A story of two Attorneys-General

On Wednesday evening I wrote about the despicable conduct of our Attorney-General, senior National Party Cabinet minister, and minister for various intelligence agencies, Chris Finlayson.

Asked why it was appropriate for a (past and –  experts say –  probably present) member of the Chinese Communist Party and former member of the Chinese intelligence services (both acknowledged facts, neither of which was disclosed to voters when he was elected) to be a member of Parliament in New Zealand, Finlayson simply refused to engage or answer, other than to suggest the journalists raising the issue –  journalists from serious outlets including the Financial Times – were simply attempting to destroy the man’s political career and in the process were engaged in singling out a whole class of people for “racial abuse”.

Asked about the claims in an important new paper by Professor Anne-Marie Brady (of Canterbury University and the Woodrow Wilson Centre in Washington DC) on the efforts of the People’s Republic of China (state and party) to influence politics in New Zealand and about the close ties of various past and present National Party members to interests of the People’s Republic of China, our Attorney-General’s only response was to simply make stuff up.  He asserted that Professor Brady didn’t like any foreigners, only to have an audience member –  a former student of the professor’s –  point out that not only was Brady fluent in Mandarin, but that her husband was Chinese.

That account has received a bit of coverage –  although not, of course, that there was any sign of the New Zealand media following the issue up with, say, Mr  Finlayson, or his boss the Prime Minister, let alone with the Leader of the Opposition.  It might have been awkward all round I guess.

My own readership numbers yesterday were more than twice the normal level.

Senior Wellington lawyer and former MP, Stephen Franks wrote about the story on his blog,   He’d predicted this sort of response only a week or so earlier on Radio New Zealand.

Rarely, if ever in politics, does one get explicit, irrefutable proof of a risky and unpopular hypothesis within a week of venturing it.

But Attorney General Hon Christopher Francis Finlayson provided such proof last night.

Last week, after discussing on Radio NZ the Newsroom suspicions that NZ MP Jian Yang may be a spy for mainland China I blogged my explanation that time did not permit with Jim Mora. I predicted that the Communist government could expect their spies who have penetrated New Zealand leading circles to be sheltered by our  elite’s PC terror of being accused of racism.

Last night at an election candidate’s meeting Finlayson showed just how the accusing is done. The other  candidates then showed how effective it is in cowing them.

Others tweeted the story.  There was Rodney Jones, for example: Beijing-based New Zealand economist, who had himself last week called for Jian Yang’s resignation.

Numerous commentators offshore focused on China have been drawing attention to, and stressing the importance of, Professor’s Brady’s paper –  the one New Zealand’s Attorney-General could deal with only be attempting to smear the author.

Professor Brady herself tweeted a link to Stephen Franks’ post.

And then flicking round the web over lunch, I stumbled on a new story on the Sydney Morning Herald website.  The authors begin thus

Attorney General George Brandis is planning a once-in-a-generation shake-up of the legal framework governing who can lawfully influence Australian politicians, amid fears of clandestine Chinese Communist Party influence over politics in this country.

Having seen Professor Brady’s tweet drawing attention to Finlayson’s despicable comments, Fairfax’s Asia-Pacific editor, John Garnaut,  a former lawyer who had previously spent many years in Beijing as the Fairfax China correspondent was moved to tweet thus:

What a disgrace. How have things in New Zealand been allowed to sink this low so quickly?

For those interested in reading in more depth about the sorts of issues Professor Brady has raised, I would recommend an article on the Brady paper by an independent researcher on China who blogs at a site called Jichang Lulu (and who has also tweeted a link to the Franks account).  It is a substantial post on the issues in the (quite long) Brady paper.  The author knows China, but comes fresh to New Zealand.   As the author notes

New Zealand provides an example of successful United Front domination of a diaspora community. As of this election, the top ethnic Chinese candidates are linked to CCP organisations and support PRC policies. In New Zealand, the Chinese community can only realistically aspire to political representation by its own members through individuals approved by Beijing. This situation, enabled by the leaders of the top parties, effectively allows the extraterritorial implementation of PRC policy.

(This incidentally makes a nonsense of Chris Finlayson’s absurd allegation that anyone raising these issues is “racist”.   The alleged PRC interference in New Zealand affairs directly affects the freedoms in New Zealand of the many Chinese-origin New Zealand citizens – whether recent migrants or descendants  of those who came generations ago – who abhor the Beijing regime and its repression. State-sponsored actors are the focus of the story, and the paper.)

As he notes of Jian Yang

In the same Chinese-language interview quoted above, Yang says he used to be a Communist Party member, but he isn’t one any more. That presumably means ‘not an active member’; as Brady notes, you don’t just ‘leave’ the CCP. You are considered a member unless expelled. Considering Yang’s excellent relations with Chinese state entities and the praise state media award him, it would be ridiculous to assume he was expelled. In all likelihood, Yang is in fact a CCP member. Chen Yonglin 陈用林, a former PRC diplomat who defected to Australia in 2005, cast further doubt on Yang’s claims he was a PLA ‘civilian officer’. Based on his knowledge of military institutions before reforms in the late aughts, Chen estimates Yang was in fact a ‘soldier’ and probably reached the rank of  captain.

And

Perhaps even more remarkably, despite what an external observer would see as devastating evidence compromising a candidate before a tight election, his direct political adversaries in the Labour party produced absolutely no criticism of Yang. I’m not terribly knowledgeable about NZ politics, so perhaps I’m being naive, but is it normal to have such a major security revelation on a senior political figure days before an election and hear nothing from his rivals?

Noting that these are issues for the Labour Party as well.

In theory, Yang Jian’s direct adversary should be Raymond Huo (Huo Jianqiang 霍建强), a Labour Party MP. Yang and Huo compete for the Chinese-community electorate; Yang has been found to have a background in military intelligence, which he had declined to disclose in the past; Huo, whatever his sympathies, isn’t tainted by work for a foreign military. Recent polls have put Huo’s party a few points short of unseating the Nationals, or even able to lead a coalition. How can he not use this?

The only explanation that makes sense (and that is consistent with reactions from other senior politicians) is that he wouldn’t like to speak up against United Front interests.

Again it, as well as the original paper, is an analysis well worth reading.

We seem to have come to an extraordinary, and shameful, pass.  The very fact of the silence of most of the local media (the Herald’s recent article a welcome exception) and the refusal to engage seriously of any of our senior political figures (and responses by people like Jenny Shipley and Don Brash that could be seen to trivialise the issue) is surely worth a story in itself.

Fairfax’s local media have been very quiet on both the Yang story and on the arguments and evidence at the heart of the Brady paper – in the very week of a general election. Perhaps John Garnaut – recall, he is Fairfax’s Asia-Pacfic editor – would consider writing such an article? Perhaps the local papers might even publish it?   As he notes, the episode is  “a case study on how important it is to repel foreign interference before it gets to the political centre”.

But the primary responsibility for dealing with these issues can’t rest with foreign journalists, but with our own leaders.    I’m not sure that leaves me with much (any) reason for optimism.

(Due to New Zealand’s somewhat absurd electoral laws, I will remove any comments put up between midnight tonight and 7pm tomorrow that have any sort of party political tinge, so please refrain from making them.)

Investment data again highlight fundamental weaknesses

After an early morning with some boisterous visiting nieces and nephews, there is a certain calm retreat in getting back to some of the details of yesterday’s national accounts release.

I’ve written previously here about the investment numbers.  The state of investment spending is a useful, if never foolproof, indicator of the state of the economy.  Not so much in a mechanical adding-up sense –  a quarter of weak investment probably translates into a weaker quarter for GDP – as in the questions the data can pose about just what is going on more broadly, and the viable opportunities that businesses are finding, and taking up (or not), in New Zealand.

My typical starting point is a chart like this, breaking out investment spending into residential, government, and “business”.  (I put “business” in quote marks because, as the OECD does, it is calculated residually –  subtracting the other two components from total fixed capital formation.)

I shares of GDP june 17

Using quarterly data means living with a bit of “noise”, but not that much, and doing so enables us to see if there are any material changes emerging at the very end of the series.

I don’t want to say much about general government investment spending.   In recent years, that share has been averaging a bit higher than what we saw in, say, the five years before the last recession.  Then again, government (central and local) has faced significant post-earthquakes repair and rebuild expenditure, and the population growth on average over recent years has been a bit faster than that in the previous decade.  If anything, one might have expected the government investment share would have needed to be a bit higher still, at least given the range of functions governments currently take on,

What of residential?   In nominal terms, residential investment spending (new builds and renovations etc) as a share of GDP is now just below the highest levels seen in the history of this series (and actually in the annual series which goes all the way back to the year to March 1972, thus capturing the peak of the building boom in the early 1970s).    Given the rapid rate of population growth –  a little higher, but lasting longer, than the growth rates 15 years ago –  one would expect to see a pretty high share of GDP being devoted to housebuilding and associated activities.   But you will notice that the residential line has fallen a bit in recent quarters, and consistent with that the volume of residential investment spending undertaken in the June quarter this year was about 1.4 per cent lower than such spending in the June quarter of last year.

popn growth apc

In this post, my main interest is in the business investment component (the orange line in the chart).  Strip out the modest quarter-to-quarter fluctuations up and down, and there has been no real change in the share of (nominal) GDP devoted to business investment for almost six years now.   Over the six years, business investment as a share of GDP has been materially lower (around 2 percentage points of GDP) than the average for the 15 years or so prior to the 2008/09 recession.    That is a big change.    And doubly so because of the sustained acceleration in the population growth rate in the last few years (and with it growth in the number of jobs).  Workers typically need capital equipment, even if it is nothing more than a laptop (and associated software) and a place to work.

Ratios of nominal investment spending to nominal GDP aren’t the only sensible way to look at things. In particular, in New Zealand a lot of capital equipment is imported (eg vehicles and most machinery, but not buildings themselves).  A high exchange rate –  such as we’ve had in recent years, but also had to a lesser extent in the last few years of the 2000s boom –  tends to lower the price (in NZD terms) of capital equipment.  The volume of business investment might still be growing quite rapidly, even if the nominal investment spending share of GDP is pretty weak  (of course, for tradables sector firms the high exchange rate is no gain –  capital equipment might be cheap, but the expected returns to any investment are also dampened).

So here is a chart of the annual percentage change in real business investment.

bus i 2

The volume of business investment has been growing, but at a quite modest rate.  In the last five years of the previous previous boom, the annual growth rate was around 10 per cent per annum.  Over the last five years, the annual growth rate in the volume of busines investment has averaged only about 4 per cent (which also happens to have been the growth rate for the last year).

These pictures don’t really surprise me.  They are what one would have expected once one knew of (a) the magnitude of the damage caused by the earthquakes (from day one  at the Reserve Bank we knew this was a large non-tradables shock, which would skew activity away from business investment, especially in the tradables sector, for several years), and (b) the scale of the population increase.   Those pressures have helped hold our real exchange rate up so much and for so long, and reinforced the persistent large margin between our real interest rates and those abroad.  In that sort of environment, total business investment (share of GDP) is less than it otherwise would be, and –  although it isn’t able to be illustrated here –  what business investment does occur will be skewed away from tradables sectors.   Not even very high terms of trade levels were enough to counter-act the downward pressure on business investment growth, and monetary policy held tighter than it needed to be didn’t help either.

Looking back at that first chart, the weak and almost dead-flat business investment line was reminiscent of the productivity chart I showed yesterday.  It is also consistent with the weak export performance I wrote about last week.  The three indicators are causally related: business operating in, or which might have contemplated entering, the tradables sector, and thus taking on the world, simply haven’t been able to find sufficient attractive and remunerative opportunities.

The pressures associated with post-earthquake rebuild expenditure will wane, and probably already are.  But meanwhile, policy continues, year in and year out, to supercharge our rate of population growth, bringing in huge numbers of modestly skilled people, to a location where the successful opportunities for firms to take on the world with great products and services seem to be growing much more slowly than the number of people living here.  The flawed policy –  shared across both main parties and several of the minor ones –  just keeps making it harder than it needs to be for New Zealanders as a whole to get ahead.   Our immigration policy was crazy when lots of New Zealanders were leaving each year, but it is even more deeply problematic when the travails of Australia’s labour market mean that the outflow has (probably temporarily) largely ceased.