Silver Economy
Smart product tailored for the elderly Liu Shuhui, in her early 60s, has a tight daily schedule. The lead dancer of a square-dancing troupe, Liu’s opinion is highly regarded in the community. People seek advice from her on everything from shopping for select items to travel and personal finance products.
Besides being a dance fanatic, the retiree from Shijiazhuang, capital city of north China’s Hebei Province, pours large amounts of energy into selecting useful lifestyle products, both online and offline, and sharing them with her peers via a WeChat [a Chinese social media] group. “They trust me, so I’d like to contribute,” Liu told ChinAfrica.
Liu is a classic example of the lucrative and yet untapped consumer market generated by China’s large elderly population. Observers say the market value of this demographic is expected to soar in the next few decades in sectors such as retail, tourism, healthcare and nursing services, personal finance and lifestyle. The current generation of retirees is more affluent and opts to accept the new ideas of the Internet age, thus providing a foundation for upgrading China’s consumption pattern.
Boosting consumption
“By 2030, the spending of China’s 60-plus population will reach 50-100 billion yuan ($7.9-$15.8 billion),” said Sun Chao, a partner and senior advisor on China’s healthcare sector with PwC’s Strategy&.
His prediction is well grounded in fact as China’s ageing population is growing at an alarming rate. According to statistics released by China National Working Commission on Ageing (CNWCA), the country’s population aged 60 and above totaled 241 million by the end of 2017, or 17.3 percent of the total population. The figure is expected to exceed 480 million in 2050, accounting for 34.9 percent of the entire population.
China has undoubtedly entered the era of an ageing society. But for Lu Baifu, former Deputy Director of the Development Research Center of the State Council, the ageing society is good for business and could create a silver economy that will spur consumption growth if it is well tapped. “Supporting the elderly population should not be only interpreted as a social burden, but as a burgeoning industry that is creating new demands and employment,” he added. One of the contributing factors making it such a lucrative sector is that the elderly have a fat wallet. According to CNWCA, 45 percent of urban elderly residents have bank savings. Bank deposits by the elderly exceeded 17 trillion yuan ($2.67 trillion) in 2016, with per-capita deposits standing at 80,000 yuan ($12,575).
With disposable savings at hand and a changing mindset on consumption, China’s retirees are easily induced to pay for goods and services, which is especially true with those on the cusp of retirement. The consumption pattern of those born in the 1950s and later is presenting new hallmarks. “Compared with the post-1940s generation who lead a thrifty life and are conservative in spending, the post-1950s and post-1960s generations tend to be more generous in spending. They get old and become rich personally with China’s economic rise,” said Li Dayan, President of DaAi City Investment Holdings Co. Ltd., a Beijing-based real estate developer specializing in services for the elderly.
Valuing quality of life
Specifically, the change is that their spending habit is evolving from focusing on life necessities to valuing entertainment, experience and quality of products and services.
“The market trend is corroborating the theory as more and more retirees are willing to pay for upmarket travel tours, healthcare services, and products tailored to their needs,” said Li, who is confident in the future of the silver economy and has invested heavily in the sector.
Square dancing grannies, like Liu, are seen as the gateway to profiting from the silver economy. Businesses like travel agencies, retailers and banks move in to harness their spending habit and to sell their products or services. “About 30 of us from the dancing group just came back from visiting Thailand, which cost about 5,000 yuan ($785.8) each for a six-day tour. It was a wonderful trip, and we are all satisfied and will plan more,” said Liu.
A report on China’s elderly travel market released by Ctrip, a Beijing-based provider of travel services, in 2016 showed that Chinese retirees made four travel trips on average every year with each spending 4,000 yuan ($628.7). Fifteen percent of them tended to choose cruise tours, a figure significantly higher than that of other age groups. They are also now opting to have expensive customized tours, with orders in this category increasing 5-fold that year.
Daily living and entertainment expenses and purchases of financial products are just the tip of the iceberg of the elders’ spending. The area attracting heavy investment is the nursing and healthcare sectors for the elderly, especially with a stream of government policy support put in place over the past five years. To the elderly, especially those with chronic diseases or losing self-care abilities, the need for daily care, health care and recovery are unconditional; but there is currently a huge gap between supply and demand.
To fill the gap and meet the diversified demands, the government explicitly allowed private businesses, including foreign ones, to invest in the elderly nursing and related sectors in 2013, and has introduced favorable policies in terms of market access, finance, taxation and land use since then.
Long-term view
However, despite this vast untapped potential, the fledgling nursing industry is also clouded with investment risks due to lack of a mature profit model. “Running nursing homes and elderly care institutions, especially upmarket ones, requires heavy and long-term investment to nurture the market, and thus is not an appropriate strategy for businesses that look for instant profits,” said Yu Wenxin, a healthcare market specialist with Haitong Securities.
Hu Chi echoed Yu’s sentiments and affirmed the private sector’s role in making up the gap of demands, stressing the necessity for a successful business to understand their corporate responsibilities when operating in the sector. “The supporting policies are significant as they will regulate businesses that are purely pursuing profits, and ensure the facilities’ purpose of serving the wellbeing of the public,” said Hu, a researcher with the Research Center of the StateOwned Assets Supervision and Administration Commission of the State Council. “Supporting the elderly is a public cause,” he said.
Li Dayan believes that investors need to see the long-term picture. “I’m confident of the profitability of the sector of tailored services that meet the great demand of the elderly for nursing, entertainment and companionship,” he said, adding that ultimately, quality service will be the key. To this end, it is also imperative to cultivate high-quality professionals specialized in nursing and related services and improve the payment and benefits system so as to retain people employed in the sector, said Hu.
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