China deflation threat grows as companies cut prices to survive

By Bloomberg News

WheN China abandoned pandemic restrictions after three years of stringent controls, Nie Xingquan was expecting booming sales for his hand-made leather shoes. Instead, demand has been so poor that he’s had to cut prices 3 percent from a year ago and reduce his profits.

It’s an ominous sign of the deflationary pressure that’s hitting Chinese businesses as the economy weakens, and threatening to undermine Beijing’s stimulus plans if consumers opt to defer spending.

Nie said his Italy Elsina Group Co., which is based in eastern China’s Wenzhou city and caters to domestic retailers and consumers, has seen business tail off since February. Many of his clients are still scarred from the damage Covid did to their cash flow and profits. Some retailers, rather than putting in new orders, are trying to sell all the stock they accumulated while expecting sales to surge.

“Everyone is just hanging there and doing our best to narrow the profits as much as possible, so that we can still survive,” said Nie.

Instead of rapid price gains predicted by some economists at the beginning of the year, China is experiencing a rare period of falling prices. That’s a clear contrast to the rocketing inflation that followed the reopening of the US and other major economies, and is visible both at the factory gate and retail side.

Producer prices have been contracting on a year-on-year basis since October 2022, largely due to falling prices for commodities like coal and crude oil. Data on Wednesday will likely show consumer prices declined in July, which would be the first time since late 2020 that both consumer and producer prices register contractions.

Using the gross domestic product deflator—a measure of economywide prices—China is already in deflation. The International Monetary Fund defines deflation as “a sustained decline in an aggregate measure of prices,” such as the consumer price index or the GDP deflator.

Unlike the temporary decline in late 2020 and early 2021, the drop in consumer prices this time around is more cause for concern.

Back then, falling pork prices were the main reason. Now, exports have plunged as consumers in some of China’s biggest markets, including the US and Europe, pull back on spending. A prolonged downturn in China’s property sector has cut prices for rent, furniture and home appliances.

Also, a price war among carmakers triggered by Tesla Inc.’s reductions led other major brands to join in with steep discounts earlier this year.

If prices keep dropping across a broad range of goods for an extended period, consumers could delay their purchases, curbing economic activity further and forcing businesses to keep reducing prices. That, in turn, would cut into revenue and profits, prompting firms to curb investment and jobs—resulting in the kind of economic stagnation that Japan suffered for decades.

To be sure, China isn’t in the same boat. Not all prices are falling, with consumer spending on services remaining fairly strong. Tourism prices surged 7.1 percent in the first six months from a year ago, as hotels rates surged. Costs for services such as recreation and education, and medical care, are also still rising. The problem of low or falling prices is most acute in the consumergoods industries.

“It feels like people are no longer spending much on clothing like they used to,” said Chen Yubing, manager of the Jiayao Textile Co. Ltd., a maker See “China,” A17

West African leaders will meet Thursday after Niger’s junta defies key deadline and shuts airspace

By Sam Mednick | The Associated Press

NIAMeY, Niger—leaders of West Africa’s regional bloc said Monday that they would meet later this week to discuss next steps after Niger’s military junta defied a deadline to reinstate the country’s ousted president while its mutinous soldiers closed the country’s airspace and accused foreign powers of preparing an attack.

The meeting was scheduled for Thursday in Abuja, the capital of neighboring Nigeria, according to a spokesman for the ECOWAS bloc.

State television reported the junta’s latest actions Sunday night, hours before the deadline set by ECOWAS, which has warned of using military force if the democratically elected President Mohamed Bazoum is not returned to power.

A spokesman for the coup leaders, Col. Maj. Amadou Abdramane, noted “the threat of intervention being prepared in a neighboring country,” and said Niger’s airspace will be closed until further notice.

Any attempt to fly over the country will be met with “an energetic and immediate response.” continued from A16 of polyester and nylon fabric based in the eastern province of Zhejiang. “Competition has become fiercer and many factories are slashing their prices in order to sell, which led to a vicious cycle,” said Chen, whose factory lowered prices by 5 percent this year even though costs have risen by just as much.

The junta also claimed that two central African countries were preparing for an invasion, but did not name them. It called on Niger’s population to defend the nation.

The coup toppled Bazoum, whose ascendency was Niger’s first peaceful, democratic transfer of power since independence from France in 1960. The coup also raised questions about the future of the fight against extremism in Africa’s Sahel region, where Russia and Western countries have vied for influence.

International airlines have started diverting flights around Niger, which the United States and others had seen as the last major counterterrorism partner in the Sahel, south of the Sahara Desert, where groups linked to al-Qaida and the Islamic State group are expanding their influence.

Also Monday, Mali said it and Burkina Faso, both neighbors of Niger run by military juntas, were sending delegations to Niger to show support. Both countries have said they would consider any intervention in Niger as a declaration of war against them.

The Associated Press saw several security officers from Burkina Faso at a hotel in Niger’s capital.

Regional tensions have mounted since Niger’s coup nearly two weeks ago, when mutinous soldiers detained Bazoum and installed Gen. Abdourahmane Tchiani, former head of the presidential guard, as head of state. Analysts believe the coup was triggered by a power struggle between Tchiani and the president, who was about to fire him.

It was not immediately clear what ECOWAS leaders will do now. The region is divided on a course of action. There was no sign of military forces gathering at Niger’s border with Nigeria, the likely entry point by land.

Nigeria’s Senate has pushed back on the plan to invade, urging Nigeria’s president, the bloc’s current chair, to explore options other than the use of force. ECOWAS can still move ahead, as final decisions are made by consensus by member states.

The government has been downplaying concerns about deflation, with officials from the People’s Bank of China, National Statistics Bureau and other agencies repeatedly saying there’s no foundation for long-term price declines.

Guinea and neighboring Algeria, which is not an ECOWAS member, have come out against the use of force. Senegal’s government has said it would participate in a military operation if it went ahead, and Ivory Coast has expressed support for the bloc’s efforts to restore constitutional order.

The junta does not appear interested in negotiation. An ECOWAS delegation sent to Niger last week for hours of talks was not allowed to leave the airport and met only with Tchiani’s representatives.

The junta has also asked for help from the Russian mercenary group Wagner, which operates in a handful of African countries, including Mali, according to Wassim Nasr, a journalist and senior research fellow at the Soufan Center.

US officials say they are still able to communicate with Bazoum and that their most recent contact was Monday.

Two officials said the administration of US President Joe Biden intends to maintain both a diplomatic and military presence in Niger for the foreseeable future.

The administration is still weighing whether the developments amount to a coup, according to the officials, who spoke on condition of anonymity to discuss private diplomatic discussions. They said there was still time for Niger’s military leaders to reverse course.

If the US determines that a democratically elected government has been toppled by unconstitutional means, federal law requires a cutoff of most American assistance, particularly military aid.

Since the coup, extremists have been ecstatic because they are able to move around more freely without fear of attack, Boubacar Moussa, a former jihadi fighter, told the AP. He had joined a nationwide program that encourages fighters to defect and reintegrate into society. The program’s fate is unclear.

Moussa said he’s received at least 10 phone calls from active jihadis in the Tillaberi region near the Mali border who said there’s been no concern about airstrikes. If there’s a military intervention by ECOWAS, they likely will attack the capital, Niamey, he said.

At a rally on Sunday, thousands cheered junta leaders who said their loyalty would be repaid.

“We are with you against them. We will give you the Niger that you are owed,” Brig. Gen. Mohamed Toumba said. After his speech, rallygoers beheaded a chicken decorated in the colors of former colonizer France.

The junta is exploiting antiFrench sentiments to shore up its support base and has severed security ties with France, which still has 1,500 military personnel in Niger for counterterrorism efforts.

Talking about deflation publicly is also off-bounds for many Chinese analysts. One economist at a local brokerage said he was instructed by regulators not to discuss deflation. He was told to promote the narrative that China’s economy is steadily improving, he said, declining to be identified in order to discuss private information. Another China-based economist said they received guidance from regulators and their com-

Echoing PBBM’s SONA message to smugglers: Your days are numbered

Dr. Jesus Lim Arranza

Make Sense

BY all indications, the multi-billion peso technical smuggling of palm olein could become the first case that will be filed since PBBM made that bold pronouncement in his recent State of the Nation Address: “Bilang na ang mga araw ng mga smuggler!”

This is because of the quick response of the President to my lettercomplaint last December on the “illegal use of imported palm olein that is hurting our coconut and palm oil industry and depriving the government of VAT and duties.” The President, through Presidential Management Staff (PMS) Assistant Secretary Montano T. Nazario Jr., sent a communication to the Department of Agriculture (DA), particularly to Undersecretary Domingo F. Panganiban, urging that we meet to discuss the problem in detail. I was furnished a copy of that correspondence.

For five months, I tried my best to set up a meeting with Panganiban through letters and calls to the DA, to no avail. But in fairness, Panganiban informed me that my letters did not reach his office. I couldn’t fathom how this happened; probably there are people who wanted to prevent our meeting from happening. The important thing, anyway, is, we finally got to meet on July 31, and the good Undersecretary also summoned the officials of the Philippine Coconut Authority (PCA) and the Bureau of Animal Industry (BAI), the DA unit that has been issuing the VAT exemptions to traders that have been apparently misrepresenting their palm olein importations for the purpose of animal feeds compounding.

I sought clarification from BAI be easily redirected straight to the retail market. conduct of a thorough probe. The BAI actually admitted that it was only in 2021 when the agency came up with the rules governing the grant of VAT exemptions. why they are not getting the formula on the manufacture of animal feeds to ascertain if the volume of VAT-free imported palm olein really went to the production of feeds. The answer I got was, this cannot be done because it violates the privacy law.

Let me express my gratitude to the hardworking people at the OP and the PMS, who have been proactively referring my concerns to the proper agencies. They have been a big boost to the President’s campaign against graft and corruption and other illicit acts.

I also met last week with the NBI, and the agents of the bureau’s NCR Division told me that they have already issued subpoenas to the BAI and Bureau of Customs for all the pertinent documents, including the names of the companies involved.

My immediate reaction was: “My God, they are getting VAT exemption by the billions and yet they have no obligation to declare how they are using their importations based on their formula.”

Absurd really, and clearly there was lack of effort in protecting the public’s interest; that’s the people’s money we are talking about, funds that should have been spent on important government projects. According to the report of House Ways and Means Committee Chair and Albay Rep. Joey Salceda, the government has already lost some P45 billion in revenues due to technical smuggling of palm oil over a sixyear period. I also asked how come the BAI’s suspicion was not roused when these traders were bringing in the more expensive palm olein instead of just importing refined bleached deodorized palm oil, if their purpose is solely for feeds compounding. Note that palm olein is derived when palm oil goes through another process of fractionation to make it fit for human consumption. Thus, palm olein can

Also, in 2014, then BIR Commissioner Kim Henares issued Revenue Memorandum Circular No. 55-2014 mandating that for animal feed ingredients to be granted VAT exemption, “there must be a showing that the same is unfit for human consumption or that the ingredient cannot be used for the production of food for human consumption as certified by the Food and Drug Administration [FDA].”

How the VAT-exempt importation of palm olein for animal feeds compounding continued for several years despite this revenue order really astounds and baffles me.

In that meeting, Usec Panganiban made definitive responses to the problem. He will issue an order transferring the authority to grant tax exemptions to palm oil shipments to the PCA. This is commendable since the PCA has the competence to determine if such importations will be detrimental to the industry.

The PCA can also determine what is fit for human consumption or not. Keep in mind that the PCA Charter gives it authority over other vegetable oil industries, not just coconut. I will now meet with the PCA so we can come up with rules that traders will not be able to circumvent.

The BAI, meanwhile, has been directed by Panganiban to submit all the documents necessary for the

The NBI, I’m sure, will also look back at all the importations and see if there were indeed FDA certifications as required by the revenue circular issued by Henares.

The investigation is now grinding and I vow to see this through to the end.

Let me express my gratitude to the hardworking people at the OP and the PMS, who have been proactively referring my concerns to the proper agencies. They have been a big boost to the President’s campaign against graft and corruption and other illicit acts.

Recently, I have also called on the DENR and DOLE to go after the illegal recyclers of used lead acid batteries (ULABs) and lead smelters that have been mushrooming in different parts of the country.

They do not have the necessary permits and licenses while operating shabby lead smelting facilities that are clearly ill-equipped to control risks to the environment and their laborers.

I am sure the OP will also immediately take cognizance of this and direct the DENR, DOLE, NBI, and other concerned agencies to decisively act on the matter.

Dr. Jesus Lim Arranza is the chairman of the Federation of Philippine Industries and Fight Illicit Trade; a broad-based, multisectoral movement intended to protect consumers, safeguard government revenues and shield legitimate industries from the ill effects of smuggling.