China SMEI: Marginal improvement in July – Standard Chartered

Headline SMEI rebounded to 50.4 in July thanks to a recovery in expectations and credit conditions. Performance sub-index stayed in contractionary territory for a second month due to services drag. Manufacturing activity accelerated, while real estate, construction, finance, retail and catering declined, Standard Chartered economists Hunter Chan and Shuang Ding note.

Services remain the key drag

“Our headline SMEI recovered to 50.4 in July from 49.9 in June, returning to expansionary territory after a single month’s dip, mainly thanks to improved expectations and credit conditions. Meanwhile, the performance sub-index stayed below 50 for a second consecutive month at 49.7. Our growth momentum tracker fell further as the finished product inventory sub-index rebounded more than new orders.”

“Manufacturing SMEs reported faster production activity and an increase in sales and new orders, lifting the manufacturing performance sub-index to 51.3 in July after falling to 49.8 in June. Meanwhile, labour-intensive industrial activity declined. External demand weakened as the new export orders index fell below 50.”

“The services performance sub-index improved by a mere 0.3pts to 49.3 in July as sales fell further. Real estate, construction, retail sales and wholesale remained key drags. Accommodation and catering SMEs reported muted sales and new orders again. Credit and liquidity conditions for SMEs improved modestly as banks remained supportive and cash surplus at SMEs increased.”