If something hasn’t happened yet in China, there are probably good reasons why.
Here are four China businesses that are frequently cited 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 probably avoided (for now).
1. Senior housing (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, which is true. Plus there is rising consumer wealth and urbanization generally. And finally it’s a real estate business, which is basically China’s national sport. So senior housing 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 large volume? That’s a huge red flag.
I think 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 few opportunities to create wealth. They have little money and are culturally very frugal. Plus, many prefer to live in the same urban apartment buildings as their kids, not in some suburban specialty development. So, the market just isn’t there (yet).
If this market ever actually becomes attractive, you will know because you will see hundreds of developers jump in a matter of days. Wait for the rush. 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, IT investments, expansions, etc.). This is mostly because the political economics of public hospitals are entrenched and not terribly attractive. Plus, there are still problems with doctor and nurse mobility.
This situation could be changing and private hospitals are going up fast. There is lots of investment in them right now. But until they can be reimbursed by public insurance (just happening) or private insurance (still a dream), I am still more bearish about them than most. I think it’s just very hard build hospitals without insurance reimbursement. Most of these private hospitals are just big clinics. And it’s pretty difficult to compete with public hospitals.
The development of public hospitals depends on political reform and this is happening. But it is happening slowly. 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 (note: 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 pretty small relative to the population size.
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 housing. 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 good reason why. And it is easy to waste a lot of time trying to overcome such things. My general rule is “never be first in. Never be last out.”
China is really big. You can always find easier opportunities elsewhere. So don’t get too seduced by big demographic arguments. Focus on opportunities that are already proven and doable.
I write (and speak) about how rising Chinese consumers are disrupting global markets. (#ConsumerChina). This also includes work on:
- “China 2025″ – what a region transformed by Chinese consumers, companies and capital is going to look like. (#China2025)