SME uptick in June heralds glad tidings

As key index crawls up to 88.4, experts give credit to policy support

Business operations of China's small and medium-sized enterprises improved marginally in June on the back of better containment of the COVID-19 pandemic and a package of stimulus policy measures, the latest data showed on Friday.

Experts said the improvement, even though small, confirms a gradual recovery in growth momentum, and appears to strengthen expectations that China's economy will likely rebound steadily in the second half of the year.

China's Small and Medium Enterprises Development Index, based on a survey of 3,000 SMEs, rose by 0.2 point from 88.2 in May to 88.4 in June, according to the China Association of Small and Medium Enterprises. The index reported declines for four consecutive months to May.

Xie Ji, secretary-general of the CASME, attributed the slight improvement in June to the gradual resumption of production and stronger policy support.

"Our survey showed that 25.9 percent of enterprises fully resumed their business, and 42 percent were operating at over 75 percent capacity," Xie said.

Zhou Maohua, an analyst at China Everbright Bank, said the SME activity improved a bit in June amid the accelerated resumption of work and production, a pickup in market demand, efforts to ensure smooth industrial and logistics chains and government measures to stabilize prices and ease burdens on enterprises.

As growth stabilized in May with improvement in key indicators like value-added industrial output, China's economy will rebound steadily in the second half, and SMEs will continue to enjoy a favorable environment, Zhou said.

He, however, warned of multiple pressures and difficulties like high costs and shortage of some parts that SMEs might face.

More efforts should be made to implement all existing policies on stabilizing the growth and ensuring stable prices and supplies, guide financial institutions to increase support for SMEs and deepen financial reforms, Zhou said.

The CASME said the index contains multiple subindexes that gauge the performance and expectations of SMEs. A reading below 100 indicates dented vitality.

The subindexes for the eight sectors surveyed, including industry, construction, transportation and real estate, all registered a month-on-month increase in June. Notably, accommodation and catering reported the largest gain in June, rising by 0.6 point month-on-month to 81.3 in June.

The survey also showed the subindexes for seven fields, including the sentiment on the macroeconomy and labor force, improved in June. The subindex for operating costs remained unchanged in June.

Chen Jia, a researcher at the International Monetary Institute of the Renmin University of China, said the improved performance of SMEs showcased the long-term development resilience of SMEs and their capabilities to deal with pressures in the short term.

"If the (upward) trend remains unchanged in the next few months, China's private business, dominated by SMEs, would witness substantial recovery," Chen said.

Chen spoke highly of the government's recent stimulus policy measures, saying the improvement in some June indicators has proved their effectiveness.

A recent official survey showed an improvement in both manufacturing and services. The official PMI for China's manufacturing sector rose to 50.2 from 49.6 in May, and the country's official services PMI came in at 54.3, compared with 47.1 in May, said the National Bureau of Statistics.

Another private-sector survey, which focuses on small and export-oriented businesses, also showed an improvement in China's economic activity in June.

Caixin's composite PMI, which includes both manufacturing and services activity, rose sharply to 55.3 in June from 42.2 in May, according to media group Caixin.

Looking ahead, Chen said he expected China's economic recovery to gather pace in the second half, with a significant improvement in some key economic indicators.

Chen highlighted the private sector's key role in stabilizing the economy, employment and expectations and in spurring consumption, saying China's SME activity may continually improve in the following months.