BEIJING – Testing is a core part of China’s strategy to contain Covid-19, but companies that provide such services are finding it harder to get paid on time.
Diagnostic firms say the testing blitz is draining their finances, as customers take longer to pay their dues.
There is a growing risk some yet-to-be-paid bills will be written off as bad debt, said Hangzhou-based Dian Diagnostics Group, one of China’s largest Covid-19 test providers.
The bill is rapidly growing. Eight of the largest listed virus-testing firms reported a combined 14.1 billion yuan (S$2.84 billion) increase in accounts receivable as of June 30, or a gain of 73 per cent from a year earlier. Among these companies, Shanghai Labway Clinical Laboratory saw the biggest jump of 189 per cent.
The delay in meeting payments underscores the mounting cost – financially, economically and socially – of President Xi Jinping’s strict approach to stopping the spread of Omicron subvariants.
China increasingly employs a combination of mass-testing and citywide lockdowns as cases crop up in every province. Even in cities such as Beijing and Shanghai, which are not shut down, residents need to undertake PCR tests every three days in order to use public facilities or go to work.
Local governments, which are responsible for covering the cost of mass-testing, are facing a squeeze. Declining business activities are hurting fiscal revenue, while Covid-19-related spending is increasing.
On top of testing, this expenditure includes the construction of quarantine centres and subsidies for hard-hit business sectors. They are also targeting new drugs to limit serious illness.
“One presumptive reason is that the budget for PCR testing at the start of the year could be underestimated, given the unexpected lockdowns that followed,” said Ms Mia He, a health-care analyst at Bloomberg Intelligence. “This may lead to delayed payment for test makers.”
Testing companies named the growing size of payments owed as among their top concerns in their latest financial reports.
Dian Diagnostics is due 10.7 billion yuan, up from 5.4 billion yuan a year earlier, according to its first-half earnings report, which said the increase “poses risks of bad debt”.
Guangzhou Kingmed Diagnostics Group warned in its financial report that settlement of some testing fees may be delayed, adding that the Covid-19 situation could exacerbate poor management by some private medical institutions and clinics, increasing the potential for bad debt.
Shanghai Runda Medical Technology listed growing accounts receivable as one of the firm’s major risks. The company is seeing “longer periods to receive payments from clients and is facing increasing pressure on this”, it said in its earnings report.
Some 33 cities have been fully or partially locked down in the current outbreak, according to a report by local media Caixin. More than 65 million residents have been caught in the flareup, the publication said.
Faced with limited budgets, health officials are also trying to stretch their finances and may be prioritising funding in development and manufacturing of Covid-19 drugs over PCR tests this year, as antiviral drugs are the last defence line against the severity of virus infection, Bloomberg Intelligence’s Ms He said. BLOOMBERG