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SME Index Hits a New High in Recent 20 Months

2021-10-21

In September 2021, the Economic Daily – PSBC Small and Micro-sized Enterprise Operating Index (SME Index) reported 44.5, up by 0.2 point compared with the previous month and 0.6 point compared with the same month last year, setting a new high in recent 20 months. It didn’t come easily especially under the current complex and severe international environment, the spread of domestic epidemic, and the impact of floods. It shows that under the new “dual circulation” development pattern, micro and small-sized enterprises (MSEs) were operating well.

From the perspective of the component indices, except for the cost index which dropped by 0.2 point to 62.9 and the financing index remaining the same as the previous month at 52.9, all the other six indices showed an upward trend. The decline in the cost index was directly related to the high global commodity prices, and the unrealized growth of the financing index had a certain relationship with the expectations of tightening global monetary policy. The purchasing index rose by 0.3 point to 42.6. Although it’s still a far cry from the prosperity threshold, its significant growth indicates that MSEs will continue to expand in the next stage. The market index was 40.1, up by 0.2 point, and the expansion index was 42.6, up by 0.1 point. These two indices also reflect the expansion trend of MSEs’ production. At the same time, the performance and confidence of MSEs were gradually recovering represented by the performance index rising by 0.2 point to 44.6 and the confidence index increasing by 0.2 point to 41.7, indicating that the recovery of MSEs after the epidemic has begun to bear fruit. The risk index was 49, up by 0.1 point, which is close to the threshold. It is worth noting whether it can continue to grow in the future.

Among the six regional indices, except that the Southwest China index remained the same as the previous month at 43.6, the other regional indices all went up. Among them, the indices of North China, Central & South China and Northwest China all increased by 0.2 point, reaching 42.3, 46.7 and 41.7 respectively, and the Northeast China index and East China Index both increased by 0.1 point to 41 and 45.5 respectively. Although the indices of various regions have generally risen, the indices of Northwest China, Northeast China and Southwest China were far from the prosperity threshold, and there was still considerable pressure on the development of MSEs.

From the perspective of industrial indices, the indices of all seven major industries increased. The index of the accommodation & catering industry was 40.5, up by 0.3 point; that of the transportation industry was 43.1, up by 0.2 point, which shows that with the overall advancement of epidemic prevention and control and economic and social development, the population moved in an orderly manner, and consumption recovered steadily. The index of the wholesale & retail industry was 45.8, up by 0.2 point; that of the service industry was 41.5, up by 0.2 point. It reflects that relevant policies for expanding domestic demand had taken effect, and domestic demand was recovering in an orderly manner. The indices of the manufacturing industry, the agriculture, forestry, animal husbandry & fishery industry and the construction industry was 45.3, 43.8 and 40.8 respectively, all up by 0.1 point. With the gradual recovery of the global industrial chain, MSEs in the manufacturing industry will continue to make structural adjustments. The agriculture, forestry, animal husbandry & fishery industry may be subject to fluctuations under the influence of the industry’s business cycle, and MSEs in the construction industry will continue to adjust under the real estate regulation.

Since the beginning of this year, China’s various policies for the stable development of MSEs have been steadily advanced. In the second half of the year, the fiscal and tax support policies for MSEs were maintained. The central bank’s overall RRR cut in mid-July and open market operations in the third quarter injected liquidity into the market. Coupled with other policy support, the production and operation of MSEs have stabilized. What is particularly remarkable is that new investments and the number of new employees of MSEs in different industries are showing an upward trend. The new investments of MSEs in the manufacturing industry increased by 0.2 point, and the number of new employees increased by 0.2 point; both of the new investments (storefronts, business area and equipment) and the number of new employees of MSEs in the service industry increased by 0.2 point. The orderly expansion of MSEs will drive the next stage of purchasing and production, laying the foundation for the continued recovery of MSEs next month.

Taking macroeconomic factors into consideration, although the Purchasing Managers’ Index (PMI) of China’s manufacturing industry was 49.6% in September, down 0.5 percentage point and falling below the threshold, most sectors in the manufacturing industry still expanded compared with the previous month, with 12 industries’ prosperity levels higher than the threshold. MSEs in the manufacturing industry is expected to show a steady recovery trend against such a background. In September, the non-manufacturing business activity index was 53.2%, an increase of 5.7 percentage points, and the service industry’s prosperity level improved. The number of industries in the expansion range increased to 16, including railway transportation, air transportation, accommodation, catering, ecological protection and environmental governance industries that were more severely affected by the epidemic. Their business activity indices all rebounded significantly above the threshold. The total business volume of relevant industries also showed an obvious growth recovery. Activities related to the information service industry continued to be active, and orders for civil engineering and construction picked up, which shows that the national goals of investing in new infrastructure and new urbanization initiatives as well as major transportation and water conservancy projects were being effectively achieved. This will provide support for the subsequent stable development of the micro and small economy.

Taking into account fairness and efficiency in social and economic development and realizing common prosperity for all people not only requires the realization of economic structural transformation as soon as possible, but also requires continuous improvement of income distribution and expansion of consumption. The micro and small economy plays an important role in these aspects. Only when the vitality of the micro and small economy is fully released, can the sound development of MSEs promote employment, stimulate consumption, and achieve sound economic and social development.

The support for the development of the micro and small economy in the next stage should focus on the following two comprehensive policies.

The first is to support the development of manufacturing enterprises featuring specialization, refinement, differentiation and innovation in a targeted manner. The recovery of the manufacturing industry is the top priority for the development of the micro and small economy. At present, the prices of some raw materials have reached record highs, the shipping prices remain high, and the international trade situation is severe. High-tech micro, small and medium enterprises in the manufacturing industry, especially those that are greatly affected by raw material prices and shipping prices, should be provided with special financial subsidies and tax reductions after screening  by the industry and information technology departments and financial departments of all provinces. This will not only contribute to the stability of micro, small and medium enterprises, but also help solve the employment problem. At the same time, it is necessary to give full play to the financing support role of financial institutions for related enterprises to support the development of small and medium-sized enterprises in the manufacturing industry.

The second is to maintain the previous relevant policies for micro, small and medium enterprises such as cutting taxes and fees, targeted financing, etc., to stimulate the growth of domestic demand by supporting the development of MSEs. There is still a lot of room for improvement in the current consumption recovery. We can consider starting with MSEs and maintaining targeted supporting policies to enable MSEs to bolster product supply and micro-consumption.