”

Local partners in China might include any or a combination of Chinese companies or government affiliated

departments and institutions, or other UK or western firms. The far more essential criteria to consider include

whether that local partner is experienced and capable in the specific technologies, products, services, markets,

and stakeholder engagement relevant for UK companies’ offerings, strategies and goals in China.

“From the beginning it is essential to gather market information, develop relationships through dialogue,

hold strategic discussions and consider the eventual structure of your cooperation agreements. Specific

terms need to be used so that both parties have the same expectations – for example, who will provide

what, whether the revenue model is sustainable with costs and returns acceptable to both sides, and how

the company or brand should develop if your initial small-scale attempt proves successful. And really, this

is no different from any Sino-Western cooperation in any sector – if you don’t take care of your research,

due diligence, relationships and negotiations properly, early on in your foray into China, you’re doomed.”

Zhao Ying,

PwC Healthcare

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Expert Insight: Two key success factors - localisation flexibility and equitable partnerships

Bromme Cole, CEO of Shanghai-based elderly care consultancy Hampton Hoerter China and author of the recently

published “Enter the Ageing Dragon… Musings on the nascent elderly living industry in China.” Sitting down with

Mr. Cole on the sidelines of the Careshow Shanghai Conference in August 2013, CBBC wanted to get a clearer

understanding of three points he raised during our UK-China Elderly Care Forum held the previous day, namely:

the importance of localisation; the dynamics of local partnerships; and market opportunities for CCRCs in China.

([email protected], Enter the Ageing Dragon). (See also CCRC’s Landscape in China on Page 22).

Localise to get in the game The UK and a number of other Western countries are world leaders in elderly care and health care, and their

representative companies and government officials have racked up plenty of frequent flier miles visiting China

in recent years.

Cole affirms that it is indeed essential to visit and be “on the ground” here, learning and working hard to discern

opportunities, if you are to have any chance of success three to five years hence. He insists that companies need

to focus on localising right from the outset. From the market demand side, Cole says that the “brilliant, white-

glove level” of treatment expertise and service offered by British elderly-living providers is not in fact what the

Chinese appreciate most about them – and yet too many Western companies come here intent on replicating

and selling just that.

“The market has not evolved enough to want or really even understand the nuances of such high-level specialisation

and the delivery of such care, let alone pay for it,” he explains. “Frugal, smart seniors and elderly care companies

may indeed like the cachet of a world-class service provider, but at this early stage of the market’s development,

customers here will only pay a small premium for that brand’s value over the current local pricing for similar types

of service.”

From the point of view of supply and UK companies, Cole recounts that a major headache for foreign operators

and service providers here is that they are not localising to adapt their wares to what the market will currently

accept – be it levels of pricing and service, or the need to incorporate their support and service elements into

China’s less advanced infrastructure and resources. Instead “they are trying to force the evolution of the industry

in China to fit what these firms know and are familiar with in their home markets. But the understanding of their

offering is predicated on the regulatory system and customer profiles at home.”

Cole argues that for UK investors and operators to be successful here they will need to find a way to deliver their

UK-quality technical expertise in the Chinese context. He cites the case of a world-renowned operator that came

to China to implement the same quality level that made its brand successful in Europe. This required bringing

over highly specialised nurses, rehabilitators and trainers, as well as the attendant management system. Local

economic conditions could not support the high cost of setting up and delivering such specialist provision. The

company found out that they could not force the system and the care levels they knew from home onto the very

different landscape here.

“UK firms certainly understand elderly care from the UK regulatory context, but remember: that system is not

present here and cannot be replicated here, so British executives need to localise and adapt their offerings to fit

what the market understands and is willing to pay for.”

Business partnerships need two-way commitment“You must engage with local partners to be successful here,” says Cole, “but the more important point is to

know what you want and should expect out of the partnership.” He advises clients to maintain leverage through

equitable two-way investment, “not just into a Chinese-based project or company, but also co-investment by

your Chinese partner into your Western company or assets.” In the latter arrangement the Western operator

or provider maintains leverage because the Chinese side has an incentive to protect its own investment. “Just

co-investing in the Chinese company or project doesn’t provide you much leverage in the ongoing business

arrangement,” he points out.

As is the case with any industry in China that is in the early stages of development and opening up to foreign

investment, it is crucial to invest the time and resources needed to understand the market, to ascertain segments

and services where you can adapt, to start small, to learn through trial and error and to develop workable models.

Cole stresses that UK firms need to realise that a demographic opportunity doesn’t necessarily equate to

an economic opportunity. Westerners need to be prepared for three to five years of hard learning work on the

ground here to be able to entrench themselves enough to take advantage of the real opportunities that will be

coming in five to 10 years. “Arguably the biggest task is building relationships with local partners who see the

value of your know-how and the value of working with you in an equitable two-way relationship,” he says.

p78 p79

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CLOSING REMARKS

Properly caring for the large and growing elderly population is an important priority for the Chinese government.

Central and local authorities are increasingly clarifying policies and developing regulatory incentives, such as

inviting in foreign direct investment and expertise, with the express intent of helping to achieve comprehensive

elderly care and elderly healthcare coverage.

There are many gaps in China’s elderly care markets which provides extensive opportunities to companies with

the experience and expertise that the market requires. The UK, with a strong reputation and respected knowhow

for elderly care provision of products, services, and operations and management – globally and in China - has

much to offer China to care for more elderly people more effectively.

To be successful, UK firms are advised to take time to learn China’s elderly care market dynamics, sectors, and

the expectations of customers – either seniors themselves or elderly care investors and providers in China. Armed

with a clear understanding, UK firms will then be able to adapt their particular expertise, services and offerings

to best fit into the markets and segments that require them.

UK organisations are also advised to consider China opportunities as long-term endeavours demanding more

time, effort and flexibility than they are used to in the UK or other western markets. UK firms should also be

aware that even though Chinese competition will be quick and formidable, perhaps more direct competition

during initial market entry and development will be from other western companies. China looks to the UK and

other western companies for experience and know-how that is not available in China currently. UK firms will often

need to outperform and outsell similar “western expertise” from other countries. To do so, recommendations

include starting small - so that changes and adaptations can be done on a manageable scale - and finding and

working with strong local partners in China, who can efficiently operate locally to help gain business prospects,

help manage government relations, and provide local support needs.

As the UK’s interest and efforts in China’s elderly care market increase, further research into genuine investment

and business prospects by certain segments, by specific products, systems, and service lines, or specific regions

by certain regions and cities would be helpful. In addition, concerted efforts are required to present a clear

message effectively promoting UK expertise across specific segments, services and regions.

CBBC, UKTI and Healthcare UK are dedicated to offering support to UK firms interested in developing elderly

care business in China through ongoing discussion and advice, market research, conferences and trade missions.

CBBC – HELPING UK FIRMS DO BUSINESS IN CHINA

The China-Britain Business Council is the leading organisation helping UK companies grow and develop their

business in China. Our mission is to help UK companies of all sizes and sectors, whether new entrants or

established operations, to access the full potential of the fastest growing market in the world.

Through 60 years of engagement, we have built up exceptional connections with government and business

across China. Our Board is made up of elderly business people from companies with a strong China interest, and

our business advisers all have extensive first-hand experience of doing business with China.

We deliver a range of practical services, including advice and consultancy; market research; event management;

trade missions and exhibitions; and setting up representative offices in China.

We have 10 UK offices and 13 offices across key locations in China. This in-country network provides invaluable

local insight, access and knowledge. It is also the basis of our Launchpad® and Hotdesk services. As a partner

of UK Trade & Investment (UKTI) we deliver its business-to-business services in China.

Whilst use of CBBC’s services is open to all British registered companies on a pay-as you-go basis, we are also a

membership organisation with some 900 British company and individual members. For companies serious about

developing business in China, CBBC membership provides a cost-effective route to ongoing support, networking,

and exclusive services. CBBC corporate members also benefit from reciprocal membership of the Beijing based

British Chamber of Commerce in China (BritCham), including access to more than 100 events per year in Beijing

and a stronger membership network.

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UK COMPANIES TABLE

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UK COMPANIES TABLE CONT.

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1(Flannery, Aging China: ‘Eldergartens’ Tip Of New Market As Elderly Population Explodes, October 28, 2013, Forbes.com)

2(Chris Kaye, Richard Huang, Juan Triola, Siron Ng, Robert Wiest, Qingwe Le, Jingwei Jia and Rongze Han, April 2012, Boston Consulting group, Swiss RE, From Silver to Gold, How Insurers Can Capitalize on Aging in China)

3(CBRE, February 2013, CBBC Elderly Care Webinar)

4(CBRE, 2012. China Elderly Housing Market Attracting More Private Investors.) (Press Release: 30 July 2012)

5(Helen Chen, Ken Y. Chen, LEK Consulting Group, June 11, 2013, Looking after China’s Elderly, China Business Review)

6(Zhao, Y., Park, A., Strauss, J., Mao, S., Crimmings, E., Hu, P.,Hu, Y., Lei, X., Park, A., Strauss, J., Wang, Y., Yang, G., Yin, X., 72013,CHARLS (Challenges of Populations Aging in China: Evidence from the Baseline, Survey of the China Health and Retirement Longitudinal Study)

7(Zhao et al, 2013)

8(Ben Shobert, March 2013, Training Program for China’s Elderly Housing Managers, Helathintelasia.com)

9(Chen et al, 2012)

10(Knight Frank, June 2012, Retirement Housing in China: Time to address the Issue)

11(Dexter Roberts Oct 21, 2013, Chinese rage at the pension system, Businessweek) 12(Helen Chen & Ken Y. Chen, March 2013, LEK Demographic Investing: The Coming Elderly Housing Boom, Amcham China Business Now)

13PA Consulting Group, May 2013, Research on Elderly Care in China; and CBRE, July 2012, China Elderly Housing Market Attracting More Private Investors

14Chen & Chen, March 2013

15(Brekelmans, M., and Chen, H., 2011. Elderly Citizens on the Rise. There Is A Growing Opportunity to Serve China’s Elderly Population. The Institutional Real Estate Letter, Asia Pacific (May 2011), and Brekelmans, M., and Chen, H., October 2011, Serving China’s Greying Population, EURObiz Magazine

16(Lan Fang, Sept. 20, 2013 Marketizing China’s Elder Care Conundrum, Caixin)

17(Brekelmans M., September/October 2011)

18(Brekelmans M., September/October 2011)

19(Michael Qu, Co-Effort Law Firm)

20(Lan Fang, Sept 20, 2013, Marketizing China’s Elder Care Conundrum, Caixin)

21(Michael Qu, Co-Effort Law Firm)

22(Lan Fang, Sept 20, 2013, Marketizing China’s Elder Care Conundrum, Caixin)

23(CBBC Research)

24(Zhao, et al, 2013)

25(Lan Fang, Sept 20, 2013, Marketizing China’s Elder Care Conundrum, Caixin)

26(Zhao, et al, 2013) 27(Zhao, et al, 2013)

28(Dexter Roberts Oct 21, 2013, Chinese Rage at the Pension System, Businessweek)

29(Christian, P., and Qu, M., 2012. China Elderly Housing and Care Newsletter)

30(Chen et al, 2013)

31(Figure 3.0, Kleinman & Chen, 2012; Rammohan & Prakash, 2013: 11)

32(Chen et al, 2013)

33(Kleinman & Hongtu Chen, 24th April 2012, Looking After the Elderly – Asia’s next Big Challenge, Fung Global Institute)

34(Chen et al, 2013)

35(Chow, C., Teo, K., Rangarajan, S., Islam, S., Gupta, R., Avezum, A., Bahonar, A., Chifamba, J., Dagenais, G., Diaz, R., Kazmi, K., Lanas, F., Wei, L., Lopez-Jaramillo, P., Fanghong, L., Ismail, N.H., Puoane, T., Rosengren, A., Szuba, A., Temizhan, A., Wielgosz, A., Yusuf, R., Yusufali, A., McKee, M., Liu, L., Mony, P., and Yusuf, S. Prevalence, Awareness, Treatment, and Control of)

36(Gale, J., 2012. China Diabetes Triples Creating $3.2 Billion Drug Market.Bloomberg, Nov 5 2012 (http://www.bloomberg.com/news/2012-11-04/chinadiabetes)

37(Chen et al, 2013)

38(Zhao et al, 2013: 24)

39(Chen & Chen, May 2013)

40(Chris Kaye, Richard Huang, Juan Triola, Siron Ng, Robert Wiest, Qingwe Le, Jingwei Jia and Rongze Han, April 2012, Boston Consulting group, Swiss RE, From Silver to Gold, How Insurers Can Capitalize on Aging in China)

41(Michael Qu, Co-effort law Firm)

42(Ben Shobert, July 18, 2012 http://www.healthintelasia.com/the-role-chinas-insurance-companies-will-play-for-the-elderly-care-industry/)

43(CBRE China)

44(Chen et al, 2013)

45(Michel & Helen Chen, Elderly Citizens on the Rise, May 2011, , LEK Consulting)

46(Ronald Ling & James Xiao, PwC 2012, “mHealth China: Designing a winning business model”, www.pwc.com/mhealth)

47(Dr. Su Ying, Resource Sharing Promotion Center, Institute of Scientific and Technical Information of China)

48(Caixin, 17th October 2013: “In China, Alzheimer’s Care Nearly Forgotten”)

49(Caixin, 17th October 2013: “In China, Alzheimer’s Care Nearly Forgotten”) (Rammohan , S., and Prakash, B., 2013. Research on Elderly Care in China.

50 (Rammohan , S., and Prakash, B., 2013. Research on Elderly Care in China.

ENDNOTES

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ENABLING BUSINESS OPPORTUNITIES FOR UK COMPANIES IN CHINA’S ELDERLY CARE MARKETS

www.cbbc.org