China SMEI: Seasonal recovery in March - Standard Chartered

Headline SMEI rebounded to an 11-month high of 51.2 in March on better performance and expectations. Both manufacturing and services activity recovered; credit conditions turned more stable. Average readings suggest growth momentum inched up in Q1 and the outlook turned more positive, Standard Chartered's economists report.

Manufacturing growth slows in Q1; services improve          

"Our proprietary Small and Medium Enterprise Confidence Index (SMEI; Bloomberg: SCCNSMEI <Index>) picked up to an 11-month high of 51.2 in March from an average 50.7 in January-February. The performance and expectations sub-indices edged up to 51.5 and  51.7, respectively, indicating a solid m/m recovery. Compared to Q4, the average prints for sales, price and investment returned to above 50 in Q1, while that of profitability declined further. All the expectations sub-indices stayed at 50 or above on average in Q1, largely picking up from Q4 levels, indicating a further improvement in SME sentiment."

"The performance sub-indices for manufacturing and non-manufacturing SMEs rebounded to expansionary territory in March. Key sub-indices such as production, sales, new orders and new export orders rose above 50. Real estate and construction SMEs continued to underperform. Activity in the accommodation and catering sector retreated after the Lunar New Year holidays. On average, the performance sub-index of non-manufacturing SMEs edged up to 50, while that of manufacturing SMEs fell 0.7pts from Q4 to 50.6, suggesting slower growth."

"The credit sub-index eased to 50.4 in March as credit conditions stabilised. Access to bank credit picked up slightly, but funding costs rose again after falling in February. That said, SMEs' funding costs dropped compared to Q4. In addition, liquidity conditions improved. Notably, nearly 95% of surveyed SMEs said they expect a stable USD/CNY exchange rate in the coming three months."