Headline SMEI edged down to a 20-month low of 49.6 in August as performance sub-index fell further. All key performance sub-indices, except financing, fell below 50; this suggests broad-based weakening. Expectations sub-index stayed above 50, indicating stable sentiment among SMEs, Standard Chartered economists Hunter Chan and Shuang Ding notes.

Manufacturing is running out of steam

“Our proprietary Small and Medium Enterprise Confidence Index (SMEI; Bloomberg: SCCNSMEI <Index>) dropped to 49.6 in August, the lowest reading since end-2022, after rebounding to 50.4 in July. The overall performance sub-index edged down 0.9pts to 48.8 in August, staying below 50 for a third straight month. Meanwhile, the expectations sub-index stayed above 50 at 50.2.”

“Manufacturing SMEs reported m/m declines in sales and production in August, the first time after Lunar New Year in February. Notably, the new orders sub-index dropped 5.7pts to an eight-month low of 50, despite a rebound in new export orders, suggesting softer domestic demand. The services and trading SME performance sub-index retreated to 48.5 in August, staying in contractionary territory for a third straight month.”

“Banks remained supportive of SME financing. Meanwhile, liquidity conditions worsened from July on a further lengthening of receivables turnover and decline in cash surplus. As a result, the credit sub-index edged down to 49.9 in August. More surveyed SMEs expect the CNY to strengthen against the USD in the coming three months compared to July.”