Chinese coronavirus test providers hit by payments crisis

Chinese coronavirus test providers hit by payments crisis

Chinese coronavirus testing providers have reported rising unpaid fees as cash-strapped local governments struggle to fund a mass testing program that is at the heart of President Xi Jinping’s zero Covid policy.

Public records show accounts receivable from the country’s top 11 PCR testing companies soared nearly 90% year-on-year to Rmb38 billion ($5.4 billion) in September.

The payment delays raise questions about the financial viability of the zero-Covid policy, which relies on large swaths of the population taking PCR tests every few days, mostly paid for by local governments.

Chinese local authorities are suffering a drop in revenue as the world’s second-largest economy is hit by strict coronavirus policy and a slowdown in the real estate sector.

“There is no way the government can continue to pay for mass testing,” said Huang Yanzhong, senior fellow at the Council on Foreign Relations in New York. “It’s not a sustainable operation.”

Beijing’s efforts to stamp out the pandemic, coupled with the housing slump, have weighed on the economy, causing a record 6.6% decline in national tax revenue in the first nine months of this year.

Last month, leading epidemiologist Liang Wannian boasted that China had built up capacity to test 1 billion people a day and local governments from coastal Shanghai to inland townships rely on frequent PCR testing and publicly funded to control the pandemic.

Dongwu Securities estimated China’s trial campaign could cost up to Rmb 1.7 billion a year, or 9 percent of total tax revenue in 2021.

Few regions can easily pay their share of the bill. Many cities have already deferred payments to PCR test providers without specifying when the money will arrive.

“Local governments are already stretched to the limit when it comes to Covid prevention and control and they have to move money around when they need it [for zero-Covid purposes]said a health commission official in Guangdong, one of the country’s wealthiest provinces.

The situation has alarmed test companies as they struggle to collect overdue payments.

“We are very concerned about cities in northern China,” said an executive at the Shenzhen-based Center Testing International Group, a leading provider of PCR tests, referring to an area where local authorities have restrictions. high levels of public debt. “We don’t know when or if they will pay us,” the exec said.

On paper, China’s mostly private PCR test vendors stand to benefit from the pursuit of a zero-Covid approach that has won them a flood of orders. However, as local governments struggle to pay their bills, many are now reporting serious cash flow problems.

Hangzhou-based Dian Diagnostics Group, a leader in Covid testing, reported a 93% increase in net profit for the first three quarters of this year compared to a year earlier. But Dian’s operating cash flow fell 89%.

“We don’t have a lot of bargaining power with government officials,” a Dian official said.

Xuchang Bo’ao Runkang medical diagnostic laboratory in central Henan province warned this week that it would be forced to stop processing test samples because orders through January had not been paid. A Henan official expected others to follow his lead.

“The funding gap is too big for us to fill,” the official said.

Frontline medical staff and local government officials are also reporting worsening strains on the healthcare system as resources are increasingly diverted to pay for pandemic checks.

“Funding and staffing of other departments are now dwindling, many have not been able to buy new equipment,” said a doctor at a public hospital in central China’s city of Wuhan.

There are signs that local governments are running out of funds to pay for mandatory quarantine stays.

A local government official in Baoji, in the western province of Shaanxi, said anyone returning to the city from an area designated as “high risk” of exposure to Covid-19 would be quarantined for seven days and would be responsible for covering the costs.

“If you have a problem paying, we advise you to borrow from relatives and friends,” the official said.

Additional reporting by Qianer Liu and Xinning Liu

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