6 companies that struck it big on China's zero-COVID policies and came out on top after 3 years of lockdowns

China's economy suffered under zero-COVID, growing by just 3% in 2022 — one of the country's lowest levels ever. 

Businesses were operating under the constant threat of city-wide lockdowns that could last for months.

Others risked being shut down for weeks for minor infringements of lockdown rules — like when a milk tea store in Heilongjiang province had to temporarily shut down for forgetting to ask for a customer's health code status before telling him how much a drink costs.

The stringent rules likely cost China at least $46 billion in economic output every month, Zheng Michael Song, a professor from the Chinese University of Hong Kong studying the impact of the lockdowns, told Bloomberg in March 2022.

Very few Chinese firms managed to ride the pandemic wave, and even fewer will manage to sustain their growth, Yuwan Hu, vice president at Beijing-based Daxue Consulting, told Insider. "Profits might have been high during this zero-COVID special moment, yet most of them will slow, or even disappear," Hu said.

As China's economy reopens after a rollback of the zero-COVID policy on December 7, local media and social bloggers are heaping attention on how much was spent on the lockdowns, and who benefited from the expenditures.

However, a select pool of firms and industries gained massive rewards from the years of lockdowns and constant testing.

Some of these firms, emboldened by their newfound profits, are looking to capitalize on their gains and go public, though regulators remain guarded. 

Here are six companies and sectors that came out on top during China's zero-COVID policy.

As Shanghai banned dine-in services and locked down the entire city in the spring of 2022 to quell an Omicron outbreak, food distributor Pang Pang Xiang saw its profits skyrocket instead of slip.

Originally a food supplier for school and corporate cafeterias, it was one of the firms selected by the local government to make sure Shanghai's 25 million residents had access to agricultural products.

The Shanghai-based company launched a new business that took orders from neighborhoods, individuals, and government entities during the lockdown.

Neighbors would band together to buy groceries in bulk from Pang Pang Xiang via WeChat, a Chinese super app, and Pang Pang Xiang would deliver the food to their communities.

Pang Pang Xiang — which now wants to list on the Hong Kong exchange — said in an October prospectus that its new business benefited from the shrinking supply for grocery deliveries and heightened demand from the lockdowns.

Its grocery delivery business yielded a nearly 70% gross profit margin for the first five months of 2022 — with a gross profit of $3.4 million from $4.9 million in sales, it said. The new business also contributed to half of Pang Pang Xiang's revenues, per the prospectus.

That pushed the gross profit margin for its entire business to 53% for that period, compared to around 30% during 2019 through 2021, per its prospectus. 

Local media and bloggers have since scrutinized Pang Pang Xiang's profitability. They compared its profit margins to those of Qianwei Central Kitchen, a canteen food supplier that was listed on the Shenzhen Stock Exchange in 2021 and had gross profit margins of about 24% in 2018 and 2019.

Pang Pang Xiang hasn't said how much it will raise or when it expects the listing to happen but added that it wants to expand its canteen and grocery delivery services to other cities near Shanghai like Nanjing and Hangzhou.

E-commerce app Pinduoduo enjoyed bumper years during the pandemic as people under lockdown shopped from home.

Its net profit surged to $1.2 billion in 2021, reversing from a loss of $1 billion in 2020, the NASDAQ-listed company said in its latest annual report for 2021.

For the first nine months of 2022, Shanghai-based Pinduoduo's net profits rose to $3.1 billion per its unaudited filings. 

One reason for Pinduoduo's success could also be Beijing's crackdown on Alibaba — China's longtime king of e-commerce that once forced vendors to sell exclusively on its platform.

With practices like these struck out by the government, online retailers like Pinduoduo could grow during the pandemic's e-commerce boom while Alibaba's revenues saw rare declines, said Shaun Rein, the founder and director of market intelligence firm China Market Research Group.

Pinduoduo in particular seized an opportunity to market cheap and discounted products to consumers hit hard by the pandemic, Rein told Insider.

"Prices are cheap on Pinduoduo, and Chinese consumer confidence got hit hard in 2022. People faced job cuts and salary cuts," he said.

Dakewe Biotech, a medical equipment distributor based in Shenzhen that made sampling tubes for COVID-19 tests, is one of the Chinese companies looking to go public after its pandemic boom.

It applied to list on the Shenzhen stock exchange with a September 2021 prospectus, which said Dakewe's net profit jumped 488% to $11.6 million in 2020.  

The strong postings were, in part, thanks to COVID-19 test sample tubes, which accounted for 14% of Dakewe's gross profit in 2020, per its prospectus. Gross profit for its main business — selling bioscience reagents to universities and hospitals — also rose 16% that year, according to the filing.

The firm now plans to raise $111.84 million on the Shenzhen exchange's startup board, ChiNext, according to its prospectus. 

After waiting more than a year, the company received the green light from regulators to list. But the Shanghai and Shenzhen stock exchanges said in November they would scrutinize such IPOs, concerned that these firms' exponential growth might not be sustainable in the long run.

Part of China's nationwide pandemic push involved building makeshift hospitals all over the country.

Many of these facilities were schools, factories, or convention centers that had to be converted into mass dorms with beds, tables, power sockets, and partitions for the infected and their close contacts.

China built around 300 such facilities in March and April alone, costing the government more than $4 billion, Reuters reported, citing an analyst's estimate. 

Construction giant China Railway Group, headquartered in Beijing and controlled by a state-owned holding company, was one of the conglomerates tasked with converting and building the hospitals.

The company, which is listed on the Hong Kong and Shanghai stock exchanges, largely focuses on big infrastructure projects, though its businesses also include engineering equipment manufacturing and property development.

It was called on by governments to construct quarantine facilities at breakneck speed, like a 50,000-bed hospital in Shanghai built in less than a week, per state media.

China Railway Group's profits grew from a 7.4% year-on-year increase in 2020 to 11.8% year-on-year in 2021. In the first six months of 2022, its profits jumped to $2.4 billion, 17.2% up from the same period in 2021, per its 2022 interim report.

With zero-COVID out of the way, some provincial and regional governments have started to reveal that their budgets were almost completely drained by pandemic spending. 

Guangdong province spent $22 billion on pandemic control from 2020 to 2022, it said in January, contributing to a total of $51.6 billion spent on pandemic measures in China that year.

That money went to some 3,000 companies providing swab tests, medical gear, and equipment, Reuters reported, citing analysts' estimates.

Rein, who was in Shanghai during the lockdown months, said firms making and administering swab tests profited immensely because Chinese people were forced to get swabbed.

"There were days that I took four tests in one day," he said.

Among the companies that gained from the government spending is Dian Diagnostics, which saw a 96.9% jump in profits to $79.3 million in the first three quarters of 2022 compared to the same period in 2021.

The Shenzhen-listed company, headquartered in Hangzhou, also saw its shares peak at $7.17 in January 2022 after rising 138% from $3.01 in December 2019. Share prices tapered off to $3.77 by Tuesday.

But in a sign of zero-COVID's enormous financial burden on local government budgets, Dian Diagnostics and several other swabbing companies said in the third quarter of 2022 that they're still waiting on payments for their services.

Another profiting company is Shanghai Labway, which saw profits grow $241% year-on-year in the first nine months of 2022 to $82.7 million.

The firm deployed a swabbing team of around 500 staff in Shanghai during its 2022 lockdown and was hired to conduct COVID swab tests at one of the largest quarantine facilities in the city, per local media.

Hangzhou-headquartered Hikvision started its business selling video capture cards for security cameras, but now offers its own surveillance software and camera systems.

A subsidiary of state-owned company electronics company, Hikvision was blacklisted in 2019 by the US over concerns about its ties to the Chinese central government.

A white paper published in May also found that Hikvision received at least $275 million in contracts to establish surveillance systems in Xinjiang that can detect facial features of the Uyghur minority, further alienating it from the West.

But China's demand for surveillance systems, used by neighborhoods to check for fevers at entrances and by companies to track employees' movements, have propped up revenues for camera manufacturers like Hikvision during the pandemic, Nikkei reported in 2020.

Domestic sales accounted for between 68.5% to 73% of Hikvision's operating income between 2020 and the first half of 2022, per company filings.

Hikvision acknowledged the pandemic in its 2022 mid-year report, saying that its technology and products have helped "the whole society to prevent and control the epidemic."

Its net profit rose 7.8% in 2020 before jumping another 25.5% in 2021 to $2.4 billion.

But Hikvision's profits fell 11.4% to $826 million in the first half of 2022, down from $930 million in the same period in 2021.