Private PMI data points to continued pain for SMEs

China’s manufacturing sector achieved a limited rebound in March, according to a private survey released on Wednesday.

The headline reading of the Markit/Caixin Purchasing Managers’ Index of small and medium-sized enterprises (SMEs) and export-oriented firms jumped to 50.1 in March, compared with 40.3 in February.

The reading is just above the threshold of 50 which divides growth from contraction.

“The reading of 50.1 means that improvements achieved in the manufacturing sector in March are still limited,” said Zhong Zhengsheng, chairman and chief economist at CEBM Group.

Only 76 percent of small and medium-sized enterprises nationwide had resumed production as of March 28, according to information from China’s Ministry of Industry and Information Technology announced on Monday.

In comparison, China's official manufacturing PMI, which typically polls a large proportion of big businesses and state-owned companies, came at 52 in March, up from 35.7 in February.

“The difference in the official and Caixin/Markit manufacturing PMI readings for March suggests that smaller enterprises, and the private sector in general, are suffering more than larger firms and state-owned enterprises,” Martin Rasmussen, China economist at Capital Economist said in a note on Wednesday.

Nomura echoed that view, saying that “the rebound in the Caixin manufacturing PMI in March was also less significant than the improvement in the official manufacturing PMI, meaning business resumption among SMEs, which are more severely inflicted by the COVID-19 pandemic, has been much weaker and slower.”

At a state council meeting on Tuesday, Premier Li Keqiang called for a targeted liquidity injection for small and medium-sized banks via targeted reserve requirement ratio (RRR) cuts to offer loans to SMEs, as well as an additional 1 trillion yuan (US$141 billion) quota for relending and rediscounting, aiming to provide more funding to SMEs, agricultural entities, and industries severely hit by COVID-19 and slumping exports.

The improvement in the Caixin manufacturing PMI in March was broadly based across its sub-indices. However, most sub-indices remained below the threshold of 50, except the output sub-index which jumped to 50.6, from 28.6 in February.

Notably, the new orders and the new export order sub-indices only rose to 47.7 and 46.4, respectively, in March from 34.9 and 36.4 in February.

Nomura said that “the Caixin manufacturing PMI will likely dip to below 50 in April on slumping external demand and a potential second wave of infections within China.”