China: SME activity improved further in December – Standard Chartered

Lan Shen, economist at Standard Chartered, points out that their nationwide SME survey results for Chinese economy confirm a stabilisation in growth momentum in Q4-2019.

Key Quotes

“Our headline SMEI (Bloomberg: SCCNSMEI <index>) rose 1.1ppt to 55.8 in December, a third month of improvement. Meanwhile, the growth momentum indicator (new orders minus finished-goods inventory, 12mma) recovered in December, ending three consecutive months of moderation. The average reading for ‘current performance’ rose to 56.0 in Q4 from 54.0 in Q3, and the ‘expectations’ reading stayed flat q/q.”

“Production accelerated as external demand rebounded; domestic demand increased; and relatively warm weather facilitated activity (although the outlook eased marginally due to the earlier occurrence of the Lunar New Year in 2020).”

“SMEs’ expansion appetite improved further, with some restocking seen. Output prices increased, lifting profitability. The manufacturing sector held up well, and the services sector showed signs of catching up. The cancellation of the proposed US tariff hike on 15 December boosted export orders in the holiday season.”

“We look for continued policy support for SME financing in 2020, including via three reserve requirement ratio (RRR) cuts of 50bps each, or an equivalent liquidity injection through targeted RRR cuts or central bank lending, in the first three quarters of 2020, as well as two 10bps of medium-term lending facility (MLF) rate cuts in Q1 and Q2 to facilitate a further lowering of the loan prime rate (LPR).”