China SME sentiment drops to record low in December

Growth momentum will continue to slow.

Standard Chartered's Small and Medium Enterprise Confidence Index (SMEI) for China softened in December after stabilising temporarily in November. The headline index reading weakened to a historical low of 54.7 from 55.3 in the previous month.

The average reading for Q4 was 55.0, compared with 57.1 in Q3, reflecting a slower expansion of SME business. The growth momentum index, measured by the gap between new orders and finished-goods inventory, slid to 7.7 from 8.9 in November.

Here's more from StanChart:
All three key sub-indices weakened. The expectations sub-index declined the most, falling to 54.8 from 56.0 in November, and was the main drag on the headline reading. The current performance sub-index moderated mildly to 54.2 from 54.4 in November, as did the credit conditions sub-index – to 55.1 from 55.6.

SMEs in South China outperformed thanks to the increase in new orders, while SMEs in the IT sector outperformed as production increased.

However, we are not overly pessimistic, despite the low headline reading, and see a mixed picture ahead. The low reading was driven mainly by the drop in the short-term expectations sub-index, but the current performance sub-index moderated only marginally, with production and profitability improving, according to the SMEs we surveyed.

We already see signs of stabilisation in the demand side of the economy thanks to the lagged effect of policy easing. We expect further policy measures targeted at helping SMEs, including easier access to credit, lower taxes and streamlined administrative processes, although these measures will likely boost SME activity only by H1-2016.

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