China SMEI: Performance weakened in August – Standard Chartered

Headline SMEI retreated to 50 in August; the performance sub-index fell into contractionary territory. The softening was broad-based, albeit modest, across both manufacturing and services SMEs. Sub-indices stayed solid for sales and improved for new orders; price, investment, profitability dropped. Credit conditions remained stable; a handful of SMEs said that banks became less willing to lend, Standard Chartered's economists Hunter Chan and Carol Liao report.

Expectations remained stable despite headwinds

"Our proprietary Small and Medium Enterprise Confidence Index (SMEI; Bloomberg: SCCNSMEI <Index>) edged down to 50 in August from 50.2 in July, the lowest reading since September 2024. The ‘performance’ sub-index fell to 49.7 in August, down 0.5pts from July, posting the first below-50 reading in six months after holiday disruptions in February. The slowdown was broad-based across manufacturing/services and domestically focused/export-oriented SMEs. Overall sales remained relatively resilient, with new orders rebounding, while the sub-indices for labour usage, output prices, investment and profitability all dropped. That said, SMEs’ expectations remained positive – this sub-index stayed at 50.3 in the August survey, showing SMEs’ confidence in sales and new orders improvement."

"Less manufacturing SMEs reported an increase in sales versus July, while more noted an increase in new orders. That said, new export orders stalled again in August and production activity fell. Export-oriented SMEs had similar responses. By sector, real estate, and retail and wholesale SMEs continued to face significant pressure on sales and new orders; construction SMEs also noted no major improvement in these areas."

"The credit sub-index inched down 0.1pts to 50 in August, indicating still-stable credit and liquidity conditions for SMEs. A handful (less than 1%) suggested that banks appeared less willing to lend to SMEs compared with July. Interestingly, all respondents expect a stable USD-CNY exchange rate in the coming three months."