Covid test: As China’s economy slows, one industry posts record profits
China’s zero Covid strategy of endless testing and lockdowns has hammered its economy and weighed on corporate profits, but it has provided a boon for testers.
Twelve of China’s leading Covid testing companies recently recorded huge increases in revenue and net profit for the first half of this year.
Andon Health, which supplies Covid test kits both at home and abroad, said its net profit soared 27,728% in the first six months of 2022, reaching 15.24 billion yuan. ($2.2 billion). This is the largest increase recorded by a listed company in mainland China.
Meanwhile, his earnings jumped 3,989%.
The company benefits not only from China’s aggressive testing campaign in its territory, but also from the huge demand in the United States, as its iHealth laboratory recently won contracts with the United States government for the supply of rapid antigen tests. .
Assure Tech, a Hangzhou-based diagnostics company, also saw a 1,324% increase in net profit due to strong demand in the global Covid testing market.
Other test makers reported increases in net profit of 55% to 376% for the first six months of the year.
Endless Covid testing, government-imposed two-way 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 have lowered their full-year growth forecasts for China to 3% or less, significantly below the official target of 5.5% set by the government earlier this year.
Chinese companies also suffered one of their worst earnings slumps on record. More than half of the 4,800 companies listed in Shanghai, Shenzhen and Beijing saw a drop in net profit in the first half – almost as bad as at the start of 2020, when most companies posted their worst earnings season ever. all the time.
But diagnostics companies are one of the biggest moneymakers during the pandemic, benefiting from huge demand for testing as Beijing sticks to its zero-Covid policy which involves forced quarantines, mandatory testing mass and instant interlocks.
Since the start of the pandemic until April 2022, 11.5 billion tests have been carried out in China, according to the government.
That figure may have increased significantly since then, as analysts at Soochow Securities recently estimated that 10.8 billion tests were carried out in the three months from April to June.
The costs could weigh heavily on the Chinese government’s finances, which have already been hit hard by the collapse in property sales. In May, officials in Beijing made it clear that provincial and municipal governments should bear the costs of regular Covid testing.
Assuming major Chinese cities that make up 30% of the population conduct 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 month. year, according to a Goldman Sachs estimate earlier this year.
The number could rise 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.
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