29 Mar 2016
Aged care services will undergo change to see rapid expansion in the next two decades in Asia as the region undergoes massive growth in consumer spending fuelled by rising household incomes.
In China, services for the ageing is likely to be the biggest growth opportunity due to an ageing population and a shift from an investment to a consumption and services-driven economy.
"It's one of the hot areas right now and a lot of entrepreneurs are jumping into this sector," Macquarie Securities China economist Jerry Peng says.
"There will be some 200 million elderly people in the coming decade. The demand for health care and old age services is huge."
Peng says China's government has identified aged care as a sector in need of rapid advancement if the country is to equip itself to look after its elderly.
The potential for business is spread across areas as diverse as retirement and nursing home real estate, pharmaceuticals, medical services, insurance and support services.
Significant growth in this sector is just one potential highlight of China's transition to an economy driven by consumers and service-based.
In 2015, the services sector's share of GDP surpassed 50 per cent for the first time in history.
"It is already happening and it is happening very quickly," Peng says.
"But if you look at other advanced countries, it's typically above 70 per cent so there is still room for growth."
Macquarie analysts predict the services sector's share of the Chinese economy will grow toward levels seen in the United States and Japan – 79 per cent and 73 per cent respectively – over the next two decades.
Peng says tourism, education and healthcare are well positioned to benefit because "these sectors, compared to the goods producing sectors, are much less developed."
On top of the expected growth in services, rising household incomes are fostering a boom in the consumption of goods.
In the past 20 years, China has emerged as the world's fastest growing consumer market. Rapid income growth is fuelling the rise of the Chinese middle class and demand for a wide range of goods.
Peng says that in recent years, household income growth has outpaced overall economic growth.
While investment's share of GDP is expected to have peaked, Macquarie forecasts that the importance of consumption will continue to increase.
Today, household consumption only accounts for 38 per cent of GDP in China, an exceptionally low level compared to most countries in the world says Peng.
Macquarie expects a range of fiscal and social reforms are still needed to fully unleash the power of the Chinese consumer.
If carried out properly, there could be significant benefits in areas from "food and computers to automobiles and real estate".
"Pharmaceuticals, high end manufacturing, IT, technology sectors: in those sectors we've seen very high growth despite economic downturn," Peng says.
"These consumer industries are well-positioned. Auto sectors, tech and internet, entertainment, healthcare – these are the future of China."
China has already overtaken the US as the world's biggest passenger vehicle market. But its vehicle ownership rate is still just a fraction of that in the US – 90 vehicles per 1000 people in China, compared to 800 vehicles per 1000 people in the US – signalling huge potential for growth.
A similar consumption story is unfolding in other Asian economies.
In Japan, where an ageing population is also a demographic feature, Macquarie predicts the "affluent elderly" will become a major consumption force as a result of living frugally and saving over decades.
The affluent elderly – households over the age of 65 with income of more than $US50,000 per annum – "is a growing market opportunity already half to size of Italy's GDP," Macquarie says.
In India, a young population, urbanisation and rising internet and smartphone penetration is expected to drive consumer spending.
Since 2005, India's middle class has risen from 22 per cent of its population to 31 per cent.
Macquarie's India economists estimate this figure will remain largely stable over the next two years, but that the proportion of rich households in India will double to 10 per cent.
This is expected to make room for high levels of discretionary spending in these two income brackets, noting research by the Boston Consulting Group, which estimated consumer spending in India would rise from nearly a trillion USD in 2010 to about $US3.6 trillion by 2020.
This growth is expected to be led by spending on clothes, personal care, durables, communication and leisure.
There are also likely to be significant opportunities for e-commerce companies in India over the next five years, where boosting internet access from just 19 per cent of the population is expected to be a key focus of urban planning.
The number of smartphones sold in India is also expected to grow rapidly from just 17 per cent of all phones in 2013 to 50 per cent by 2017.
As a result of rising smartphone penetration, and Indian consumers growing demands for faster internet connections, e-commerce companies are shifting their focus to mobile apps.
Across many Asian economies, the trend toward higher incomes, urbanisation and advances in technology is likely to bring massive changes to consumer lifestyles and with it a greater emphasis on "premiumisation" of everything from cars and motorcycles, to branded jewellery and
For a full copy of the '20 years in Asia” report please contact your Macquarie Representative.