The economic statistics of May 2018 released by the National Bureau of Statistics on 14 June do not bode well for the economy of China. Indeed, the trends in the data indicate that, overall, the Chinese economy is increasingly slowing down.

Let us look at the beginning point, what have most contributed to China's economic growth. In May 2018, the retail sales of consumer goods reached 3.0359 trillion RMB with a nominal year-on-year growth of 8.5% and a real growth of 6.8%. These rates are not only lower than both the expected rate of 9.6% and the former rate of 9.4%, but they are also the lowest growth rates we have seen since 2003. Among this, the retail sale size of above mentioned goods was 1.1477 trillion RMB with a growth rate of 5.5%. From January to May, the total retail sales of consumer goods were 14.9176 trillion RMB with a year-on-year growth of 9.5%. Out of this, the retail sales above designated size were 5.7518 trillion RMB with yoy growth rate of 7.8%. While the factors that increase consumption have not been taken into account here, the retail sales of consumer goods are nonetheless a crucial index of consumption and must be taken seriously, indeed, the year-on-year growth is now at the lowest it has been in 15 years.

Next, we must look at the investment data, which still plays an important role in economic growth of China. From January through May 2018, the total national investment in fixed assets (excluding farmers) came up to 21.6043 trillion RMB with a year-on-year growth of 6.1%, which is 0.9% less than the growth rate from January through April. Out of this, private investment in fixed assets accounted for 13.4399 trillion RMB with a year-on-year growth of 8.1%. The statistics of first five months this year clearly indicated that the investment growth is slowing down. However, the growth of private investment is still above 8%, which signifies that state-owned investments have drastically declined.

Now, let us turn to the industry. The value added by the industry had a real year-on-year growth of 6.8 % in May 2018, 0.3% higher than the rate last May but 0.2% lower than the rate in (this) April, and it is also lower than the rate anticipated by the market, which was 7%. In terms of month-on-month growth, the value added by the industry increased by 0.58% from April to May. From January through May, the year-on-year growth of the value added by the industry was 6.9%—the same rate persisted from January through April. While the performance of the value added by the industry in May has not been as disappointing as that of retail sales, it is rather unsatisfactory, and still worse than what was anticipated.

In terms of foreign trade, the first five months of the year saw that total value of trade in goods (exports and imports) of China come up to 11.63 trillion RMB—a 8.8% increase from the same period of last year. Out of this, exports accounted for 6.14 trillion RMB at a growth rate of 5.5%, while imports accounted for 5.49 trillion RMB at a growth rate of 12.6%. The trade surplus was 649.81 billion RMB, with a contraction of 31%. In May, the total value of imports and exports of China was 2.53 trillion RMB, with a growth rate of 8.6%. Out of this, exports accounted for 1.34 trillion RMB at a growth rate of 3.2%, while imports accounted for 1.19 trillion RMB at a growth rate of 15.6%. The trade surplus was 156.51 billion RMB, with a contraction of 43.1%. As a result of the global trade war being waged by the USA, the international trading environment has severely deteriorated this year, so far, this has been the biggest challenge facing the global economic environment this year. Against this backdrop, it is inevitable that trade surplus of China will decrease, which will in turn cause a dramatic decrease in China's economic growth in 2018.

In light of Anbound research opinion, compared to the first four months of the year, the economic data from May 2018 reflects more accurately the economic situation of China. This is because the earlier months were still under the influence of the momentum generated by last year's economic growth spur. Now, however, we are able to have a fair understanding of the real situation. It seems like the cautionary and pessimistic forecasts for 2018 (see "Social and Economic Trends in China," 24 December 2017) that the macroeconomic research team led by Chan Kung published at the end of 2017 are gradually being realized. Based on the economic statistics from May 2018, the slowing down of China's economy may even worsen. Should the current circumstances persist, it is even possible that China's economic growth will come to a halt.

In order for China to achieve some of the main political and economic goals declared at the 19th National Congress (such as the complete alleviation of poverty), the economy must be stable enough to maintain a certain level of growth, or a "baseline growth rate" of sorts, which some high-level decision-making officials suggest to be at 6.3%. Based on the downward trend we have seen in May, however, it is probable that future growth rates will be lower than 6.3%.

Against this backdrop, the relevant decision-making departments should place the prevention of the stalling of economic growth on the agenda. Anbound Researchers stressed that this year's macroeconomic environment is no longer the same as before, in the sense that the external economic and foreign trade environments have deteriorated significantly as a result of weak economic foundations. In addition, this has given rise to additional risk factors in global policy. Additionally, the general decline of emerging market economies will also have an impact on China's external demand. If China's domestic economy is still unable to keep up at this juncture, the road ahead will be exceedingly difficult.

Moreover, the complexities of internal and external environments have posed serious challenges to the regulation and control of China's macroeconomy. Currently, on the one hand, China wants to continue working within the established structure while promoting reforms by deleveraging and making other structural adjustments in order to prevent financial risks. On the other hand, it wants to prevent the stalling of economic growth, and this gives rise to a slew of other risks. Striking a balance between these two contradicting goals proves to be increasingly challenging, and the pressure is mounting by the day. Moreover, judging by current trends, this pressure will remain throughout the second half of 2018 and just might be carried over into the following year.

With regard to the future of macroeconomic policy, Anbound's senior researcher He Jun opinion that firstly, it is more likely that there will be an easing of monetary policy as a consequence of the deterioration of the macroeconomic situation. If China's Central Bank continues insisting on implementing non-comprehensive measures like non-rate hikes and non-across-the-board cuts to reserve requirement ratios (RRR) to adjust liquidity, while circumstances worsen, it cannot be ruled out that there will be an even more intense easing of monetary policy in the next half a year. In any case, it is impossible that this short-term easing of monetary policy will be able to solve the economic downturn because this economic downturn has been brought about by mid- to long-term as well as structural factors such as opening-up, reform issues, market openness, and the reform of the financial system—there is no prompt solution for this. It is also worth noting that monetary policy can only do so much, so in strained times like this, we must refrain from focusing too much energy on correcting such policy.

Secondly, China might seriously need to introduce policies that will inject liquidity into the market. In last year's analysis, Anbound research team pointed out that China navigates current and future internal and external circumstances, it cannot afford to take a linear approach in dealing with the challenges of maintaining a steady and healthy economic growth, while achieving its other developmental goals, rather, it would do well to consider the structural deficiencies of its domestic economy within the broader context of the global economic situation. In this regard, however, the future does not look very bright. It is also necessary to maintain a certain level of mobility within the economy to solve these grave challenges and problems. This means that China must increase its bond issuance significantly in order to achieve its goals of economic growth and structural adjustment. Anbound predicts that China will need to increase its bond issuance by 30-50 trillion RMB.

Final Analysis and Conclusion:

It must be noted, however, while introducing policies that would inject liquidity into the market, though not an ideal path to take, in light of the many constraints, difficulties, and reforms pressure that China will face in the future, implementing such policies might just be unavoidable, especially in order to alleviate the pressures of economic and social development and to create a more relaxed environment for reforms. While the statistics from May 2018 can simply be considered as a sort of yellow light for the Chinese economy, this warning must not be ignored; China needs to start seriously thinking about how it can protect itself from the risks of a stalling economy.