As China's economy slows, one industry is seeing record profits: Covid testing

China's zero-Covid strategy of nonstop testing and lockdowns has hurt the country's economy and hurt business profitability, but it has been a boon for test manufacturers.

In the first half of 2022, Andon Health, which provides Covid test kits both domestically and internationally, stated that its net profit soared by 27,728%, hitting 15.24 billion yuan ($2.2 billion). It was the largest growth ever noted by a mainland Chinese listed corporation.

The company profits from both the intensive domestic testing campaign in China and the high demand in the US, where its iHealth Lab recently received contracts from the US government to provide antigen fast tests.

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On September 6, 2022, a sizable crowd of people wait in a long line at a nucleic acid testing location in Nanning, Guangxi Zhuang autonomous region of South China. Future Publishing/CFOTO/Getty ImagesFor the first half of the year, net profit rose by 55% and 376% for other test manufacturers.

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China's economy has been devastated by constant COVID tests, government-enforced lockdowns, and border restrictions. The second quarter's GDP growth rate of 0.4% was the lowest in more than two years. Major investment banks have drastically reduced their full-year growth projections for China to 3% or less, which is significantly less than the stated objective of 5.5% set by the government earlier this year.

One of the worst earnings recessions in the history of Chinese companies has also occurred. Nearly as bad as early 2020, when most companies reported their worst earnings season ever, more over half of the 4,800 companies listed in Shanghai, Shenzhen, and Beijing reported a fall in net profit for the first six months of the year.

But as Beijing continues to implement its zero-Covid policy, which calls for forceful quarantines, widespread mandatory testing, and sudden lockdowns, the diagnostic companies are among the pandemic's top earners thanks to the high demand for testing.

On September 5, 2022, a medical professional collects a resident's swab sample for a nucleic acid test at a community testing facility for COVID-19 in Guiyang's Yunyan District, in the Guizhou Province of southwest China. - Yang Wenbin/Getty Images/Xinhua

The payments might put a significant strain on the Chinese government's finances, which have already been hurt by the collapse of the real estate market. Beijing officials made it plain in May that the cost of routine Covid testing fell on the shoulders of the provincial and municipal governments.

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