[Senior Trend] Observing Senior Industry Innovation in China③

Lee Boram, CEO of Third Age

Since 2010, the Chinese Communist Party has sought to supplement the insufficient elderly care infrastructure by attracting not only private capital but also foreign investment. In November 2014, foreign investors were actively encouraged to establish for-profit elderly care service companies in China, which at one point led to visits from Korean high-end silver towns. Even before COVID-19, American and French companies partnered with Chinese real estate developers to create large-scale comprehensive silver towns. Currently, a significant number of major real estate developers are investing in the "elderly care real estate" industry, and silver town construction projects are underway across China. Meanwhile, according to the 2014 "China Insurance Industry Social Responsibility White Paper," Chinese insurance companies have allocated budgets in the trillions of yuan to elderly care town projects and related product launches. PingAn Insurance developed a silver town in Zhejiang Province, China Life Insurance publicly declared that "the silver industry is a key investment business" through its group chairman and made large-scale investments. Taikang Insurance has launched products combining silver towns and insurance. In particular, Chinese life insurance companies have built and operated silver towns in major cities while selling pension insurance that includes residency rights in silver towns, thereby expanding retiree communities.

The demand was overwhelming. The perception that "children should support their parents" gradually changed, and according to surveys of Chinese individuals with assets exceeding one billion yuan, the proportion of those wanting to stay at home after retirement was decreasing. Positive perceptions of "retiree communities" and demand for silver towns were increasing. While elderly care homes became popular among the lower-income class, the absolute shortage of numbers meant that some popular facilities had waiting times of up to 100 years. Last December, when organizing the Third Age China Senior Industry Inspection Group, the most anticipated place was the latest "urban-type silver town." It was created through a joint venture between two "state-owned enterprises" owned and managed by the Chinese government. The global financial giant CITIC Group and a real estate company operated by the Shanghai municipal government came together. Chinese state-owned enterprises are akin to public enterprises in Korea. They possess enormous financial power and operate closely aligned with policy directions. Although they make up only 5% of all companies in China, they account for about a quarter of total corporate revenue, making them formidable. The inspection was attended by a newly formed elderly care business association centered around a business school in Shanghai, and we were fortunate to participate. The location was convenient, about a 20-minute drive from Pudong, a financial district similar to Yeouido. Construction had just been completed, and seniors were being recruited.

This is the "Kunlun Project." It is a silver town targeting middle-class seniors. They said they already operate nine projects with a total of 5,000 beds in Shanghai and Hangzhou. The site we visited had 281 silver town rooms, 244 nursing home beds, accommodating a total of 525 residents. It consisted of four buildings: two for silver town use, one nursing home building, and one building for common areas. The silver town rooms were about 10 pyeong (35㎡) for single rooms and 16 pyeong (54㎡) for double rooms, with 50-year ownership rights being sold. Prices ranged between 400 million and 600 million KRW. In China, buildings can be owned privately, but land is owned by the state or collectives, which is a common situation. The monthly service fee was about 1.3 million KRW. Some other silver towns offer rental options, with similar levels costing about 3.5 million KRW per month. By 2022, seven facilities had opened, all fully occupied. This site also had pre-construction reservations, and a large apartment complex right in front attracted families' interest even during construction. The convenience of direct connection to the subway station suggested a quick sell-out. According to the Korea Trade-Investment Promotion Agency, the disposable income per capita of Shanghai residents in 2023 was about 16 million KRW, indicating a sufficient demand base.

While the external facilities could be achieved with capital, we expected operational know-how to be lacking due to the need for history, but that was not the case. Operating profits were about twice as high as those of Japanese or Korean silver towns. From Q&A sessions, we learned that sales are quickly completed. They use marketing budgets and strategies to identify real demand and deliver sales information. For example, demand analysis for actual residents was conducted, and LED lighting was used to promote menus. Interestingly, the chef who sets President Xi Jinping’s diet also designs the menu for this silver town. Resources and costs were strictly managed. The first floor of the common area was not a library but a bookstore. Local residents could comfortably come to buy books and have tea, generating rental income. Even the times for turning lights on and off were monitored to reduce inefficiencies. Since labor costs are the largest expense, staff were trained not to perform only fixed roles but to be like "supermen" capable of handling various tasks, and they actually worked that way. Instead, an incentive system was well developed. Programs were diverse, and there were activities residents could enjoy on their own.

We have visited various elderly care facilities and conducted related projects in Japan and Korea. In Japan, we felt delicate consideration and grassroots philosophies centered on the field. In China, the enormous reality of 300 million elderly people, which the government alone cannot fully manage, was palpable. This led to practical business and consumer service perspectives on how to ensure sustainability, moving commercially.

Where does Korea stand? Next, we will visit a startup operating a daycare center using the Internet of Things (IoT).

Lee Boram, CEO of Third Age