An industry is posting record profits as China’s economy slows: Covid testing firm

By Laura He, CNN Business

China’s zero-coronavirus strategy of endless testing and lockdowns has hit the economy and hurt corporate profits, but it has also brought a windfall to test manufacturers.

China’s top 12 Covid-testing firms recently recorded significant increases in both revenue and net profit in the first half of the year.

Andon Health, which supplies Covid test kits at home and abroad, reported that its net profit surged 27,728% in the first half of 2022 to reach 15.24 billion yuan ($2.2 billion). This was the largest increase recorded by a listed company in mainland China.

Meanwhile, revenue jumped 3,989%.

The company has benefited not only from an aggressive testing campaign within China, but also from huge demand in the US, as its iHealth Lab recently won a US government contract to supply rapid antigen tests.

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

Other test makers recorded net profit increases of 55% to 376% in the first half of the year.

Endless Covid tests, repeated government lockdowns and border restrictions have thrown the Chinese economy into chaos. GDP growth in the second quarter was just 0.4%, the slowest pace in two years. Major investment banks have cut their full-year growth forecasts for China to below 3%. That is well below his 5.5% official target set by the government earlier this year.

Chinese companies are also facing the worst earnings slump on record. More than half of his 4,800 companies listed in Shanghai, Shenzhen and Beijing posted net profit declines in the first half of the year. That’s about the same as his early 2020, when most companies had their worst earnings season ever.

But diagnostic firms are one of the biggest moneymakers during the pandemic, with huge demand for testing as Beijing sticks to its Covid-zero policy, which includes mandatory quarantines, mass mandatory testing, and snap lockdowns. are benefiting from

From the beginning of the pandemic to April 2022, 11.5 billion tests have been performed. According to the Chinese government.

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

The cost could put a heavy strain on the Chinese government’s finances, which have already suffered from the collapse of property sales. In May, officials in Beijing revealed that state and city governments would have to cover the cost of regular Covid tests.

Assuming big cities in China, which account for 30% of the population, conduct Covid tests twice a week, the direct costs of testing could total 200 billion yuan ($30.1 billion) from May to the end of the year, he said. Goldman Sachs estimated earlier this year. .

According to Goldman Sachs, the remaining 70% of the population will be tested, and that number could rise further if the cost of setting up testing facilities and quarantine centers is taken into account.

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