Headline SMEI edged down 0.3pts to 50.4 in November; credit conditions continued to improve. Performance and expectations sub-indices both retreated into contractionary territory. Manufacturing remained stable; services SMEs reported further declines in sales, price and profitability. Bank credit remained favourable for SMEs; CNY depreciation expectations picked up, Standard Chartered’s economists Hunter Chan and Shuang Ding note.

A weak recovery       

“Our proprietary Small and Medium Enterprise Confidence Index (SMEI; Bloomberg: SCCNSMEI <Index>) moderated to 50.4 in November from 50.7 in October, staying in expansionary territory for a second straight month. That said, the performance and expectations sub-indices both fell below 50 to 49.6 and 49.8, respectively, suggesting a m/m softening after the October rebound.”

“Manufacturing performance remained relatively resilient; sales and production sub-indices rebounded to above 50 in November. Both domestic and external demand stayed solid ahead of the year-end holidays, supporting new orders. Cross-border e-commerce sales picked up again this month. Meanwhile, non-manufacturing SMEs continued to face headwinds, with the sales, investment and profitability sub-indices stayed in contractionary territory for a sixth straight month. Real estate, construction, and retail sales and wholesale remained key drags. Expectations among non-manufacturing SMEs deteriorated again after recovering in October.”

“The credit sub-index stayed at 51.7 in November as banks remained supportive to SME lending. SMEs’ cost of funding was relatively stable, and liquidity conditions were steady, with the cash surplus indicator no longer lingering below 50. More surveyed SMEs expect the CNY to depreciate against the USD in the coming three months compared to last month, while overall exchange rate expectations remained stable.”