China: An industry-specific slowdown – Standard Chartered

Standard Chartered analysts suggest that their September survey of SMEs in China showed signs of sluggishness in September after stabilising modestly in August.

Key Quotes

“The headline SMEI (Bloomberg: SCCNSMEI <index>) eased to 53.1 from 54.5 in August; the growth momentum indicator (new orders minus finished-goods inventory, 12mma) moderated to 8.8 from 8.9 prior (Figure 1). All three sub-indices of ‘current performance’, ‘expectations’ and ‘credit conditions’ dropped during the month.”

“Although most real activity indicators have softened in September, the slowdown appears to be industry specific. Sub-component readings by sector suggest the headline index was dragged down by a weakening in the real estate sector amid tightening of property policies and developers’ financing in July and August, which especially impacted smaller developers.”

“In contrast, the rest of the sectors improved modestly (manufacturing started to stabilise; wholesale and retail sales, and IT picked up) in September, reflecting stabilising growth amid continued policy support.”

“SMEs’ credit conditions remain a concern; the ‘credit’ sub-index eased in August and September. Mid- and small-sized banks failed to provide sufficient credit to SMEs, adding pressure to these companies’ cash flow. Further, while SMEs’ borrowing costs improved marginally, they remained high.”

“Going forward, we expect enhanced counter-cyclical policy measures to support the economy and lower corporates’ funding costs, although we do not see real estate market controls being eased in the near term, given the associated negative effects of easing.”