2015.05.2901:28:00UTC+00China's Sme Activity softened on Slower Sales Growth and Destocking

China's SMEI current performance index fell to 56.5 in May from 59.3 in April, with broad weakening seen across sub-indices.

• The production sub-index declined to 61.3 from a nine-month high of 65.1 in April; this was still better than the average reading of 57.8 in Q1. The sub-index for finished-goods inventories fell to 48.9 from 52.7 in April, returning to contractionary territory, notes Standard Chartered. These readings suggest that output moderated in May on continued destocking.
  
• The sub-index for new orders fell by 3.4ppt to 62.0 in May, reflecting a slower pace of sales growth. The reading for new export orders was 56.8, suggesting that external demand is weaker than domestic demand. The subindex for raw-material inventories fell to a historical low of 50.1. Employment continued to expand, albeit at a slower pace. The employment subindex moderated to 55.0 in May from 56.2 in April, while the employmentexpectations sub-index fell by 2.4ppt to 58.9. Both readings were above 50, indicating that hiring demand among SMEs continues to rise. The salary sub-index declined for a third consecutive month, to 60.8 in May from a peak of 66.9 in February, but indicates still-rising labour costs for SMEs.
  
• The profitability sub-index fell to 60.3 in May from 62.8 in April as sales volume and prices moderated. The sub-index for output prices fell to 50.3 from 53.7, and input prices fell to 52.4 from 55.2 in May. 
  
• The credit index reading was 56.9 in May. This suggests a continued improvement in credit conditions for SMEs following recent monetary policy easing, albeit at a slower pace.
  
• The sub-index for banks' attitude towards lending to SMEs moderated to a stillhigh 59.8 in May from a record 61.9 in April. The sub-index for banks'financing costs inched up to 46.4 in May from 46.1 in April and 45.5 in Q1. The sub-index for non-bank financing costs rose to 49.2 in May from 48.1 in April and 47.9 in Q1. Both readings remain below 50, suggesting that costs continue to decline, but at a slower pace than in previous months.
  
• The three-month business expectations index softened for a second consecutive month to 61.2 in May from a peak of 66.0 in March. However, the above-50 reading indicates a still-improving outlook for SMEs during the peak season for China's economic activity in Q2-Q3. The sub-index measuring the outlook for new orders and production outperformed others, although the readings declined from April. The outlook for finished-goods inventories and raw-material inventories moderated.