China’s SMEs match modest manufacturing gains, but yet to show ‘strong rebound trend’

China’s small and medium-sized companies have “yet to display a strong trend of rebound” despite showing slight improvement in business sentiment in March, according to an independent survey, following an equally modest recovery in manufacturing activities last month.

The CKGSB Business Conditions Index – a measurement of private sector sentiment for sales, revenue, the financing environment and inventory – rose from 51.6 in February to 52.1 in March, according to data published by the Cheung Kong Graduate School of Business (CKGSB) on Monday.

Like the purchasing managers’ indices (PMI), the monthly gauge – which surveys small and medium-sized firms – the 50-point mark separates growth from contraction.

“The index is currently still at watershed levels at the reading of 50, it has yet to display a strong trend of rebound,” said the school, which has been publishing the data since September 2011 from a monthly survey of alumni.

The actual business environment for enterprises in China would be worse than what our index reflects

CKGSB Business Conditions Index

Respondents to the survey are mostly executives of successful small and medium-sized (SMEs) enterprises, who are asked to rate aspects of their business that they expect to increase and improve, remain unchanged, or decrease over the next six months compared to the same period a year earlier.

“Our sample size came from SMEs that are doing comparatively well. Therefore, the actual business environment for enterprises in China would be worse than what our index reflects,” the school added.

Market observers have been assessing whether recent economic indicators, which appeared to beat market expectations, would be short lived as China’s economic recovery from last year has been difficult and continued to be dragged down by a property slump.
The modest growth shown through the business conditions index echoed China’s official manufacturing PMI data in March, which showed a rebound to 50.8 from 49.1 in February.

The official reading ended five consecutive months of contraction, and was the highest since March last year.

In the business conditions index, two of the four surveyed areas – sales and revenue – improved last month, while subindexes for financing and inventory weakened.

The financing environment, in particular, dropped from 45.6 in February to 45.1 in March.

China’s factory activity hits 1-year high in latest sign of economic recovery

Financing is the only subindex that reflects current business conditions, while the other three points to outlook, according to the school.

The indicator for inventory rose from 49.1 to 50, suggesting an expectation for reduced inventory.

Surveyed businesses also expected costs to rise, which the school said “does not necessarily reflect a worsening operating environment”, as it could indicate increased investment budgeted from optimism amid a recovering economy.

Meanwhile, respondents expected drops in investment and job openings, with the school saying the two indicators are strongly interrelated, and “worth paying attention to”.

The school added that the survey also showed that while there were improvements in “mid-price range products”, it continued to trend on a low trajectory, reflecting “enormous pressure” on China’s prices.

It has set its gross domestic product growth target at “around 5 per cent” for this year, while China is targeting consumer prices to grow by 3 per cent following 0.2 per cent growth last year.

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