For Xie Sanmei， a 72-year-old retiree living in Beijing， ensuring financial security for herself is a major concern.

After battling cancer for three years， Xie’s husband died last December. His death came 10 months after the passing of their only son， who had suffered from mental illness. The father and son’s medical bills used up the last of the family’s savings， leaving Xie with little. Years of heavy housework have also left Xie suffering from high blood pressure， heart disease and other chronic illnesses.

Currently， Xie lives on a pension of 1，800 yuan （$295） a month. “After paying for food and medical expenses， I have little left to save，” said Xie， who is anxious about how she will pay for nursing services when she becomes unable to take care of herself.

Fortunately， the launch of a new “reverse”mortgage policy has come as relief to Xie， who owns a two-bedroom apartment. Xie and her husband bought the property more than 10 years ago after the government privatized home ownership.

New solutions

In an effort to explore elderly care solutions for China’s rapidly aging society， the State Council， China’s cabinet， issued a document on September 13 that promised a comprehensive social care network for people over age 60 by 2020， when the age group is expected to reach 243 million.

Together with a group of other policies， such as encouraging private investment in elderly care services， the reverse mortgage program was proposed and will be piloted next year in a bid to increase available financing for elderly care services.

A reverse mortgage allows the elderly to deed their houses to insurance companies or banks， which will then determine the value of their houses and the life expectancy of the owners， granting monthly payments in accordance with the evaluation.

Meng Xiaosu， Chairman of the Supervisory Board of Beijing-based Happy Life Insurance Co. Ltd.， first proposed the idea to the Central Government in 2003.

“They can live in their houses until they die or move out， then insurance companies or banks claim the houses unless their families pay back the money plus interest，” Meng explained.

“Reverse mortgages are good news to the elderly， insurers and banks，” said Zhan Chengfu， Director of the Department for Social Welfare and Charity Promotion under the Ministry of Civil Affairs （MCA）. Zhan added that once successfully implemented， the program would help ease the shortage of funding for elderly care， revitalize housing resources and expand the insurance business.

Thirteen years ago， China was put on the UN list of aging countries when 10 percent of the population was found to be over 60.

By the end of 2012， the number of citizens over 60 had already reached 194 million in China， accounting for 14.3 percent of the total population and making for the largest senior society on earth. According to a report released by the Beijing-based China Research Center on Aging in February ， the figure is expected to hit 202 million， or 14.8 percent of the total population， by the end of 2013.

The rising senior population has created a heavy financial burden. A joint study by the Bank of China and Deutsche Bank last year estimated that the aging population would leave China with a shortfall of 18.3 trillion yuan （$3 trillion） in pension funds by 2013.

Zheng Bingwen， Director of the Center for International Social Security Studies at the Chinese Academy of Social Sciences （CASS）， likened China’s pension system to a pyramid with the ground level being the basic pension pool， the middle level being companies’ supplementary pensions， and the top level being individuals’ commercial insurance.

“We need different channels to supplement funds. Reverse mortgages provide a plausible solution to supplementing elderly care，” Zheng said.

No easy answers

However， since its proposal， the house-for-pension program has received a mixed response， with many suggesting it signals the government is preparing to pay less attention to elderly care.

Facing criticism， the MCA delivered a statement on September 20， saying that the pilot program for reverse m4975aa8686cf1feaff33da13fafa5515ortgages will only cover a portion of the insurance fund’s investment in elderly care services. It also stated that the State Council’s decision to pilot the program is well thought out and appropriate based on studies and international experience in the field.

Several cities， including Beijing， Shanghai， Nanjing in Jiangsu Province and Hangzhou in Zhejiang Province， have been testing the program since 2003， but all had fared badly due to obstacles unique to China’s current national condition.

According to Tang Jun， Secretary General of the CASS’ Social Policy Research Center， one such roadblock is China’s 70-year lease policy on real estate.

As the Property Law of China， private property can only be leased for a maximum of 70 years. Though laws also stipulate that the lease can be automatically extended， the cost of lease extension is not specified.

“The 70-year lease on commercial housing makes it more difficult for insurance companies and banks to evaluate the value of private property，” Tang said.

The volatility of the property market also adds to financial institutions’ hesitation over the program as they worry that a possible drop in housing prices may undermine their interests， Tang added.

Guo Ping， a researcher with the China Research Center on Aging， agreed. He said that stable housing prices and well-implemented regulations are two things necessary for reverse mortgages to succeed.

“It’s hard to predict housing prices in the future because on the one hand， property prices keep rising， while on the other， the government has introduced measures to cool down the property market，” he said.

According to Guo， the elderly would be more likely to break their contracts if housing prices grew rapidly after banks underestimated the value of their properties. This is because an undervalued property reduces the payout the homeowner would otherwise get.

The enthusiasm from insurance companies and banks over reverse mortgage services will also taper off if government policies bring housing prices down， Guo warned. With a lack of clear regulations on reverse mortgages， most insurance companies and banks are reluctant to get involved right now， he added.

“The idea also challenges the traditional Chinese beliefs that parents will rely on their children to take care of them and leave their property， especially their houses， to them as inheritance，” said Zhang Wan， a wealth manager at a branch of China CITIC Bank in Shanghai.

In April last year， China CITIC Bank began issuing a card that allows users to enjoy services that include reverse mortgages， investment and making appointments with doctors.

“The card has been very popular among our elderly clients， but none have applied for a reverse mortgage at our branch so far，” Zhang said. Those who did inquire about the service were either not qualified because they were not the only owners of their properties， or were reluctant to apply for fear that the heirs to their property would complain.

Analysts have commented that the reverse mortgage scheme is mainly aimed at serving the elderly whose children are deceased or who otherwise do not have heirs.

Du Peng， Director of the Institute of Gerontology at the Renmin University of China in Beijing， suggested that the program should only be thought of as a financial alternative in facilitating elderly care， instead of a major pillar of support in the nation’s elderly care system.

“What the government should do is to reassure the public that they will be able to live a decent senior life with sound and sustainable elderly care mechanisms and advanced facilities in place to support them，” Du said.

Ma Li， a counselor at the State Council， said that the country should build support mechanisms for retirees that are based on home care and supplemented with assistance from communities. Meanwhile， facilities and services should be greatly enhanced， with more efforts needed to expand the sector’s workforce.

Nurse shortage

The State Council document also announced that the government is to change its current single-handed approach and encourage foreign and private investment in elderly care services to meet the growing demand from the country’s aging population.

“Previously China’s elderly care services only dealt with food and clothing. A more modern vision of services focuses on integrated care，” said Wang Zhenyao， Dean of the China Philanthropy Research Institute at Beijing Normal University.

The State Council said that the country aims to build an improved system covering day-to-day care， medical care， psychological counseling and emergency aid by 2020.

To meet this goal， the Central Government vowed to improve finance， land supply， tax reduction， fiscal subsidies， personnel training and employment policies.

To encourage private investment， civil affairs authorities are planning reforms to current regulations， which currently focus on administrative licensing and supervision of nonprofit organizations in the sector， according to Dou Yupei， Vice Minister of Civil Affairs.

Dou said that the government would sim-plify registration procedures for individuals and organizations dedicated to providing care services for the elderly.

“Introducing foreign and private investment is necessary， as state-run elderly care service systems cannot meet the growing demand of our aging society，” said Tian Yun， Editor in Chief of the China Macroeconomic Information Network website， run by the China Society of Macroeconomics.

As of the end of 2012， only 41 percent of urban communities in China had been capable of providing care services for the elderly， while in rural areas that number was just 16 percent， according to the MCA.

Homes for the elderly could only provide about 4.3 million beds nationwide in 2012， which means there were only 21.5 beds available in China’s nursing homes for every 1，000 elderly people， said the Social Development Institute under the National Development and Reform Commission， China’s top economic planner.

The institute recently issued a report on the development of the country’s elderly care service sector， revealing that nursing homes in China are generally in poor condition with inefficient management.

The report cited a lack of competition between service providers and a need for a payfor-performance regime covering employees at publicly funded nursing homes. It said that without these and other changes， those institutions would continue suffering from slipshod management， overstaffing and rigid operations.

Private participation

Wang Hui， Director of the Division of the Welfare for the Elderly of the MCA’s Department of Social Welfare and Charity Promotion， said that China still needs about 10 million nursing home beds.

Wang Hui said that the government cannot afford the steep costs for nursing home construction projects， estimated at about 100，000 yuan （$16，390） per bed， or about 600 billion yuan （$98 billion） nationwide to meet current demand. Staffing nursing homes would be expensive as well， since at least 10 million caregivers would be needed if enough beds opened to meet current demand.

“We’re short on both money and people，” he said.

Publicly funded operations， he said， should be replaced with nursing homes built through cooperation between the government， social organizations and businesses.

Wang Hui saw two frames of reference for the reform. The first is tied to China’s reform and opening up， which began in 1978 and has fostered growth for the private economy while spearheading market-oriented reforms at stateowned enterprises.

A second reference frame can be found in the evolution of the hotel industry in China. Over the past 30 years， the industry has shifted from one based on state-run guesthouses to a sector with a wide variety of consumer-oriented business catering to a wide range of preferences and budgets.

Wang Hui argued that the groundwork can be laid through nursing homes built with public funds but operated by private companies. Such a system， he said， could help the government meet goals by providing services for more seniors.

Besides money， Wang Zhenyao believed the introduction of private and foreign investment will also bring improved technology and standards as well as promoting competition.

“Giving private entities more responsibility for nursing home services does not mean that the government is passing the buck，” Wang Zhenyao said. “The government will still be responsible for developing and defining service standards.”

However， challenges remain serious for potential investors in China’s elderly care service sector. For instance， upfront investments are large， as is the demand for well-trained caregivers. Meanwhile， the return on investments is slow as most senior Chinese citizens are financially impaired.

According to statistics from the Ministry of Human Resources and Social Security， company retirees received an average 1，900 yuan（$311） in monthly pension payments during 2012.

Xu Yongguang， Vice President of the Narada Foundation in Beijing， who specializes in aging studies， revealed that less than 10 percent of privately run nursing homes in China make a profit.

“It is important for the government to implement incentive policies to encourage private investment in elderly care services and create a fair environment for competition in this fledging sector，” he said.

Zhu Longying， Director of the Jiangsu Civil Affairs Bureau’s Department of Social Welfare， suggested that the government provide help for startups and guide investment to the most needy areas， such as nursing care for disabled elderly people.