BEIJING, May 30 (Reuters) – China’s “zero-COVID” policy of constantly monitoring, testing and isolating its citizens to prevent the spread of the coronavirus has hit much of the country’s economy, but it has created growth bubbles in the medical, technology and construction sectors.
The Chinese government, alone among major countries to have pledged to eradicate the coronavirus within its borders, is on track to spend more than $52 billion (350 billion yuan) this year on testing, new medical facilities, monitoring equipment and other anti-COVID measures, which will benefit as many as 3,000 businesses, analysts say.
“In China, companies that provide testing services and other related industries are making a lot of money because of the government’s emphasis on a containment-based approach in the fight against COVID,” said Yanzhong Huang, a global health specialist at the Council on Foreign Relations (CFR), an American think tank.
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China aims to have COVID testing facilities within a 15-minute walk of everyone in its major cities and continues to mandate mass testing at the slightest sign of an outbreak. Hong Kong-based Pacific Securities estimates this has created a market of more than $15 billion a year for test manufacturers and suppliers.
The government foots the bill for the vast majority of this, either by buying test kits or by paying companies to do tests. Although test prices have fallen since the outbreak of the coronavirus in early 2020 – to as little as 50 cents per test – this continued demand has helped a number of companies.
First-quarter profit more than doubled for Hangzhou-based Dian Diagnostics Group Co Ltd (300244.SZ), one of China’s largest medical test makers. Its revenue jumped more than 60% to $690 million, just under half of that for its COVID testing services, almost entirely paid for by the government.
Rival Adicon Holdings Ltd, which received about $300 million in mostly government money for its COVID testing over 2020 and 2021, according to the company‘s financial statements, has applied for an initial public offering on the Hong Kong stock exchange.
Shanghai Runda Medical Technology Co Ltd (603108.SS) said it was processing up to 400,000 COVID tests a day in April during Shanghai’s nearly two-month lockdown, generating more than $30 million a month, according to an article by the state-run Securities Times.
China defends its “zero-COVID” policy as crucial to saving lives and preventing its healthcare system from being overwhelmed. It shows few signs of retreating even as the economic record rises.
The latest indicators show the country’s economy has weakened sharply since March as jobs, consumer spending, exports and home sales were hit by strict lockdowns that clogged highways and ports, blocked workers and closed factories.
Many private sector economists expect the economy to contract in the April-June quarter from a year earlier, down from 4.8% growth in the first quarter. The blue-chip CSI 300 index (.CSI300) is down 19% this year.
Investors don’t know how long the boom will last for companies like Dian, Adicon and Shanghai Runda, whose fortunes are tied tightly to government spending. Analysts on average expect Dian’s revenue to decline slightly next year, while they see Shanghai Runda continuing to grow. Stocks of both have been falling since the start of this year.
“The development of the epidemic is uncertain due to the large number of mutated strains of the novel coronavirus and the complexity of infectivity,” said a recent research note from Shenzhen-based Essence Securities. “If the spread of the epidemic is well controlled and the epidemic prevention policy is adjusted, it may negatively impact the market demand for COVID nucleic acid testing.”
CFR’s Huang said China’s massive lockdown, trace and isolate program could prevent the worst-case scenario, but was not a permanent solution. “Epidemiologically and economically, it’s unsustainable,” he said.
Dian Diagnostics, Adicon and Shanghai Runda did not respond to requests for comment. Health authorities in Beijing and Shanghai did not respond to requests for comment.
MASS SURVEILLANCE, FAST BUILDINGS
Dozens of surveillance and thermal imaging camera makers, such as Wuhan Guide Infrared Co Ltd (002414.SZ) and Hangzhou Hikvision Digital Technology Co Ltd (002415.SZ), have benefited from Chinese government demand for gadgets that can help it track the COVID 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 by working overtime to supply fever detection cameras across China and overseas. Growth stabilized 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 was the mother of invention. Since March, Chinese companies and research institutes have filed for at least 50 COVID-related patents, according to a Reuters study of international and domestic databases. The inventions are primarily related to adapting existing cameras and surveillance platforms to track close contacts and identify potential positive cases.
The urgent need for hundreds of new hospitals, to relieve China’s already overstretched medical infrastructure, has created a boom for some construction companies.
Beijing-based China Railway Group Ltd (601390.SS), a conglomerate spanning construction, manufacturing and real estate, has built makeshift hospitals across China this year and has been particularly active in areas hard hit by COVID such as Shanghai and the northeast. Changchun City. Its profit has risen steadily over the past two years, at least in part due to COVID-related projects, and analysts expect that to continue over the next few years. Its stock hit a three-year high in May. China Railway Group did not respond to a request for comment.
An analyst estimated around 300 makeshift hospitals were built around China during a 35-day period between March and April as infections surged, at a cost of more than $4 billion.
A third of them were built in and around Shanghai. There are no signs of declining government demand. On May 15, the head of China’s National Health Commission, Ma Xiaowei, called for the construction of what he called “permanent makeshift hospitals” in the Chinese Communist Party’s leading publication Qiushi, suggesting that there will be a long-term need for such buildings.
A Reuters review of tenders for such projects suggests the government will spend around $15 billion this year on new hospitals.
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Reporting by Eduardo Baptista in Beijing Editing by Bill Rigby
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