The Economist - USA (2022-05-14)

The Economist May 14th 2022 Business 61

Thetechcrunch(2)

Can Coupang

deliver?

C

oupang’s offices in Seoul afford a
view of the South Korean e­merchant’s
promise. Every dawn the forest of high­rise
apartment  blocks  teems  with  its  vans
dropping off orders made the night before.
This  self­styled  “rocket  delivery”,  and  Ko­
reans’  love  of  it,  fuelled  Coupang’s  strato­
spheric  rise.  When  it  debuted  on  the  New
York  Stock  Exchange  in  March  2021,  its
shares  nearly  doubled  in  value  in  an  in­
stant.  It  closed  its  first  trading  day  with  a
market capitalisation of $80bn. It was the
biggest non­American initial public offer­
ing  (ipo)  since  Alibaba,  a  Chinese  e­com­
merce behemoth which listed in 2014.
Things have gone downhill from there.
Coupang’s  share  price  is  around  three­
quarters  below  its  peak.  In  March  Soft­
Bank,  a  Japanese  tech­investor  and  Cou­
pang’s  largest  shareholder,  offloaded  50m
shares  for  $1bn,  having  sold  a  tranche  of
the same size for $1.7bn six months earlier.
The  firm  has  been  caught  up  in  a  broader
sell­off in volatile tech stocks, especially in
unproven  companies.  The  rise  of  e­com­
merce  may  be  easing  off  as  the  pandemic
sales  boom  fizzles,  just  as  interest  rates
rise to contain inflation. This has hurt the
world’s Amazon wannabes (see chart) and
made  investors  less  tolerant  of  heavy
losses in the pursuit of growth—$1.5bn last
year in Coupang’s case.
The  firm  remains  confident.  On  May
11th  it  reported  buoyant  first­quarter  re­
sults.  Sales  rose  by  22%  year  on  year,  to
$5.1bn.  Although  it  booked  another  net
loss, its core business actually turned prof­
itable on an adjusted basis, earlier than ex­
pected. Its shares looked set to start trading
a fifth higher the next day, after The Econo-
mistwent to press. 
Nearly half its net loss last year was ex­
plained  by  reinvestment,  especially  in  its
infrastructure. Some 70% of South Koreans
now  live  within  10km  of  one  of  its  ware­
houses.  E­commerce  rivals  such  as  Naver
and  eBay  Korea  lack  its  footprint.  Tradi­
tional  retailers  with  established  logistics
networks are less technologically sophisti­
cated. Its workforce is made up of employ­
ees rather than gig workers, making it less
prone to a regulatory backlash. As for Soft­
Bank’s divestment, it may have had more to
do  with  the  Japanese  group  attempting  to
lock in profits as its other risky tech invest­
ments sour than with concerns about Cou­
pang,  thinks  Park  Eun­kyung  of  Samsung
Securities, a broker. 

Toshoreupitsdominance,Coupangis

getting into food and grocery delivery,

video­streamingandfintech,witha “buy­

now­pay­later”schemetocomplementits

owne­paymentsystem.Thathashelpedit

drawmorepeopleintoitsempire.Inthe

firstquarterthenumberofactivecustom­

ersgrewby13%yearonyear,to18m,having

risenbydoubledigitsinpreviousquarters.

LastyearitlaunchedinJapanandTaiwan.

Like South Korea, those countries have

high smartphone penetration,ingrained

online­shoppinghabitsanddensecities—

inotherwords,Coupang’srocketfuel.n

S EOUL

Shopping baskets? Yes. Profits? Maybe

Coupang with stress

Share prices, March 11th 2021=100

Source:Refinitiv Datastream

150

100

50

0

2021 2022

Coupang

Pinduoduo

Sea Shopify

MercadoLibre

Coupang IPO

Thezero-covidindustrialcomplex

Acing the test

P

residentxijinping’szero­covidpoli­

cy  has  been  a  plague  on  China’s  firms

and a headache for Western ones reliant on

its suppliers and consumers. The 25m resi­

dents of Shanghai, the country’s commer­

cial  hub,  have  been  confined  to  their

homes since April 1st. Beijing, the capital,

is  teetering  on  the  edge  of  lockdown.  Rail

and air travel on a recent national holiday

were, respectively, 80% and 75% below the

level  during  last  year’s  festivities.  Retail

spending  has  crashed.  gdpmay  shrink  in

the second quarter.

Regardless,  on  May  6th  the  Politburo’s

Standing  Committee  doubled  down.  Chi­

na’s highest decision­making body vowed

to fight against “any words or actions that

distort, doubt or negate” Mr Xi’s crusade to

quash  covid­19.  Gone  was  language  like

“reconciling  zero­covid  with  growth”  and

“minimising  the  impact  of  the  pandemic

on the economy”, which sought to balance

covid­control  with  economic  growth.  The

stockmarket shuddered. Except, that is, for

one  industry.  The  market  value  of  Dian

Diagnostics  Group,  a  maker  of  pcrtests,

soared  by  more  than  10%  after  the  Polit­

buro’s pledge. Daan Gene, another big test­

maker,  and  Yiling  Pharmaceutical,  which

produces  traditional  Chinese  medicine

that has been heavily promoted as a covid

treatment since 2020, also made gains. 

Prospects for this zero­covid industrial

complex indeed look bright. Covid testing

is  moving  from  makeshift  tents  on  street

corners into a network of semi­permanent

kiosks where residents will be tested regu­

larly  for  the  foreseeable  future;  Shanghai

alone will build 9,000 of them. In big cities

tens  of  millions  of  people  may  have  their

throats or nasal passages swabbed every 48

hours. An analyst at Soochow Securities, a

local  broker,  says  that  testing  at  this  pace

will cost China about 1.7trn yuan ($254bn)

this year, or around 1.5% of gdp.

The  amount  firms  can  charge  for  tests

has fallen since 2020, when a single swab

could  cost  more  than  350  yuan.  The  gov­

ernment,  which  pays  for  most  mass­test­

ing, has ordered the 20 or so listed makers

of test kits to lower the price to around 20

yuan.  The  test­makers  have  nevertheless

continued  to  rake  in  cash.  Dian  Diagnos­

tics’  net  profit  increased  by  more  than

120%  year  on  year  in  the  first  quarter,  be­

fore testing intensified. Guangdong Hybri­

bio  Biotech,  another  test  provider,  report­

ed a jump of almost 200%. 

The  testing  frenzy  is  minting  covid  ty­

coons.  Liang  Yaoming,  founder  of  Guang­

zhou  Kingmed  Diagnostics,  which  also

makes tests, has become a billionaire dur­

ing  the  pandemic.  The  value  of  shares  in

bgi, a $4bn biosciences darling, held by its

founder,  Wang  Jian,  has  shot  up  by  more

than $300m since 2019 to about $2bn. Chen

Haibin’s  26%  stake  in  Dian  Diagnostics  is

worth just shy of $1bn.

Some  voices  have  raised  concerns

about  the  rise  of  covid­related  big  busi­

ness.  Guan  Qingyou,  an  economist  at  the

Xinrui  School  in  Beijing,  recently  warned

of the risk of special­interest groups “mis­

leading  and  kidnapping”  public  policy  on

the  pandemic.  They  could  eventually

create  something  akin  to  America’s  mili­

tary­industrial  complex,  he  said  in  a  post

on Chinese social media, which has since

been deleted. 

Mr  Guan  may  be  on  to  something.

Zhong  Nanshan,  China’s  leading  respira­

tory­disease expert, has promoted Yiling’s

traditional  Chinese  medicines  used  to

treat  covid­19  while  maintaining  undis­

closed links to the company, the Financial

Timeshas  reported.  More  egregiously,  the

chief  representative  of  a  subsidiary  of

Guangzhou  Kingmed  Diagnostics  was  ar­

rested earlier this year on suspicion that he

was trying tospread covid in order to bene­

fit  his  business.Not  quite  what  the  Polit­

buro ordered.n

S HANGHAI

The biggest corporate winners from

China’s harsh pandemic strategy