China SME Confidence Index down

China's small businesses are cautious about prospects in the world's second-biggest economy amid a manufacturing contraction in recent months, a bank survey has shown.

The China SME Confidence Index from Standard Chartered Bank reached 52.04 for the second quarter this year, down 4.47 from the previous quarter.

The decline came after a surge in the first quarter and highlights concerns about economic conditions despite a slew of measures taken by Beijing over the following months.

All five sub-indexes of the survey fell in varying degrees in the three months. The sub-index measuring SMEs' confidence with the wider economy fell 7.51 points to 47.36. On operation, it was down 1.89 points at 54.92 and stood at 56.97 on investment and 48.90 on financing.

The SME Confidence Index is based on a quarterly survey covering 1,000 samples from 20 cities, including chemicals and materials, transport and equipment manufacturing.

The results were similar to an earlier business climate survey conducted by China-based Internet company NetEase Inc, which indicated that financing difficulties were not a major issue this year as more SMEs reported sufficient cash flow.

Forty-two percent of the surveyed firms forecast a continuation of the financial crisis, a drop of 8 percent compared with last year. But another 40 percent were "unsure" about their business prospects, compared with just 27 percent a year ago.

A third of the SMEs showed faltering confidence in the macroeconomic outlook for 2013, which was 4 points higher than last year. Half of the companies are as optimistic as they were last year. Only 40 percent said they expect improved business performances in 2012, while the figure was 51 percent last year.

However, there is still increasing commitment to growth plans. Instead of scaling back investment, 62 percent of companies plan to boost capital and equipment levels - up 5 percent from last year - and more than half of the companies vowed to expand their employee numbers, slightly higher than last year.

But analysts believe the improved situation is mainly a result of the shrinking production caused by lackluster global demand, which prompted fewer firms to ask for loans.

The annual survey drew opinions from top executives of 100 SMEs nationwide, covering sectors such as textiles, machinery, food and the Internet. This year, SMEs are having an easier time securing loans from banks compared with last year, highlighting increased market fluidity. More than a third of the surveyed firms now believe that getting loans is "normal", doubling the percentage from the previous year.

High taxation surfaced as the top concern in this year's survey. About a quarter of the companies said they feel burdened with unaffordable taxes, citing it as their biggest headache.

Meanwhile, rising costs are worrying at least 19 percent of business owners, while loan barriers ranked as the third-biggest hurdle.

However, easier access to loans is a "false proposition" because there are simply fewer companies trying to get loans, according to Zhou Dewen, chairman of Wenzhou SME Development Association. "Most SMEs are being squeezed by rising costs and shrinking demand. Why would they bother getting loans?" Zhou asks.