Confidence of SMEs sees notable rebound

Confidence among China's small and medium-sized enterprises rebounded notably in February, among signs of steady economic recovery and their robust performance this year.

Analysts said business confidence strengthened as China' optimized its COVID-19 response and its more pro-growth stance is widely expected to boost activity over the coming months.

Meanwhile, they warned of pressures and difficulties from high operating costs and insufficient demand faced by SMEs, calling for more efforts to ease the burden on SMEs and to level the playing field for all enterprises.

Their comments came as a new report released by Standard Chartered Bank showed that the China SME Confidence Index rebounded to 51.4 in February from 49.9 in January, ending four straight months of contraction and hitting the highest level since July.

The subindexes for both SME expectations and credit conditions each rebounded to above 50 in February, hitting the highest level in more than half a year. And the gauge for SMEs' performance improved to 49.8 in February, staying in contraction territory.

Notably, the services recovery was more significant than that in manufacturing. The performance subindex for services SMEs surged to 50.4 in February, returning to expansion territory for the first time since September.

According to the report, SMEs focusing on domestic business outperformed export-oriented SMEs, pointing to a solid recovery trend in the domestic market.

"SMEs' confidence strengthened notably, indicating improving sentiment and stronger optimism about China's economic prospects," said Zhou Maohua, a macroeconomic analyst at China Everbright Bank.

Meanwhile, he noted that many SMEs still face difficulties and challenges from insufficient demand, the high costs of raw materials and financing problems.

A State Council executive meeting on Wednesday stressed that while economic growth is stabilizing and the economy is recovering, a number of challenges still remain, and SMEs and self-employed households still face operational difficulties.

Actions to curb unwarranted charges on businesses must be closely aligned with the implementation of relief policies for enterprises and efforts to improve the business environment and stimulate market vitality, the meeting said.

Zhou spoke highly of the government's targeted measures to ease the burden on SMEs, saying that the government needs to continuously implement a package of stimulus policy measures and follow-up measures on stabilizing growth and ensuring stable prices and supplies. More efforts should be made to further tackle the difficulties faced by SMEs.

Yang Haiping, a researcher at the Institute of Securities and Futures, which is part of the Central University of Finance and Economics, highlighted the importance of boosting SMEs' confidence, saying that this plays a key role in the resilience and vitality of the economy.

He said the government should take targeted measures to support the development of SMEs, including offering services in fields like training to improve SMEs' capabilities and continuously curb arbitrary charges.

Despite the challenges and difficulties ahead, some economists said there are also positive signs indicating the gradual normalization of activities.

"A cyclical economic recovery in China is starting to unfold," said Hong Hao, chief economist at Grow Investment Group. "High-frequency data show that traffic congestion and subway crowds in big cities have rebounded to near-normal levels."

Given China's much higher-than-expected GDP growth in the fourth quarter, the optimized measures to control the pandemic, and the strong rebound of in-person services during the Chinese New Year holiday, Nomura recently revised up its 2023 China GDP growth forecast to 5.3 percent from 4.8 percent.