Small and Medium Enterprise Confidence Index Analysis
The Small and Medium Enterprise Confidence Index (SMEI) returned to expansionary territory at 50.7 in October, marking a significant improvement after two months of contraction. This shift was driven by a broad-based improvement in key sub-indices, indicating positive developments in the business landscape.
Performance Sub-Index
- The overall performance sub-index rose to 50.2 in October, the first reading above 50 since May. This indicates a positive trend in business performance, with key indicators such as new orders, employment, and profitability showing improvement.
- Manufacturing sector outperformed other sectors, with a solid increase in new orders contributing to the growth in the performance sub-index. External demand also remained robust, supporting cross-border trading SMEs.
- However, non-manufacturing sectors like real estate, construction, retail sales, and wholesale reported a decline in overall activity, highlighting areas of weakness in the economy.
Credit Sub-Index
- The credit sub-index reached a five-month high of 51.7 in October, signaling improved access to funding for SMEs. Banks were more willing to lend, following the People’s Bank of China’s easing of monetary policy through lower policy rates and reserve requirement ratios.
- Borrowing costs from non-bank financial institutions (NBFIs) also decreased for the second consecutive month, further supporting SMEs in accessing credit. Expectations of CNY appreciation against the USD increased among SMEs, indicating positive sentiment towards the currency.
Outlook and Implications
The improved performance of SMEs in October is a positive sign for the broader economy, indicating a shift towards expansionary territory. Key sectors like manufacturing showed resilience, while challenges persist in non-manufacturing areas.
Access to credit has improved, thanks to supportive monetary policies, which could fuel further growth and investment among SMEs. Expectations of CNY appreciation suggest confidence in the currency’s strength, adding stability to the economic environment.
Conclusion
The Small and Medium Enterprise Confidence Index’s return to expansionary territory in October reflects a positive trajectory for SMEs and the overall economy. Improved performance indicators and increased access to credit signal potential growth opportunities for businesses in the coming months.