Chinese authorities have introduced stringent new regulations targeting the charging of fees in advance by privately run nursing homes. Experts say the move addresses potential financial risks in the burgeoning elderly care sector and forms part of a broader effort to protect the life savings of seniors from malpractice and fraud.

The core of the new rules — released recently by the Ministry of Civil Affairs and the National Financial Regulatory Administration — is the mandatory establishment of a commercial bank third-party custodianship system. According to the rules, all advance fee funds must be deposited in full into a single, specially designated custodial bank account. No transfers to other accounts are permitted. Nursing homes must apply to the custodian bank for any withdrawal, stating the purpose and providing documentation.

Custodian banks are obligated to refuse suspicious transactions and immediately alert regulators. They must also develop systems that interface with civil affairs departments for real-time fund-flow monitoring. Banks are required to process refunds within one day of receiving a valid request from the institution. Online banking for these accounts is prohibited. All transactions must be handled over the counter or via a dedicated platform, with balance checks to maintain a safety margin.

"All prepaid funds must be deposited in full into the sole custodial account … it's like installing a dedicated safe for these fees," said Dang Junwu, former deputy director of the China Research Center on Aging, in an interview with China Daily. "The core of the rules is to effectively prevent the risk of fund misappropriation through three ironclad rules: account isolation, quota control and purpose review," he added.

Growing market

These regulations were introduced in response to the explosive growth in China's elderly care service market — a sector driven by the rapid aging of the country's 1.4-billion population and accelerated by increasing private investment.

Projections from China's National Health Commission highlight a profound demographic shift: by around 2035, the population aged 60 and above is expected to reach 400 million, representing 30 percent of the total population. This marks a significant rise from the 2024 level of 310 million seniors, who currently account for 22 percent of the population.

Highlighting this expansion, Li Banghua, director of the elderly care services division at the Ministry of Civil Affairs, disclosed at a recent news conference that by the end of 2025, the country had 41,700 elderly care institutions, employing 722,000 people — a 12.2 percent year-on-year increase. The private sector is at the forefront of this growth. Privately run institutions alone account for 52.2 percent of the total, a figure that rises to 71.9 percent when including publicly built but privately managed facilities.

This dominance extends to in-home care services, where the vast majority of providers are also privately run, he said, highlighting the critical and growing role of nonpublic actors in meeting the complex needs of China's aging society. "It can be said that social forces have become the main driver in diversifying the supply of elderly care services, playing a significant role in the development of the elderly care service system," Li said.

Up-front payment

As China's population rapidly ages, the country is promoting a multitiered elderly care system. This model combines home — and community-based services — such as doorstep assistance — with institutional solutions such as nursing homes. Private nursing facilities, which often cater to wealthier urban retirees with high-end amenities, are a crucial component of this national strategy.

To bolster the sector, a 2024 guideline from the Communist Party of China Central Committee and the State Council encouraged diverse market entities, including foreign investors, to participate in elderly care services in accordance with market principles.

However, the sector's rapid, privately driven growth has exposed significant regulatory gaps, particularly concerning finances. The prevalent practice of collecting substantial advance fees — in the form of deposits or membership charges — has become a standard business model for many private institutions. This system carries inherent financial risk, enabling instances of illegal fundraising, financial mismanagement and severe obstacles for families seeking refunds. In extreme cases, operators have absconded with residents' funds, severely infringing upon the interests of elderly consumers.

The need for such regulatory measures is underscored by surveys and high-profile scandals. A 2024 joint survey by consumer organizations in Sichuan and Qinghai provinces and the municipality of Chongqing found that over 90 percent of respondents with experience in institutional elderly care reported encountering issues.

"Aging is not merely a challenge but also a significant opportunity driving social innovation and industrial upgrading," Li Yong, president of the Shanghai elderly care service and silver industry association, told China Consumer News in a recent interview. "The vast and continuously expanding market demand, along with its substantial growth potential, is set to propel China's silver economy into a key driver of economic transformation and upgrading." He emphasized that enhancing the supervision of prepaid funds in elderly care institutions would help older adults feel more secure about their investments.

Staying alert

In response to the burgeoning prepaid model, Liu Ruini, a senior partner at Shaanxi Bingrui Law Firm, outlined significant legal and financial risks while providing crucial guidance for families.

She acknowledged the model as an inevitable market supplement given the massive aging population. "The prepaid operating model itself is a supplementary mechanism to the currently severe elderly care problem in China, and a major trend for future services," Liu said.

She warned that commercialization tactics exploiting the model, especially those with promises of high returns or large discounts, are fraught with danger.

"If so-called high returns and substantial discounts are used as promotional gimmicks for prepaid fees, it could ultimately lead to civil and even criminal liability if capital chains break or promises go unfulfilled," Liu said, highlighting the criminal risks of crossing into illegal fundraising or contract fraud.

The case of a Shanghai resident surnamed Wu exemplifies the persistent risks and regulatory gaps in the senior care industry's widespread prepayment models.

Wu became embroiled in a protracted refund dispute after her mother paid nearly 180,000 yuan ($25,850) to a senior living community, resided there for only two months, and later passed away. While the sales agent agreed to a refund after imposing steep penalties, the settlement stipulated reimbursement "within 365 working days" — a wait exceeding 500 calendar days.

Agents for the senior living community cited the parent company's "poor cash flow" as the reason, explaining that refunds are queued and disbursed in monthly installments.

Instances like this highlight the precise vulnerabilities that the newly introduced custodianship system is designed to eliminate, by ensuring funds are safeguarded and refunds are processed within a mandated timeframe.

Liu said that many seniors, enticed by attractive offers, fail to conduct due diligence or secure written promises. This leaves them exposed and evidently weakened if disputes arise.

To safeguard their interests, Liu advised a multistep approach for families. "When signing service contracts, carefully scrutinize the terms, especially those related to prepaid fees, breach of contract and risk prevention. Promises of high returns must be written into the contract, with clear legal liabilities for nonperformance — this is particularly crucial," she said.

Liu stressed verifying the institution's qualifications, ensuring a regulatory bank account exists, preserving all payment records and correspondence, and reporting irregularities to authorities promptly. She emphasized that while exercising personal due diligence is crucial, the newly implemented regulatory framework provides a fundamental institutional safeguard for consumers.

lilei@chinadaily.com.cn