If something hasn’t happened yet in China, there are probably good reasons why.
Here are four China businesses that are frequently in the news as big opportunities. But I think they all fall into the category of “well, if it’s so great then why hasn’t it happened yet?”. Thus, I think they should be viewed with skepticism and avoided (for now).
1. Senior living (i.e., real estate for the elderly)
An explosion in Chinese senior housing has been predicted as imminent for about 10 years. This follows from excitement about China’s seniors as a big and rapidly growing population. Plus there is rising consumer wealth and urbanization generally. And finally add to this the fact that it’s a real estate business, which is basically China’s national sport. So senior living hits all the big China trend buttons.
So why are there still so few senior living projects in China? With 1.6 million apartments built per year and tons of aggressive developers, why are we still not seeing senior units in any significant volume? That’s a huge red flag.
The main reason is because Chinese seniors are not actually a wealthy demographic. They are the tail end of the generations that grew up without any opportunities to create wealth. They have little money and are culturally very frugal anyways. Plus, most prefer to live in the same urban apartment buildings as their kids, not in some suburban specialty development.
If this market ever actually becomes attractive, you will seen hundreds of developers jump in in about 3 months. Until then, I would avoid it.
2. Public hospital privatizations
Demographic and consumer spending trends all point to robust hospital growth. But we still have not seen much activity in State-owned hospitals (refurbishments, operational improvements, M&A, expansions, etc.). This is mostly because the economics of public hospitals are politically entrenched (and not attractive). Plus, there are big problems with doctor and nurse mobility.
This situation could be changing for private hospitals. There is lots of investment in them right now. But I am still more bearish about them than most (it’s hard to compete with a free hospital).
Absent political reform, I think public hospitals are going nowhere fast. There is a reason why China’s hospitals have lagged behind those in most every other developing economy (especially India).
3. Canned soup
Ok. This is not a frequently discussed opportunity but I think it’s interesting so I added it.
Convenience foods in China are wildly successful – especially products like instant noodles and “long life” milk. Kangshifu’s business in China has made it the world’s largest noodle manufacturer. And China’s “long life” (i.e., you don t need to refrigerate it) milk industry has boomed on the back of scary stories about what is sometimes in real milk.
But other convenience foods, such as canned soup, are surprisingly absent. It turns out it’s hard to sell food in a can when there is a fresh vegetable market down the street. The availability of cheap farms, retired labor and a robust mom-and-pop food sector makes it a tough market for companies trying to sell canned soup.
4. Funeral and burial services
There was a particularly hot funeral services IPO in Hong Kong a few years ago. And there is a big elderly demographic argument for this business. About 9M Chinese die per year (1M from smoking).
But Chinese funeral companies are still conspicuously small, underdeveloped and local – with a mix of private and state-ownership. Even the market leaders are very small.
The reason is the regulatory environment and the limited availability of land for burial. The market is actually there and is proven, unlike in senior living. But the rules have largely stunted the development of the industry. Most of the action is actually in selling burial plots like real estate.
Overall, my advice is to keep in mind that if something hasn’t happened yet, there is probably a big reason why. And it is almost always a waste of time trying to overcome such things. China is really big. You can always find easier opportunities elsewhere – such as in fast food (The 1 Question That Matters for KFC and Pizza Hut in China) and beer (2 Charts Show How Carlsberg Won in China).