A Chinese Solution for the Chinese Market

Late last week I had the opportunity to tour Cherish Yearn, the Shanghai CCRC.  I want to be sure and say a very big “Thank You!” to who was kind enough to coordinate the tour.  This development matters for a number of reasons, but perhaps the most important one is this:  it is a Chinese solution for the middle class Chinese market.  When looking at Cherish Yearn it can be easy to take the Western perspective on senior housing and make the obvious comparisons and contrasts (and, some of what follows will certainly reflect my own Western biases); yet in doing this I fear we overlook that what Cherish Yearn has deployed is what Chinese developers and operators think works for their market.  Keep in mind that as pointed out in his excellent recap of the Chinese Senior Housing market last month, Cherish Yearn has recently been chosen by the largest real estate developer in China, Vanke, to operate their senior center in the planned Xingfuhui CCRC.  As a community of learners, it is important to think about what Cherish Yearn is and is not offering in terms of services and infrastructure as an insight into what the Chinese senior care market currently wants from its providers.

The basics of Cherish Yearn are worth a quick review:  built in 2005 at a cost of slightly under $100m, this CCRC has a total of 15 buildings (1 hospital, 1 hotel, 1 cafeteria, and 1 large building with administration and the MegaFit health club).  The residential buildings have 60 units per building.  Reference the picture for more information on which building is which (#1 – hotel, #10 – hospital, #2-9, 11-15 residences).  It is important to note that as of last week, buildings 12 and 13 are empty (finished but no occupants) and building 15 is 50% occupied.  Given the development is 7 years old, this might suggest a more rationalized deployment of capital would have waited to build these buildings.  In China this phenomenon is of course not unique to China senior housing, so it should come as no surprise that this particular development may have built out too much too fast.  I do think it also underscores the need to proceed with a bit of caution in terms of project scale when thinking about a new CCRC.  If as a Chinese solution for the market Cherish Yearn needed more time to market itself, this further reinforces the idea of going in small, building and refining your model, before aggressively expanding.

’s most recent newsletter referenced the Shanghai Chongming Island development (50,000 people when all three phases are completed with a first phase covering 2,700 acres, building out 7,700 units, and housing almost 10,000 people).  Certainly the potential market in China is huge, but count me as someone who would want to be more cautious about whether the market is yet ready to support that level of development.  I spent Saturday afternoon in Beijing with a long-time China hand that knows the country’s healthcare market extremely well.  During our conversation, he shared that the market opportunity he viewed as most poorly understood by Westerners was senior care.  Why?  Simply because no one has any idea what sort of model is going to work.  With that sort of ambiguity, smart and patient capital is going to start small, learn and gradually scale up.

Back to Cherish Yearn:  what makes the Cherish Yearn model different?  For one, the residents have noticeably greater autonomy than what we would see in a similar Western facility.  As was put to me during my tour, in the West residents want the facility to provide activities for them to access.  They value – and are willing to pay for – the operator to provide activities.  At Cherish Yearn, the residents want to manage their activities on their own.  They want to get their own social groups together and do their own things.  They expect the facility to have common areas for them to gather, and basic tools at their disposal (this group of lovely ladies were so much fun as they worked on some neat bead projects).  Cherish Yearn provides an arts and crafts center, a coffee shop / café, a calligraphy area and the like.  But the residents coordinate the activities that happen within these common areas:  when they want English lessons, they go outside on there own to make that happen.  When they want dance lessons, they go find their own instructor.  When they want a Tai Chi instructor, they get one they like.  Why is this?  I asked several people at a couple of different Chinese CCRCs last week about this and one mentioned that the Chinese remain very wary about paying for services like this.  They think if the center provides them for the group, it is somehow rolled into the costs.  Because these are very, very savvy and thrifty people, they would rather pay for the infrastructure and plan their own activities than have these expenses rolled into their monthly expenses or up-front membership fee.

This observation dovetails nicely with observed behavior from Chinese consumers of healthcare during hospitalization.  We know from how the Chinese consume healthcare in general that they are going to be very careful shoppers when it comes to paying for ancillary senior care services.  We also know that Chinese businesses in general are very reluctant to pay for services as well.  What does this suggest for Western eldercare operators?  You can assume your offering is going to be highly shopped and very critically evaluated.  What we think the Chinese consumer will value – planned activities versus providing the infrastructure for the activities to take place within – represents one of the adjustments that should be considered both in your marketing and pricing strategies.

Facility design also reflects Chinese insights into what seniors want.  The model of Cherish Yearn reflects autonomy not just through how services are provided, but how the various facilities are connected.  Cherish Yearn is, as most Chinese planned communities are, an inter-connected walking experience.  Paths connect the buildings to one another and are covered to make walking during inclement weather possible.  Residents likely want a housing experience that parallels their sense of community, which in China means walking to get food, meet up with friends, and participate in activities.  It is anything but a sedentary development, very much by design.

Early next week I will have a more comprehensive overview of the Cherish Yearn facility with pictures and more information on their pricing.  For now, I would be really curious to get feedback from readers on what they think are the different expectations Chinese have for senior care versus what Westerners want?