[By Zhou Tao/Shanghai Daily]

China's looming need for services and facilities to cater to its fast growing population of seniors seems to present an ideal business opportunity: Demand clearly outstrips supply, and the government is welcoming foreign and private help in this area.

The government's current Five-Year Plan names senior care as a high priority issue. The key missing factor, so far, has been a successful business model.

Many foreign companies, senior care housing operators, real estate firms and major US fund management companies are gearing up to enter the China market, hoping to capitalize on the country's growing affluence.

Past experience suggests, however, that the road ahead will be a bumpy one. So far, China has no viable model for senior care housing. Moreover, a strong tradition of caring for elderly relatives at home means there is little experience with providing anything but the most rudimentary hospitals and institutions for those who are unable to care for themselves.

Any company that tries to set up a senior care service business in China will be a pioneer, says Benjamin A. Shobert, managing director of Seattle-based consulting firm Rubicon Strategy Group LLC. "The biggest obstacle is that there is no existing, proven model for senior care and senior care housing. It is simple to say but it is a profound problem," says Shobert, who specializes in healthcare and senior care.

The lack of a proven business model or strategy means companies are uncertain what role the Chinese government will play as an investor and regulator, or in providing vocational training programs and education focused on senior care and geriatrics, says Shobert.

The huge potential size of China's overall market for products and services for the elderly is undisputed. The United Nations predicts that almost one-third of China's population, or 438 million people, will be over 60 years old by 2050, thanks to better living standards and healthcare. That is double the current 178 million over age 60.

Challenges

As the ratio of the elderly to the working-age population grows, the need for senior care housing is unlikely to be met by the public sector. By the end of 2010, China had only 3.5 million beds, in 101,000 public senior care facilities - enough to provide for less than 2 percent of its elderly.

"The Chinese government realizes that it is going to be difficult and challenging to care for all seniors," said Bill Pettit, president of Merrill Gardens, a Seattle-based senior care company that is preparing to set up a senior care advisory, consulting and management company in Shanghai.

Overwhelmed, the government is welcoming foreign and private investors to provide other options for senior care. Michael Qu, a lawyer at the Shanghai Co-Effort Law Firm, estimates that the senior care market may grow to 1.8 trillion yuan (US$282.6 billion) by 2020 and 7.6 trillion yuan 2050, from the current estimated yuan 1 trillion. "China is a big senior care market with huge potential," says Qu, who specializes in senior care and real estate and publishes the China Senior Care Housing newsletter.

Keep watching

Before plunging into the market, many foreign senior care operators and investors are watching to see how Seattle-based Cascade Healthcare, a joint venture between Emeritus Corp and Columbia Pacific Advisors, a Seattle-based wealth management company, fares with its first facility, which will have a soft opening from June to August (during which some seniors will be admitted) and a grand opening in September.

A previous attempt to open an independent living facility came to naught. US senior-housing company Holiday Retirement Corp built a retirement community in Shanghai in 1998. It ended the venture in 2006 due to a failure to drum up enough interest.

"We sold our interest at a substantial discount and went home. We were a little early," The Wall Street Journal quoted Holiday Retirement Corp's former chairman, Dan Betty, as saying. Betty now heads Emeritus, one of Cascade Healthcare's partners in its Shanghai venture. Cascade is investing US$6 million to renovate a five-story hotel building in Shanghai's Xuhui district to be used as a senior care assisted living facility.

Minimizing its up-front investment in property, it is leasing the hotel, which was used for the 2010 World Expo, and expects to provide about 60 rooms for assisted living and rehabilitation.

High-end

"We will target the high-end market, charging a 10,000 yuan to 15,000 yuan monthly fee," said Serena Xie, managing director of Cascade Healthcare.

Developing a smaller project will allow Cascade the flexibility to adapt its business model as the market evolves, says Daniel Leaf, founder and director of Tianlun Yiyangyuan, a Shanghai- based senior care consulting and management company. "There are a number of projects being developed right now in China, and each one is learning from the last one," Leaf says.

Shobert agrees that Cascade's strategy makes sense given the many unknowns for the China market. "It is just trying to focus on working on the model, to make sure everything we think we know translates into China. Let's figure out some of the intangibles that will go into taking care of elderly Chinese. By doing that, they are positioning themselves to be successful in the long run," he says.

To build a much bigger project, Cascade would need to either find a Chinese partner to provide land, or set up a management company to help Chinese investors design, build and manage a senior care project.

Fortress Investment Corp of the US is now raising a US$1 billion fund to invest in senior housing in China - an approach carrying much bigger risks than smaller projects like Cascade's.

Chinese private investors are also gearing up for senior care housing projects, but generally are focusing on such ventures as property, rather than service-oriented businesses. Many of the Chinese companies interested in developing senior housing projects are real estate developers that want to build, sell and make a quick return.

Will there be a successful model for senior care housing soon? For now, Chinese investors appear to be going for more mega projects. Government-owned Shanghai Industrial Investment Co has announced plans to build senior housing for about 50,000 people on Chongming Island - a very large island in the middle of the mouth of the Yangtze River.

Heavily inhabited, the once-isolated island is now connected to the city proper via bridges and tunnels. The 10 billion yuan first phase of the project will be one million square meters, with 7,700 units that can house 10,000 people.

Adapted from China Knowledge@Wharton, http://www.knowledgeatwharton.com.cn. To read the original, please visit: http://bit.ly/Msy661