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China’s rapidly aging population is a huge problem; but for entrepreneurs an opportunity too

“Of all the things in the world,” Mao once declared, “people are the most precious”. But he also had a colder taste for demographic realpolitik, telling the Soviet foreign minister that America and Russia would both get wiped out in a nuclear war. Not the Chinese, Mao warned. “We will have 400 million people left.”

More than a generation on from Mao’s death, and population is a major talking point once again, although this time around the threat is more of a ticking time bomb than a nuclear strike.

China’s population is changing, and fast. Its rapidly aging – or greying – society can be viewed as a problem, but for savvy business people it is likewise an opportunity.

Demographic problem? Aren’t there plenty of Chinese?

There are. A new census begins in November and will likely show the population approaching 1.4 billion. China will remain the world’s most populous country for another 20 years or so, too, when India is expected to take the title.

In fact, it was the health reforms and relative stability of Mao’s early rule that launched the population explosion, and China grew by 325 million people in his lifetime. More babies survived into adulthood, and more adults made it through into older age. Longevity has continued to advance since: life expectancy was 41 in the early 1950s but today it’s 73.

Then factor in decades of population control policies, which have seen birth rates plummet. Until 40 years ago, women were bearing an average of almost 6 children. But government directives (most famously the one-child policy after 1979) have seen that fall to 1.8 (it’s above one because rural inhabitants and minority peoples are often permitted to have more than one child).

The two trends – fewer births and longer living – mean that the country’s generational map is heading into uncharted territory. There will be 438 million Chinese aged over-60 by 2050, says the United Nations, and 103 million of that group will be older than 80. No country has ever experienced anything like it.

So aging is the real issue?

Yes. It’s also a completely new challenge, as the economy has been cashing in on a very different scenario – a ‘demographic dividend’ – recently. When fertility first falls in a society, the number of children declines faster than other age groups, leading to a higher share of working population. That means more workers, fewer dependents and more savings – in effect a generational window for the supercharged economic growth that the country has been enjoying.

But the window is beginning to close as a great mass of the working population nears retirement. Then the demographic dividend starts to dwindle. Instead, the population pyramid begins to invert, bulging out closer to its summit.

This has a direct economic impact, as seniors contribute far less to economic growth. Many will have to rely on the financial support of younger members of society, as well as drawing down on their own savings. That means less capital is available for investment too.

But other countries have faced aging before?

Yes, they have – but not at the pace and scale facing China. Xinhua reported earlier this month that the elderly population (60 years and up) grew at its fastest rate ever in 2009, by more than 7.25 million to 169 million in total.

Nor is the country well prepared for the consequences. “The economy, the retirement system and services for the elderly are still too weak to handle the challenge,” warns Wu Yushao, deputy director at the China National Committee on Aging.

Industrial revolutions in Europe and the US took a century or more but China’s has been shoehorned into not much more than a single generation. Japan, South Korea and the US were all much wealthier at a similar stage in their own demographic transformation. Take South Korea as an example: in 1999 it hit the same age distribution as the Chinese did five years ago. But the Koreans had GDP per capita of $16,256 in 2005 terms, versus China’s $4,088. It’s the kind of contrast that gives demographers their preferred sound bite on the generational tsunami ahead: that China is ‘getting old before it gets rich’.

What about the effects on society today?

One indicator is the terminology being used to talk about those already affected. For instance, older people living away from their immediate offspring are known as “empty nesters.” More than half of senior citizens in the countryside and almost 50% in the towns fall into this category. Empty nesters may well be receiving support from their children, but they no longer share the same roof with them.

Another category – the so-called ‘sandwich generation’ – refers to those who already support aging parents, sometimes in a shared home. This group is often approaching middle age itself and is ‘sandwiched’ because it is responsible financially for its parents, as well as its children.

Then there is the “4-2-1” generation; the cohort of young adults born from the 1980s onwards. Many will have to support 4 grandparents and 2 parents in future, so the debate about the 4-2-1ers is the most contentious. One common observation is that the sandwich generation’s formative years pre-dated China’s materialist growth spurt. Not so the 4-2-1ers, who make up the so-called selfish generation of Little Emperors. Used to getting what they want, will they be prepared for the sacrifice of caring for a lengthy queue of older relatives?

So Confucian notions of filial piety are in decline?

Not always by choice, says Ninie Wang, founder and CEO of Pinetree, a company that provides quality home care to senior citizens in Beijing. In Confucian teaching, respect for elders is one of the most treasured values, and in practical terms that has meant taking care of one’s parents.

But the children of senior citizens today are often more likely to live further from the parental home. Millions of migrants now travel in search of work. Or it simply isn’t possible for a couple to house their parents and grandparents, as well as children of their own, in a single apartment.

That is not to say that notions of filial piety do not hold great sway. Wang says that one of the rebuffs heard from senior citizens appalled at the mention of retirement home living is Confucian in tone – reproaching their children with ‘how can you shame yourself and our family name’ if they broach the subject.

Despite this, the proportion of senior citizens living as ‘empty nesters’ can only indicate some weakening of Confucian ideals (the great philosopher was a proponent of three-generations living under one roof), even if it is forced more by circumstance than by choice.

What about retirement care and pensions?

Under the government’s own plans, few seniors are expected to end up in third-party retirement care. There are not enough available beds now, and the cost of providing them for the millions of elderly residents of the future would be prohibitive. Instead the “90-6-4” strategy anticipates 90% of seniors living at home in future, 6% spending their time at community support facilities, and only 4% in full time residential care. That implies that much of the duty of care will fall on friends and family.

Pension provision is also patchy, especially since the late 1980s, when the central government left state-owned companies to fend for themselves. Many lacked the resources to continue paying out pensions to retirees. According to government data, most of the elderly continue to survive without any form of pension support, especially in rural areas, where there were only 5 million beneficiaries in 2008. Compared to the cities, the rural elderly work to a much later age (for many, retirement is a misnomer), and rely more heavily on relatives for financial support.

Urban residents have it a little better, with about 53 million retirees receiving a pension, usually the former employees of state-owned enterprises. But many still fall outside the net, and will continue to do so due to a mismatch between available resources and retiree entitlements. The National Social Security Fund is trying to plug some of the gap with central government subsidies, national lottery revenues, and some of the proceeds of share sales of the SOEs.

A personal retirement account system has also been set up, in which employees put aside a portion of their income to be invested. But for the foreseeable future, payouts will depend on pay-as-you-go contributions made by the current workforce. That spells trouble, as fewer workers are being asked to fund obligations to many more retirees, as well as put cash into their own pensions through the personal accounts. It’s no surprise that they (and their employers) chafe at the associated costs, which can reach 28% of worker payrolls.

All a bit gloomy; there must be ways of fixing the problem?

For pensions, reform will take time, and at least it is underway. Foreign firms hover at the margins, promising to raise returns on the personal investment accounts.

There are also options to keep a greater share of the population at work. One tactic would be to lift the official retirement age, currently 55 for women and 60 for men for most jobs. Pinetree’s Wang says the average retirement age is probably much lower – closer to 51 – as factory workers are often asked to leave their posts early, to open up jobs for school-leavers and the young unemployed.

Another potential solution is a partial relaxation of the one-child policy. There was speculation in Shanghai last year of a more flexible approach, when the head of the city’s family planning agency voiced support for young couples to have more babies because the city was growing ‘old’. The suggestion was quickly slapped down by the central government, although Vice-Premier Li Keqiang seemed to at least hint that there was senior-level dialogue on the topic in January, when he alluded to debate on switching from ‘population control to population development’.

But others point out that any changes would take years to feed through to the working population, and that many Chinese women may not even want to have more children. Surveys intermittently indicate that a growing proportion of women say that they would stop at one child even if they were allowed to have another.

And the business opportunities as the Chinese live longer?

According to Wang, few companies are specialising in serving the ‘silver market’, because its average income pales in comparison to that of younger consumers.

But some are beginning to offer more products with senior citizens in mind. Telecom companies have launched mobile telephone handsets with senior-citizen-friendly buttons. Baidu, the country’s leading search engine, has done something similar with a search tool featuring larger fonts and a simplified design. Dietary supplement makers and vitamin suppliers are also hopeful of a sales boost, and pharmaceutical firms and medical device manufacturers are upping their R&D budgets, in anticipation of a pick up in demand.

Retirement home companies are also getting coverage in the Chinese media, although it isn’t fully clear how their business model will develop. Some look more like pure-play real estate operators in disguise. Those that really do intend to provide senior care may also have to charge fees that only wealthier families can afford. Will that work? Customers with the financial means could choose care under the family roof rather than shunting their seniors off into retirement.

Wang’s own company is purely focused on senior citizens and Pinetree’s business model is designed to reflect the current realities, in offering home visits from a qualified health professional. Clients pre-agree a programme with an expert, across a support network now being rolled out in Beijing. The idea is to develop a trusted healthcare brand, and then expand it into other Chinese cities. Fees range from Rmb200 a month for a single visit through to Rmb1000 for the most frequent schedule. The average client age is 75, with a few over 100.

Pinetree’s experience in adapting its business approach also has lessons for others. The company started out targeting the ‘silver market’ with travel, educational and financial services – replicating what AARP in the United States or SAGA in the UK do.

But it found that the generation that it was targeting still felt guilty about spending its money (or its children’s) on ‘nice-to-have’ services like a trip abroad. So it switched to healthcare, a service more likely to be considered a necessity.

It’s one experience that highlights the challenges in comparing China’s own senior citizens too closely to the American baby boom generation. The US boomers enjoy greater disposable income than any other American age group and control a disproportionate share of the national wealth. That’s not the case with their Chinese equivalents, although it would be a mistake to write off the Chinese market at the outset. There will soon be so many senior citizens that opportunities will present themselves. Per capita spending power is expected to grow too, from $1,620 in 2005 to $4,112 in 2015, according to the National Bureau of Statistics.

The potential market is bigger than the seniors themselves, as well. Many will receive financial support from their better-off children. Apparently, Pinetree’s revenue is split half-and-half between seniors paying their own bills and children paying for their parents.

Then there is the longer term potential. Famously, China’s rich are much younger than most of their international peer group. An HSBC survey released this month says that the average age of the wealthiest 10% of investors is only 36. That means the real value in China’s own ‘silver market’ could be a generation ahead…


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