SME business confidence edges higher

16  January 2013

Business confidence is rising again among Chinese small and medium-sized enterprises, or SMEs, after falling for two straight quarters last year.

However, confidence still remains low, according to the latest China SME Confidence Index report released by Standard Chartered Bank on Tuesday.

The fourth quarter of 2012 recorded a reading of 47.28, a marginal increase of 0.57 percentage point from the previous quarter.

The report said: “The overall index in the fourth quarter began to stabilize and showed an upward trend, but it remained below the level of the same period in 2011,” when the reading was 54.57.

Confidence in the macro economy, business operation, and investment all rose slightly from the third quarter, but confidence in financing failed to follow the upward trend of the previous term, declining by two points.

Despite a higher index reading, 32 percent of the small businesses and 36 percent of the medium-sized firms said they were not optimistic about their economic situation, while less than 20 percent said they were “optimistic”.

First launched in October 2011, the quarterly index covers 1,000 SMEs, 70 percent of which are micro and small enterprises from 10 sectors in 20 cities throughout China.

Geographically, the index showed companies in the north were more confident than those in the east, south and west of the country.

“The economy started to rebound in October or November, and it usually needs three quarters to witness an overall recovery. Therefore, better readings might come out later this year,” said Betty Ku, regional head of China and North East Asia at Standard Chartered Bank’s SME Banking.

Wang Jun, a senior analyst at the China Center for International Economic Exchanges, said: “The figures suggested that the foundation of economic recovery this time is far from solid enough.

“Enterprises feeling an economic warming usually lag behind actual economic data. Plus, this round of recovery is still based on government investment, and tends to favor large companies first, especially State-owned enterprises.”

Wang added that in 2013, SMEs might be less optimistic on profit levels, as prices increase at a faster pace compared with last year, and enterprises have to re-stock inventories.

The bank figures showed that financing costs for SMEs were rising.

In the fourth quarter, nearly 45 percent of companies said their bank lending interest rates had increased, in contrast to the first quarter’s 23 percent.

Ku said that lending risks for SMEs had intensified significantly in the second and third quarters of 2012, and that the pricing of loans in the months since then had increased.

The report suggested that multiple factors, including a weak international economy, domestic economic restructuring and a slowdown in fixed-asset investment, had led to declines in SME confidence during the second and third quarters.

However, Jungkiu Choi, head of consumer banking at Standard Chartered China, said the challenges that SMEs now face were “temporary”.

“China’s SMEs have come through many domestic and international challenges with strong vitality and admirable energy,” he added.

The report added that the country’s economic recovery will become more obvious in 2013.