China SMEI: Demand weakened in June - Standard Chartered

Headline SMEI eased further to a nine-month low of 50.1 in June as new orders shrank. Export-oriented SMEs' performance sub-index fell below the 50 level, reflecting the tariff chill. Non-manufacturing SMEs' performance stayed in contractionary territory for a third straight month. SMEs reported a marginal improvement in access to bank credit, while financing costs rose, Standard Chartered's economists report.

Tariff impact being felt

"Our proprietary Small and Medium Enterprise Confidence Index (SMEI; Bloomberg: SCCNSMEI <Index>) fell further by 0.1pts to 50.1 in June, the lowest reading since the stimulus package was announced in September 2024 (Figure 1). That said, changes in all the indicators were marginal. The overall performance sub-index dropped 0.2ppts to 50, indicating stalled activity. Only the sales and output price sub-indices stayed above 50, while the new orders sub-index slipped into contractionary territory again after Lunar New Year disruptions in February. That said, the expectations sub-index improved modestly to 50.2, mainly on a better sales and financing outlook."

"Manufacturing activity slowed in June on stalled new orders and declining profitability, despite robust sales. We expect the official manufacturing PMI to edge down 0.2ppt to 49.3 in June. Non-manufacturing SMEs' performance sub-index stayed below 50 for a third consecutive month on slack business activity in real estate, finance, retail sales and wholesale, and leasing and commercial services. Meanwhile, export-oriented SMEs' performance sub-index fell below the 50 threshold, reflecting the impact of tariffs on sales and new orders."

"The credit sub-indices stayed at 50 for a third month in June. While SMEs reported slightly easier access to bank credit versus May, financing costs rose modestly. Liquidity conditions remained stable. USD/CNY exchange rate appreciation expectations inched up, while expectations among most respondents remained stable."