Overseas demand to spur SME exports

Robust overseas demand will spur exports of China's small and medium-sized enterprises in the coming months, while multilateral trade pacts will lend long-term growth momentum, said Standard Chartered Plc, a global investment bank.

The still-rampant novel coronavirus pandemic in many foreign markets will strengthen Chinese production and boost SME exports in the short term, said Li Wei, a senior economist at Standard Chartered China.

"Data show that SMEs have ridden the boom of China's quick economic recovery," Li said. "And the beneficiaries are not just export-driven companies but those providing upstream supplies to export companies."

A monthly survey tracking SME activity in China showed that growth slightly moderated in January. The headline index, with a reading of above 50 indicating expansion, edged down to 52.3 in January from 52.7 in December.

Li attributed such adjustments to the reimposition of restrictive measures in China following sporadic new COVID-19 cases, which is weighing noticeably on the services sector, and the rapid growth in commodity and upstream raw-material costs that could potentially endanger profit margins.

Still, export-oriented companies are less vulnerable to the temporary blow, recording a reading of 54.7 in January compared with just 51.8 from domestic-focused peers, which suggests that consistent outbound momentum is here to stay "for the next foreseeable months", he said.

Even if external demand normalizes as the COVID-19 curve flattens, arrangements like the Regional Comprehensive Economic Partnership agreement set to offer new growth engines, given that a fair share of Chinese SMEs' trade with Southeast Asian markets, said Jessie Li, head of consumer, private and business banking at Standard Chartered China.

"What's at stake is not just the sheer trade volume. A lot of the import needs from markets such as Indonesia or the Philippines are not directly linked to anti-pandemic efforts, which indicates that growth will be longer-term and more sustainable," she said.

The Peterson Institute for International Economics, a United States-based think tank, said in June that the RCEP's contributions to China will be "positive for all sectors" from raw materials and manufacturing to traded services, thus helping lessen the damage inflicted by other uncertainties and trade friction with the US.

Li cited the Peterson Institute predictions that China's exports to ASEAN markets would double by 2030, thanks in part to the RCEP. This is also in line with the forecast from Standard Chartered's High Growth Enterprises Team.

More Chinese businesses are also tapping e-commerce platforms to sell directly to consumers, rather than going through traditional store distribution systems, though the channel is still only a fraction of overall retail sales.

For instance, gross merchandise value on Alibaba.com, Ali-Express' sister platform for B2B sales, surged 185.3 percent year-on-year as demand for Christmas ornaments has been rising since July, Alibaba said last month.

In Southeast Asia alone, the internet economy for the region of 570 million people is expected to more than triple to $300 billion in gross merchandise value by 2025, according to a joint report from Google, Temasek and Bain.