As China’s economy slows, one industry posts record profits

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China’s “Covid zero” strategy, with endless testing and lockdowns, has hit its economy and hurt corporate profits, but it has brought a windfall for test makers.

Twelve of China’s top Covid testing companies recently posted big increases in revenue and net profits in the first half of this year.

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Andon Health, which supplies Covid test kits at home and abroad, reported that its net profit soared 27.7% in the first six months of 2022 to reach 15.24 billion yuan ($2.2 billion). It was the biggest increase recorded by any listed company in mainland China. Meanwhile, its revenue increased by 3.9%.

The company benefits not only from China’s aggressive in-home testing campaign, but also from huge demand in the United States, as its iHealth Lab recently won US government contracts to provide rapid antigen tests.

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Assure Tech, a diagnostics company based in Hangzhou, also reported a 1,324% increase in net income due to strong demand in the global Covid testing market.

Other test makers reported net profit increases of 55% and 376% in the first six months of the year.

Endless Covid testing, government-imposed lockdowns and border restrictions have wreaked havoc on China’s economy. GDP grew just 0.4% in the second quarter, the slowest pace in more than two years. Major investment banks cut their annual growth forecasts for China to 3% or less, well below the official 5.5% target set by the government earlier this year.

Chinese companies also suffered one of their worst earnings recessions on record. More than half of the 4,800 companies listed in Shanghai, Shenzhen and Beijing reported a decline in net income in the first half of the year — almost as bad as it was in early 2020, when most companies recorded their worst earnings season ever.

But diagnostics companies are one of the biggest moneymakers during the pandemic, benefiting from huge demand for testing as Beijing maintains its zero Covid policy that involves forced quarantines, mandatory mass testing and instant lockdowns.

From the beginning of the pandemic to April 2022, 11.5 billion tests were carried out in China, according to the government.

That number may have increased significantly since then, as analysts at Soochow Securities recently estimated that 10.8 billion tests were performed in the three months from April to June.

The costs could be a huge burden on the Chinese government’s finances, which have already been affected by the collapse in property sales. In May, officials in Beijing made it clear that provincial and municipal governments had to bear the costs of regular Covid testing.

Assuming major Chinese cities that account for 30% of the population perform Covid tests twice a week, the direct cost of testing could total 200 billion yuan ($30.1 billion) from May to the end of the year, from according to an estimate from Goldman Sachs earlier this year.

The number could rise even further if the remaining 70% of the population is tested and the costs of setting up testing sites and quarantine centers are taken into account, Goldman Sachs said.

Source: CNN Brasil

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