Speech by Jules Falzado, Engagement Manager in SmithStreet, to give insights on the opportunities in China’s elderly care facilities market. Topics like China’s aging tendency, current healthcare facilities and services, market dynamics and opportunities are covered in slides. In addition, government-run nursing homes and private nursing homes has been used as a case study for better understanding. See more at http://smithstreetchina.com

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Opportunities in China’s
Elderly Care Facilities Market
April 17th, 2014

2. About SmithStreet Healthcare
SmithStreet’s Healthcare practice provides
companies who want to enter China or who are
already operating in China with relevant regulatory,
commercialization, financing and physician / patient
behavior insights to effectively design and implement
strategies – be it market entry, expansion,
commercialization, price optimization, distribution or
others.
Healthcare in China is one of the biggest and fastest
growing in the world, largely driven by growth in
government expenditures and increasing purchasing
power of consumers for private healthcare
consumption. The market has become lucrative for
local and foreign corporations alike. It has
encouraged foreign companies who have already
penetrated to continuously expand to cover other
developing regions and has invited other
multinational firms to consider designing an entry
strategy to capitalize on this growth.
In this dynamic and complex environment, our
investigative, bottom-up approach to primary
research is highly effective in helping our clients
develop a suitable market entry or growth strategy for
their business.
We have worked with various healthcare companies
and have developed particular expertise in the
following categories:
 Consumer health
 Prescription and other specialty pharmaceutical
drugs
 Medical devices and consumables
 Professional medical services
 Health insurance
Jules Falzado
Engagement Manager
+86 139 1618 2351
jules.falzado@smithstreetsolutions.com
@SmithStreetCN
SmithStreetSmithStreet
48 Zhengyi Road, 12th Floor, Yangpu, Shanghai, China 200433
Tel: +86 (21) 6565-6533
Fax: +86 (21) 6565-6534
info@smithstreetsolutions.com
Follow us ONLINE!
www.smithstreetchina.com
China Spotlight (Group)

3. 2
Today’s Discussion on China’s Elderly Care Facilities
China Situationer Market Dynamics Q&A

4. 3
1980 2010 2040E
Pop’n 0.98Bn 1.36Bn 1.44Bn
65+ y.o. 5.1% 8.5% 22.1%
Life Exp 67 years 75 years 77 years
China is aging – by year 2040, 22% of the population are 65+ y.o.
and average life expectancy would have gone up to 77 years
Sources: UN Department of Economic and Social Affairs, Population Division; The World Bank Database
% Population Distribution by Age
-8 -6 -4 -2 0 2 4 6 8
100+
95-99
90-94
85-89
80-84
75-79
70-74
65-69
60-64
55-59
50-54
45-49
40-44
35-39
30-34
25-29
20-24
15-19
10-14
5-9
0-4
-8 -6 -4 -2 0 2 4 6 8
100+
95-99
90-94
85-89
80-84
75-79
70-74
65-69
60-64
55-59
50-54
45-49
40-44
35-39
30-34
25-29
20-24
15-19
10-14
5-9
0-4
-8 -6 -4 -2 0 2 4 6 8
100+
95-99
90-94
85-89
80-84
75-79
70-74
65-69
60-64
55-59
50-54
45-49
40-44
35-39
30-34
25-29
20-24
15-19
10-14
5-9
0-4
Male Female
% of Total Population, 1980 vs. 2010 vs. 2040E

5. 4
Access to quality healthcare facilities and services is still confined
within certain groups of the population
Sources: SmithStreet Analysis; Country Statistical Yearbook (2012); The World Bank Statistical Databases; OECD Health Statistics
3.1
3.3
13.4
4.3
US
Canada
Japan
China
2.7
2.0
2.3
1.9
US
Canada
Japan
China
$926
$558
$472
$33
US
Canada
Japan
China
85%
100%
100%
96%
US
Canada
Japan
China
Hospital Beds per 1k Population, 2012
Doctors per 1k Population, 2012
Gov’t Health Expenditure per 1k Population, USD MM, 2012
Public Health Insurance Coverage, %, 2012
Note: Number of nurses for per 1,000 is 1.85 in 2012 with historical CAGR of 7.8%; urban has more than 3x nurses than rural
China’s urban locations have twice
the no. beds per 1,000 than rural
3% growth in the number of
doctors; 2.3x more doctors per
1,000 in urban locations
12th Five-Year Plan to allocate at
least USD 1.5Bn on elderly care
Varying coverage across city tiers;
Basic Medical Insurance does not
cover elderly care services

6. 5
Economic development resulted to massive urban migration and
by 2035, 70% of the population will be residing in cities
Sources: SmithStreet Analysis; China National Bureau of Statistics; “Census: Population hits 1.37b” (China Daily Europe, 4th April 2011)
BEIJING (Tier 1 City) SHANGHAI (Tier 1 City)
GUANGZHOU (Tier 1 City) CHENGDU (Tier 2 City)
11 13
3
7
2000 2010
1%
4%
10%14
20
14 14
3
9
2000 2010
<1%
3%
11%17
23
7 8
3
5
2000 2010
2%
3%
4%
10
13
10 11
1
3
2000 2010
1%
2%
9%11
14
City Population: Locals vs. Migrants
Population in Millions, CAGR %, 2000 vs. 2010 Locals Migrants
National Urban vs. Rural Population
%, 2000 vs. 2010 vs. 2035E
36%
50%
70%
64%
50%
30%
2000 2010 2035E
Urban Rural

7. 6
Exposure to new formats and
concepts, especially premium
and luxury
Evolution of consumer
preferences and decision-making
considerations
Penetration of Western
influences in more urbanized
cities and commercial locations
Impact of social media on
increasing awareness and
coverage
Increasing demand for quality
and better service levels
The establishment of super cities has exposed the population to
new concepts, particularly those from Western cultures
Source: SmithStreet Analysis
SmithStreet Case Study: Luxury Experience Curve
Leather Accessories
and Sunglasses are
typical entry points
Consumers quickly
move into
Handbags, Shoes
and Bridal Jewelry
Luxury RTW, Fashion
Jewelry and Luxury
Watches are purchased
at much higher levels of
luxury experience
Fine Jewelry is
the last category
to develop
ConsumerSophistication
Consumer Exposure to Luxury MoreLess
Less
More
Illustrative

8. 7
Today’s Discussion on China’s Elderly Care Facilities
China Situationer Market Dynamics Q&A

9. 8
Only 2% of China’s 65+ y.o. are enrolled in nursing homes, much
lower than the 5-7% level in the developing countries
Sources: SmithStreet Analysis; China National Bureau of Statistics; Statistical Report of the People’s Republic of China on the Development
of Social Services (2008-2012); UN Department of Economic and Social Affairs, Population Division
Elderly Population (65+ y.o.) vs. Nursing Home Enrollment
Millions
110 113 119 123 127
~168
~235
~317
2008 2009 2010 2011 2012 2020E 2030E 2040E
Population of disabled and
partially disabled elderly will
reach 45MM by 2020
Reasons for Current
Low Enrollment Rate
 Strong filial piety, especially
in rural areas
 Shortage in the number of
beds in quality and
affordable facilities
 “The old are not wealthy
enough and the wealthy are
not yet old”
Nursing Home Enrollment#
2
2
2
3
3
~3
~5
~6

10. 9
The elders’ realization that they, too, need care and the
improvement in pension coverage will drive future demand
Sources: SmithStreet Analysis; Realwise Report on Elderly Residential Model for China (2012)
Demand Drivers
Paradigm Shifts
 Their children are already
burdened
 Children are not technically skilled
to provide elderly care
 Family members are not always
around to look after them
Financially
Prepared Future
Elders
 Pension benefits are projected to
grow from USD 140Bn in 2010 to
USD 1.2Tn by 2030
Introduction of
New Concepts
 Innovative nursing home models
as influenced by foreign players
 Premium nursing homes
becoming a social status symbol
CLIENT
REQUIREMENTS
 Physically “liveable”
 Better life / recreational
and social activities
 Medical services for
device- and nurse-aided
elderly

11. 10
China has ~43k nursing homes with total capacity of 4.8MM beds
Sources: SmithStreet Analysis; China National Bureau of Statistics
Guangxi
Henan
Shanxi
Hunan
Guangdong
Jiangxi
Zhejiang
Shandong
Jiangsu
Hebei
Jilin
Liaoning
Shanghai
Beijing
Tianjin
Xinjiang
Qinghai
Tibet
Yunnan
Guizhou
Sichuan and
Chongqing
Hubei
Anhui
Fujian
Inner
Mongolia
Heilongjiang
Shaanxi
Hainan
Gansu
Ningxia
Elderly Care Institution Beds by Province
Number of Beds per Thousand Elders, 2012
> 30 21-30 11-20 < 11
Nationwide: 21.5 beds per 1,000
4 fast-aging Mainland China provinces have
bed-to-elderly ratios below national average
Province
% of 65+ y.o.
Population
Beds per
1,000 Elders
Shandong 8% 28.4
Sichuan 8% 29.5
Jiangsu 7% 36.7
Henan 7% 20.6
Guangdong 6% 9.7
Hunan 6% 17.3
Hebei 5% 18.8
Hubei 5% 28.6
Anhui 5% 30.7
Zhejiang 4% 33.1
21 Others 40% -
Total 100% -

12. 11
The imbalance in regional demand and supply results to the
shortage of beds in key cities and longer waiting times
Sources: SmithStreet Analysis; China National Bureau of Statistics
Why is there shortage if the
available beds (~4.8MM) exceed the
actual enrollees (2.9MM)?
 74% of total facilities are in rural areas,
mostly low-end public nursing homes
 Lack of beds in premium government
facilities with better quality and lower
price
 Mid-range private nursing homes provide
for the shortage in beds; market is limited
due significant price difference
Beijing No 1
Social Welfare
House
10k still queuing;
only100 elders
leave annually
At a government-run
nursing home in
Guangzhou, beds are fully
occupied and more than
100 people are queuing
Shanghai Yangpu
District Social
Welfare Home
Only beds for males
are available; female
elders need to wait for
6-12 months

13. 12
There is also a significant shortage in caregivers, which often
results to utilization of underqualified manpower
Sources: SmithStreet Analysis; Huan Zhang’s (VP for the China Academy of Social Management, Beijing Normal University) Speech at the
National Elderly Care Human Resources Development Forum (May 2013)
National Target:
6MM Caregivers by 2020
220k caregivers
9% certified and
qualified
14% certified but
underqualified
77% NOT certified
Low-paying job
(USD 240-400 per month)
Social stigma – not regarded
as an important medical
professional
Very demanding job
requirements
Reasons for Shortage
40-50% churn; need
to develop 2MM new
caregivers per year

14. 13
Operating nursing home facilities in China involves management
of multiple stakeholders
Source: SmithStreet Analysis
Government
Land Lease, Tax Shield,
Overhead Subsidy
Management
(Public),
Subsidy
Real Estate HospitalServices
Sub-Contract
Services
Project
Funding,
Elderly
Financing
Caregivers,
Household
Service
Medical
Services
Insurance
Nursing Homes
Infrastructure

15. 14
Government subsidy enables public nursing homes to offer
complete package at less expensive prices
Source: SmithStreet Analysis
Ownership
No. of
Beds
Medical Nursing
Accept
Disabled
Location Price Occupancy
Private 300+    Suburb Very High High
Private 300    Urban High High
Private 200    Urban Medium Medium
Private 50    Urban Low Low
Government 500+    Urban Medium Very High
Government 300    Urban Low High
Government 30    Rural Very Low Low
Government vs. Private Nursing Homes
High Low

16. 15
Shanghai Yangpu District Social Welfare Home
 1,000 beds
 95% occupied
 Typical Charges
Public nursing homes are owned by the government and are
accessible at lower prices
Sources: SmithStreet Analysis; Yangpu District Social Welfare Home Official Website
Item Fees / Month
Rent USD 100-300
Meals USD 90
Personal
Care
USD 240
Medical
Services
Depends on
services
Others Up to USD 40
Government
Nursing Homes
Business Model
 Government-owned
(province, city, county)
 Financing from government
budget, fee collections and
donations
 Operations are currently
managed by the government;
gradually sub-contracted to
third-party partners
Ningbo Shiqi
Street Nursing
Home
 200 beds
 90% occupied
 No resident
doctor
 Max of USD
200 per month

17. 16
Private nursing homes implement different revenue generation
models depending on developers and service formats
Project
Foreign
Partnerships
Target Clients
Services &
Facilities
Star Castle
(Fosun Group)
 Fortress
Investment
Group
 Retirees from
state-owned
companies
 Professors
 Executives
 High-Income
Groups
 7/24 Care
 Personal
Doctor
 Entertainment
 Education
 Shuttle Bus
Tide Healthland
Campus
(Tide Holdings)
 Aveo Group
(Australian
service and
ops company)
Tide Healthland Campus
(Qingpu, Shanghai)
Star Castle (Baoshan, Shanghai)
Sources: SmithStreet Analysis; Miscellaneous Official Company Websites
Revenue
Generation
Models
 Rent: Monthly or yearly charges
(e.g., Star Castle)
 Property Sales (e.g., Tide
Healthland Campus)
 VIP: Charge a huge amount for VIP
membership at the beginning,
followed by periodic smaller fees

18. 17
Jiangsu
Hebei
Beijing
Guangdong
Guangxi
Hubei
Liaoning
Shandong
Shanghai
Zhejiang
Hainan
Harbin
Shaanxi
Current private nursing home development is concentrated in the
Bohai Sea Ring Area, Yangtze River Delta and Pearl River Delta
Sources: SmithStreet Analysis; Miscellaneous Official Company Websites; Guosen Securities Report on Pension Estate Industry (Feb 2014)
Guangzhou
, Nanning,
Sanya
Shanghai, Jiaxing,
Nanjing, Hefei
Beijing,
Langfang,
Shenyang
Xi'an,
Wuhan
Real Estate
Services
Insurance
Foreign
Players
Private Players in China Locations of Current Development

19. 18
While the market is largely driven by local private companies,
foreign investments and JVs have also started to come in
Sources: SmithStreet Analysis; Miscellaneous Official Company Websites
1,600
160
97
48
32
Membership
community
Senior care facilities +
residential areas
Multi-purpose
functioning service
centers
Short-term residence
(migrants)
Continuing Care
Retirement
Communities
Private Investments on Elderly Care Facilities
USD Millions
Typical entry models for foreign players:
 Joint-venture with local company
 Strategic cooperation or alliance
 Foreign Direct Investments (FDIs) have
not been successful due to lack of
supporting government policies

20. 19
Elderly care facilities is still at its infancy stage but offers high
long-term growth opportunities
Changing lifestyles resulting to improvement
in the adoption of elderly care concepts
More financially prepared future elderly
population (income, financial investments)
Exposure to new concepts (luxury / premium);
increasing expectations on service quality
Regulatory improvements: land acquisition,
corporate registration, implementation rules
Operations of public nursing homes gradually
outsourced to private companies
The Chinese
consumers are
evolving
Industry infrastructure is not yet fully
integrated; shortage in manpower
Further cooperation between local and
foreign companies
Increasing
engagement of
private players
GROWINGDEMANDONNURSINGHOMES
INCREASINGPRIVATEPARTICIPATION

21. 20
New market entrants must be ready to address strategic and
operational challenges to maximize opportunities
Localization of service proposition
Regulatory and government requirements
Financing / revenue generation model
“Shelf-life” of foreign entities
Profitability of business model / capacity management
Shortage in manpower (qualified caregivers)
Strategic partnerships with local entities
?

22. 21
Today’s Discussion on China’s Elderly Care Facilities
China Situationer Market Dynamics Q&A