China's pandemic spending a boon for some sectors

BEIJING • China's zero-Covid-19 policy of constantly monitoring, testing and isolating its citizens to prevent the spread of the coronavirus has battered much of the country's economy, but it has created bubbles of growth in the medical, technology and construction sectors.

The Chinese government - alone among major countries in vowing to eradicate the coronavirus within its borders - is on track to spend more than US$52 billion (S$71 billion) this year on testing, new medical facilities, monitoring equipment and other anti-Covid-19 measures, which will benefit as many as 3,000 companies, according to analysts.

"In China, the companies that provide testing services and other related industries are making big money because of the government's focus on a containment-based approach in fighting Covid-19," said Professor Huang Yanzhong, a global health specialist at the Council on Foreign Relations, a United States think-tank.

China aims to have Covid-19 testing facilities within 15 minutes' walk of everyone in its big cities, and continues to impose mass testing at the slightest sign of an outbreak.

Hong Kong-based Pacific Securities estimates that this has created a market worth more than US$15 billion a year for test makers and providers.

The government is footing the bill for the vast majority of this, either by buying test kits or paying companies to conduct tests. Although prices of tests have dropped since the outbreak of the coronavirus in early 2020 - to as little as 50 cents per test - this continuing demand has helped a number of companies.

First-quarter profit more than doubled for Hangzhou-based Dian Diagnostics Group, one of China's biggest medical test makers. Its revenue jumped more than 60 per cent to US$690 million - less than half of which was for its Covid-19 testing services, almost entirely paid for by the government.

Rival Adicon Holdings, which received about US$300 million of mostly government money for its Covid-19 tests over 2020 and last year, according to the company's financial statements, has applied for an initial public offering on the Hong Kong stock exchange.

Shanghai Runda Medical Technology said it was processing up to 400,000 Covid-19 tests per day last month, during the almost two-month-long lockdown of Shanghai, generating more than US$30 million a month, according to an article by the state-run Securities Times.

China defends its zero-Covid-19 policy as crucial to saving lives and preventing its healthcare system from being over-run. It shows little sign of pulling back, even as the economic toll mounts.

The latest indicators show that the country's economy has weakened sharply since March, as employment, consumer spending, exports and home sales have been hit by stringent lockdown measures that clogged highways and ports, stranded workers and shut factories.

Many private-sector economists expect the economy to shrink in the April-to-June quarter from a year earlier, compared with the first quarter's 4.8 per cent growth.

The blue-chip CSI 300 Index is down 19 per cent this year.

Investors are uncertain how long the boom will last for companies such as Dian, Adicon and Shanghai Runda, whose fortunes are closely tied to government spending. Analysts, on average, expect Dian's revenue to dip slightly next year, while they see Shanghai Runda's continuing to grow. Stocks of both are down from the start of this year.

A recent research note by Shenzhen-based Essence Securities said: "The development of the epidemic is uncertain due to the large number of mutated strains of the new coronavirus and the complexity of infectiousness.

"If the spread of the epidemic is well controlled and the epidemic prevention policy is adjusted, it may have a negative impact on the market demand for Covid-19 nucleic acid testing."

Prof Huang said China's massive programme of lockdowns, tracing and isolating could prevent a worst-case scenario, but was not a permanent solution. "Epidemiologically and economically, it is unsustainable," he added.

Dian Diagnostics, Adicon and Shanghai Runda did not respond to requests for comment. The health authorities in Beijing and Shanghai also did not respond to requests for comment.

Dozens of surveillance and thermal imaging camera manufacturers, such as Wuhan Guide Infrared and Hangzhou Hikvision Digital Technology, have benefited from the Chinese government's demand for equipment that can help it keep track of the Covid-19 status of its 1.4 billion citizens.

Wuhan Guide, one of the world's leading manufacturers of thermal imaging equipment, doubled its revenue in 2020 as it worked overtime to supply fever-detecting cameras across China and overseas.

Growth flattened out last year, but analysts expect it to pick up again this year and next. The company did not respond to a request for comment.

Disease has also been the mother of invention.

Since March, Chinese companies and research institutes have filed at least 50 Covid-19-related patents, according to a Reuters review of international and domestic databases.

The inventions are mostly related to adapting existing surveillance cameras and platforms in order to track close contacts and identify potential positive cases.

REUTERS