China SMEI: Services activity fell further in September – Standard Chartered

Our headline SMEI inched up 0.1pt to 49.7 in September as services remained a key drag. Performance sub-index stayed below 50 for a fourth straight month; expectations turned contractionary. Manufacturing activity picked up; most services sectors reported a m/m decline in sales, Standard Chartered’s economists Hunter Chan and Shuang Ding note.

Subdued domestic demand dragged down Q3 performance      

“Our proprietary Small and Medium Enterprise Confidence Index (SMEI; Bloomberg: SCCNSMEI <Index>) picked up 0.1pts to 49.7 in early September (the survey closed early due to the Mid-Autumn festival) after falling to a 20-month low in August. The overall performance sub-index picked up by only 0.1pts to 48.9 in September, as manufacturing activity rebounded but services-sector performance weakened. The average performance sub-index edged down to 49.1 in Q3 from 50.8 in Q2, indicating a q/q decline in SMEs’ activity.” 

“In addition, the expectations index edged down to 49.6 in September, the first below-50 reading since end-2023. All expectations sub-indices, including sales, new orders and profitability, fell below 50. The average expectations index fell 0.8pts from Q2 to 50.1 in Q3, indicating softer SME sentiment. While the credit sub-index recovered on lower funding costs for SMEs in September, the average reading fell 1pt to 50.5 in Q3 on a deterioration in liquidity conditions.” 

“The manufacturing performance sub-index recovered to 51.2 after falling below 50 in August as production activity reaccelerated. New orders from emerging markets rebounded, according to cross-border trading SMEs. Meanwhile, the performance and expectations sub-indices for most services sectors, except IT services, stayed in contractionary territory. Average SMEI for manufacturing and services SMEs eased 1pt and 1.1pts from Q2 to 51.4 and 49.5 in Q3, respectively, as demand softened.”