Anne-Marie Brady’s new paper

Canterbury University politics professor Anne-Marie Brady has published today a follow-up to her substantial paper on Chinese party/government influence-seeking activities, particularly in New Zealand.   In the new short paper, published under the auspices of a NATO-funded project “Small States and the New Security Environment (SSANSE)”,  she poses specific challenges to our new government to do something about the issue, and the threat it poses to New Zealand and New Zealanders (including the many ethnic Chinese citizens).   Her abstract reads as follows

New Zealand—along with other nations—is being targeted by a concerted foreign interference campaign by the People’s Republic of China (PRC). The campaign aims to gain support for the Chinese Communist Party (CCP) government’s political and economic agendas by co-opting political and economic elites. It also seeks to access strategic information and resources. China’s efforts undermine the integrity of our political system, threaten our sovereignty, and directly affect the rights of Chinese New Zealanders to freedom of speech, association, and religion. The new Labour-New Zealand First-Greens government must develop an internally-focused resilience strategy that will protect the integrity of democratic processes and institutions, and should work with other like-minded democracies to address this challenge.

When I read that “must” in the final sentence, of course I strongly agreed that it should be so, but was not at all optimistic that it will.

She summarises her key findings as

  • China’s covert, corrupting, and coercive political influence activities in New Zealand are now at a critical level. 
  • The New Zealand government needs to make legislative and policy changes that will better protect New Zealand’s interests and help to protect our nation against foreign interference activities more broadly.

Coming just a day after the news that a leading publisher in Australia had pulled out, at the last minute, of publishing a book on exactly these sorts of issues in Australia, it was a reminder that we aren’t alone in facing these issues.  Where we may stand alone is the determination of our political and business elites to ignore the issue, and just hope any fuss dies away quickly without too much upset to Beijing.

As she has argued already in her main paper, the active Chinese intrusion has become a much more serious threat in the last few years, under Xi Jinping

United front work has now taken on a level of importance not seen in China since the years before 1949, when the CCP was in opposition. The CCP’s united front activities incorporate co-opting elites, information management, persuasion, and accessing strategic information and resources. It has also frequently been a means of facilitating espionage. One of the key goals of united front work is to influence the decision-making of foreign governments and societies in China’s favour.

New Zealand appears to have been a test zone for many of China’s united front efforts in recent years. Australia has also been severely affected; and the government there has now made strenuous efforts to deal with China’s influence activities.

She links to a nice ABC article on the issue in the Australian context.  I’ve linked previously to an article on the law changes the Australian government is currently proposing.

Brady notes that New Zealand is of interest to China for both economic and geopolitical reasons.  Much of it is covered in the main paper, but some of these lines were new to me and some are apparently dealt with in her new book.

New Zealand’s economic, political, and military relationship with China is seen by Beijing as an exemplar to Australia, the small island nations in the South Pacific, and more broadly, other Western states. New Zealand is valuable to China, as well as to other states such as Russia, as a soft underbelly through which to access Five Eyes intelligence. New Zealand is also a potential strategic site for the PLA-Navy’s Southern Hemisphere naval facilities and a future Beidou-2 ground station—there are already several of these in Antarctica.

Whenever Chinese navy ships visit Auckland, I’m afraid I can’t help thinking of Soviet Union and Nazi Germany parallels –  surely we’d never have had their vessels visiting?  Would even our governments contemplate granting naval facilities to China –  an actively aggressive naval power?  I hope not.

Does it all matter?

Some of these activities endanger New Zealand’s national security directly, while others will have a more long-term corrosive effect. The impact of China’s political influence activities on New Zealand democracy has been profound: a curtailing of freedom of speech, religion, and association for the ethnic Chinese community, a silencing of debates on China in the wider public sphere, and a corrupting influence on the political system through the blurring of personal, political and economic interests. Small states such as New Zealand are particularly vulnerable to foreign interference: the media has limited resources and lacks competition; the tertiary education sector is small and —despite the laws on academic freedom—easily intimidated or coopted.

On that latter point, while Canterbury University has apparently stood up for Brady’s right to speak and write in ways that Chinese interests don’t like, that same university hosts one of the Chinese funded and controlled Confucius Institutes.

As she notes, New Zealand governments have embraced this relationship with China, something that intensified under the most-recent National-led government.

What should be done?  At an overarching level she says

The Labour-New Zealand First-Greens government must now develop an internally-focused resilience strategy that will protect the integrity of our democratic processes and institutions. New Zealand should work with other like-minded democracies such as Australia and Canada to address the challenge posed by foreign influence activities—what some are now calling hybrid warfare. The new government should follow Australia’s example in speaking up publicly on the issue of China’s influence activities in New Zealand and make it clear that interference in New Zealand’s domestic politics will no longer be tolerated.

Getting specific she calls on the government to

The Labour-New Zealand First-Greens government must instruct their MPs to refuse any further involvement in China’s united front activities.

That would be Raymond Huo I presume.

The new government needs to establish a genuine and positive relationship with the New Zealand Chinese community, independent of the united front organizations authorized by the CCP that are aimed at controlling the Chinese population in New Zealand and controlling Chinese language discourse in New Zealand.

And there is a list of six other specifics

  • The new Minister of SIS must instruct the SIS to engage in an in-depth investigation of China’s subversion and espionage activities in New Zealand. NZ SIS can draw on the experience of the Australian agency ASIO, which conducted a similar investigation two years ago. 
  • The Prime Minister should instruct the Department of Prime Minister and Cabinet to follow Australia’s example and engage in an in-depth inquiry into China’s political influence activities in New Zealand. 
  • The Minister of Commerce and Consumer Affairs should instruct the Commerce Commission to investigate the CCP’s interference in our Chinese language media sector— which breaches our monopoly laws and our democratic requirement for a free and independent media. 
  • The Attorney General must draft new laws on political donations and foreign influence activities. 
  • The New Zealand Parliament must pass the long overdue Anti-Money Laundering and Countering Financing of Terrorism legislation.
  • The new government can take a leaf out of the previous National government’s book and appoint its own people in strategically important government-organized non-governmental organizations (GONGOs) which help shape and articulate our China policy, such as the NZ China Council and the Asia New Zealand Foundation.

I’m not sure the Commerce Commission is quite the right body to look at the effective Party/state control of the Chinese language media.  And I’m also not entirely sure how much confidence I would have in either the New Zealand intelligence services or DPMC, but I’m certainly supportive of the sort of direction she calls for.

She mentions the ASIO report.   As an example of the more realistic hard-headed mentality now afoot in Australia, consider this extract from the Director-General’s overview in the latest ASIO Annual Report

During this reporting period, ASIO identified a number of states and other actors conducting espionage and foreign interference against Australia. Our investigations revealed countries undertaking intelligence operations to access sensitive Australian Government and industry information. We identified foreign powers clandestinely seeking to shape the opinions of members of the Australian public, media organisations and government officials in order to advance their country’s own political objectives. Ethnic and religious communities in Australia were also the subject of covert influence operations designed to diminish their criticism of foreign governments. These activities—undertaken covertly to obscure the role of foreign governments—represent a threat to our sovereignty, the integrity of our national institutions and the exercise of our citizens’ rights.

You will look in vain for anything similar in our SIS Annual Report.  Then again, the Minister for the SIS was the same Chris Finlayson who was reduced to personally attacking Professor Brady at a recent election meeting.

I’m also sympathetic to her call regarding appointments to the New Zealand China Council and the Asia New Zealand Foundation.  Over the last couple of months I’ve kept an eye on the China Council’s Twitter feed: it is little more than just a propaganda feed, accentuating the positive, eliminating the negative, and more given to adulation than critical analysis.    Between the preferences of the (previous) government, and the personal economic interests of many of the key figures involved, perhaps it isn’t too surprising.

But it is also why I’m not very optimistic Professor Brady’s calls will come to anything.   Foreign policy –  perhaps especially towards China –  has been depressingly bipartisan –  and there is little sign on these sorts of issues that the Greens or New Zealand First are really any different.   Why would our new Prime Minister be inclined to do things differently when her own party president was just recently offering congratulations to the Chinese Communist Party on the occasion of the recent 19th Party Congress?  The Labour mayor of Auckland was apparently the recipient of large offshore Chinese donations to his election campaign.  I gather that Helen Clark has rubbished the sorts of concerns Professor Brady has raised.

And the National Party Opposition won’t be pressing her to –  not only do they have a Communist Party member in their caucus, but their party president was also offering warm fraternal greetings to the butchers of Beijing.   The system seems to be corrupted already, so what motivation does anyone inside it have to start to turn things around?  Perhaps external pressure might help –  if he had any political standing left himself, Malcolm Turnbull might well turn the fire back on the New Zealand government, and question the way it was allowing New Zealand to be used in Chinese party/goverment interests?

As Professor Brady notes, the standard response is always along the lines of

It has often been said that New Zealand is not important to China and that if we offend the Chinese government we risk our trade with them. It is simply not true that New Zealand is not important to China. And when our national interests may be threatened, the government should be prepared to weather temporary short-term blow back, for long-term political and economic gains.

And as I’ve pointed out previously, Australia does much more of its foreign trade with China than New Zealand does, and countries make their own prosperity.  China hasn’t made New Zealand, or Australia, rich: our own people and own resources have done that.  But the firms –  public and private –  with a direct vested interest in keeping on good terms with China have access and political clout.  One of things we need to remember is that the interests of businesses (and universities) who deal in countries ruled by evil regimes, are not necessarily remotely well-aligned to the interests and values of New Zealanders.   Selling to China, on government-controlled terms, isn’t much different than, say, selling to the Mafia.  There might be money to be made.  But in both causes, the sellers are enablers, and then make themselves dependents, quite severely morally compromised.

And if I were ever remotely hopeful that the sort of changes Professor Brady (admirably) calls for might come to pass, there was just another reminder of how our elites view these things.  At a corporate function last week, former Prime Minister John Key

…spoke at length about New Zealand’s relationship with China. “As PM I went to China seven times and everyone knows that I’m a massive China fan. I think the opportunities are enormous, the country is amazing, and the leadership is doing extremely well,”

I guess the leadership is doing “extremely well” at securing its own position, advancing China’s interests (over against the rule of international law) in the South China Sea, in expanding their influence in countries like our own, in extending the reach of the Party ever further in China itself, and pressing on with the chilling social credit scheme, to give the state ever more control over the populace.  Oh, and the small matter of an ever-more-distorted credit-driven economy that can’t even come close to replicating the material living standard available in the freer democratic bits of east Asia.

The system –  our system, as well as theirs – is corrupted.  Their corruption and destruction is conscious and deliberate.

It all also leaves me slightly uneasy about a comment I saw from Professor Brady suggesting that any inquiry needed to take place in secret.  Perhaps there are some national security issues where secrecy would be important, but if there is any hope of sustained change it can probably only come from something that happens openly, and which enables New Zealanders to see what their leaders have done –  pursuing some mix of a warped view of national interest, and of private and personal business interests.   Who, after all, would the secret reports be delivered to, but the same political leaders who have allowed this suborning of our system, and our people, to go on.  Someone wrote to me yesterday that ” this isn’t an oligarchic or anti-democratic society”.  That’s right.  But it can be a supine one, too ready to ignore what doesn’t affect most of us (non-Chinese New Zealanders) very much on a day to day basis.

UPDATE:

If you refuse to open your eyes, or read, it is hardly surprising you might not see anything.

Andrew Little, the Minister Responsible for the SIS, said he was not aware of any undue Chinese influence.
“I don’t see evidence of undue influence in New Zealand, whether it’s New Zealand politics, or New Zealand communities generally.

“We have a growing Chinese community. We have a strongly developing trade relationship and diplomatic relationship with China. I don’t think those things, on their own, connote undue influence.

“If there’s other things she says constitutes undue influence, we’d have to know what that is.”

 

An open central bank is the way to go

The new government is setting up a process to review the Reserve Bank Act, including –  but not limited to –  giving effect to Labour’s campaign promises to introduce some sort of employment objective to the Reserve Bank Act and to create a statutory committtee, including external appointees, to take OCR decisions.

It is a once-in-a-generation opportunity to reshape the central bank, a key policymaking (and implementing) institution in our economy and financial system.   As the Minister has pointed out, the current Act was written almost 30 years ago.  Lots of things about monetary policy, and the wider role of the Bank, turned out differently that was expected, or perhaps hoped for, thirty years ago.   Little about the New Zealand system has been followed by other countries who’ve reformed their central banks in the years since.

Of course, the bureaucrats at the Reserve Bank (“the old guard” as Bernard Hickey described them last week) aren’t keen on change at all.  Bureaucrats rarely are.  For years they have been successful in keeping secret their preferences –  Graeme Wheeler refused to release any of the work they’d done on reform issues and options a few years ago –  but last week they went public.    Unlawfully appointed “acting Governor” Grant Spencer, and his deputy –  and declared candidate to be the next Governor –  Geoff Bascand, used the platform of the Monetary Policy Statement press conference to outline their opposition to change –  or at least to any change that might diminish the power of Reserve Bank management (ie them, or people like them).

Spencer loftily declared that, of course, they weren’t opposed to a committee.  In fact, they supported one. But, in his words, they already had a committee, they thought it worked well (perhaps unsurprisingly since they are members of that  – purely advisory –  committee), and would be happy to see it established in law.   But, asked about outsiders on the committee –  something the government had promised, both in the Labour Party campaign, and in the Speech from the Throne the previous day-  Spencer was very wary.  How, he wondered, could we sure of finding enough suitable people without insuperable conflicts of interest? (How, I wonder, do we manage with almost every other agency of the state?)  Worse still was the idea that the members of any new Monetary Policy Committee might individually be held to account, and their views on the OCR be known to the public.   Why, Spencer declared, it could turn into a “circus”, with much too much focus on monetary policy –  as, he asserted, it had in some other countries.  Bascand worried that people might focus on the views of members of the committee, not on the issues “the Bank” wanted to focus on.

It was like some sort of blast from the past. Many bureaucrats, for example, hated the idea of the Official Information Act too.  Open government is an anathema to most.  But of considerable benefit to citizens.    Not one of the three “old guard” sitting at the top table at that Reserve Bank press conference has ever shown any serious or sustained interest in open government, especially as it applies to the Reserve Bank.  They are, in practice, devotees, to the “cult of the expert”, in which the public is told only what the “wise experts” determine they should know.   Thus, our Reserve Bank will happily tell you what they think the OCR will be in 2020 –  by when the decisionmaker will have changed, and the PTA and Act too –  but they fight tooth and nail, too often with the support of the Ombudsman, to keep secret their current deliberations, current analysis, or the advice the “acting Governor” receives on current monetary policy.   It is tidy, to be sure.  Open government isn’t –  in fact, it is often a bit messy.  But it benefits citizens, and over time actually makes for better government institutions and policies as well.

As I noted the other day, despite claims that an open central bank could turn into a “circus”, neither Spencer nor Bascand has offered any evidence in support of their claim.  There are aspects of how central banks work in other countries that, at times, career central bankers don’t like. But the interests of career central bankers and bureaucrats and those of the public don’t necessarily overlap much, if at all.

Each country has its own system, with its own idiosyncracies.  Many of those provisions aren’t –  and probably shouldn’t be – written into law.  Institutional cultures need to evolve.

But in Canada, they manage to run an open programme of research and dialogue as part of each five-yearly review of the inflation target.  In Sweden, members of the monetary policy decisionmaking board can, and do, articulate their views, not just in speeches around the decisions, but in substantive records in the minutes.  At the Bank of England, the Governor has been willing to be out-voted (and for that to be in the published minutes), even to vote differently than his own senior executives (some of whom are members of the Monetary Policy Committee).  The Bank of England runs a staff blog that, at least at its foundation, was sold as an opportunity for staff to challenge established orthodoxies (it is a good blog, although it never quite delivered on that –  unrealistic promise).  In the United States, senior researchers have been free to publish papers and books that disagree quite strongly with the way the Fed has run monetary policy.   The Atlanta and New York Feds have competing, and published, nowcasting models of current GDP growth.  John Williams –  head of the San Francisco Fed –  was not long ago out in public suggesting that the Fed shift away from inflation targeting, towards something more levels-focused.  As I noted then

I’m not persuaded by Williams’ case, but what struck me is how open the system is when such a senior figure can openly make such a case.  The markets didn’t melt down. The political system didn’t grind to a halt.  Rather an able senior official made his case, and people individually assessed the argument on its merits.

The FOMC doesn’t publish minutes as detailed as those of the Riksbank, but voting members can record their dissent from a majority decision, and they (and other regional Fed heads) can and do use speeches to articulate their own thinking about the economy and monetary policy. It is rarely, if ever, as explicit as “I’ll be voting for a 25 point increase at the next meeting”,  but outlining how that particular person thinks about the economy, the risks, and perhaps the challenges/opportunities the Fed faces.

My impression –  and I’ve kept an eye on these things for a long time –  is that the Swedish, British and US system all work well.    I’ve heard current and former Governors of some of these places moan about the systems, and individuals –  Stefan Ingves of the Riksbank, who was famously wrong in his disagreement with Lars Svensson, was here only about three years ago.   But since the whole point of dispersed, and open systems, is to limit the power of a single Governor, that unease should more likely be seen as a feature than as a bug.  Same goes for the claims of Spencer and Bascand here.

There have been concerns –  again from internal career people –  that externals on Monetary Policy Committees may use the visibility of a public platform to pursue their next career opportunity.    This was strongly asserted of one particular member of the Bank of England MPC in its early days –  a member who made life difficult for the Bank of England management.

It is, probably, a bit of an issue.  But it is no less so for management people.  I”m old-fashioned enough to think that Governors of the Reserve Bank (like Prime Ministers)should retire, and settle for gardening, charity work or whatever.  But it isn’t the way public life now runs.  Don Brash was on the board of our largest bank just a few years after ceasing being Governor, Ben Bernanke makes large amounts of money from his new roles in the financial sector,  Glenn Stevens has just signed-up as adviser to a macro hedge fund, and if I recall rightly when Graeme Wheeler announced he wasn’t seeking a second term as Governor he indicated that he had always planned to do only five years and then to step back into Board roles.    There is empirical evidence that the prospect of the “next job” has, at the margin, influenced monetary policy decisions that central bankers have made, and real concern that it can affect regulatory policy decisions.     These aren’t just issues for central banks –  and they certainly aren’t just issues for part-time external members of policy boards.

And the other issue that often gets raised is the potential for “confusion” or heightened market volatility.    The public, and markets, just won’t (it is suggested) be able to cope with differences of view in plain sight.  Strangely enough, they seem to in other countries.  There is no evidence I’m aware of suggesting that market conditions are less volatile here because we have a secretive monolithic central bank, but if such evidence exists perhaps the Bank could publish it, or point us to it.  If anything, there is a possible counter-argument (which I wouldn’t want to make much of) that if it is known that a variety of voters on a monetary policy committee have different views, and different (explicit or implicit) models, and if those views are being updated in public periodicially, market adjustment might be easier and less disupted than being restricted to a six-weekly decree from the mountain-top.  As I say, I wouldn’t want to make much of that argument –  open government is good in its own right, and seems to work (in central banks) in various other democratic countries –  but it is just to note that the argument doesn’t run all one way, even on this narrow point.

The “acting Governor” attempted to back his opposition to any sort of open acknowledgement of differences of view –  on a subject where, the Bank rightly and regularly reminds us, there is huge uncertainty –  by comparison with the Cabinet.

Cabinet collective responsibility has, historically, been an important part of our system of government.  In ye olden days – ie before MMP –  all our government ministers were, without exception, from a single political party.  They were elected on a common platform and, even if there were intense rivalries among them, they expected to seek re-election on a common platform.  These days, of course, we have often have ministers outside Cabinet who are representing parties not considered part of the government, and those ministers –  not having a common programme –  are not bound by the conventions (which is all they are) of Cabinet collective responsibility.

But even if Cabinet collective responsibility is one legitimate model, it is hardly the only one.  In Parliament, for example, laws are debated and passed, and who voted for the law and who voted against it is no secret.  MPs lobby, and are lobbied, give speeches, go on disagreeing after the final vote, but the law is the law.  The authority and robustness of the law is not diminished by robust open debate.  If anything, it is the alternative that would worry us –  the Chinese People’s Congress anyone?  Our local authorities mostly debate things openly –  majorities win, minorities lose, and life goes on.   And talking of the law, no one seems to think it a problem, that a bench of judges on the Supreme Court will often divide 3:2, and the Chief Justice might well be on the losing side.  Dissenting views can be, and typically are, properly documented and made available.

And it is worth reminding ourselves the nature of the OCR decisions. They aren’t once-for-all decisions, but ones that are revisted every couple of months, precisely because new data come available, and what to make of that data remains very uncertain.   There are, often enough, no self-evidently “correct” answers.   It is the sort of climate in which good decisionmaking is likely to be advanced by as open an approach as possible, and public confidence in the quality of the decisionmaking is likely to be advanced by the ability of citizens to assess the arguments (and the quality of the argumentation) of those given statutory power to make these decisions.  Truth doesn’t simply flow from the Reserve Bank to the public.

And the open approach seems to work in a variety of other countries.  It isn’t the only approach that can work.  But it does work, without obvious problems, in Sweden, in the UK, in the United States, three otherwise quite different countries.  There is no reason why it shouldn’t work here.

How might a reformed Reserve Bank work in respect of monetary policy?

  • The (monetary) policy targets should be set by the Minister of Finance in each year’s Budget (essentially the UK system),
  • all members of the statutory Monetary Policy Committee should be appointed directly by the Minister of Finance (the Australian system),
  • all members should be subject to confirmation hearings at Parliament’s Finance and Expenditure Committee.   Members would not be subject to parliamentary ratification, but the committee could publish any serious concerns it hard (essentially the UK system),
  • probably a five member committee (Governor, a Deputy Governor, and three non-executive members), with all members having overlapping five year terms (the Swedish system has a majority of external members),
  • a statutory requirement to publish the minutes of MPC meetings, including the numerical vote on any OCR decision, within two weeks of the meeting date (publication of minutes, on a timely basis, is now pretty standard),
  • publication of all the background documents for each monetary policy decision within two months of the relevant policy annoucement,
  • no statutory prohibitions on the ability of individual members to make speeches or give interviews on monetary policy matters (pretty standard these days).

On that final bullet point, I don’t think this is a matter for statute, and it is something the new Monetary Policy Committee should work out for themselves over time.  Institutional cultures need to be able to be able to evolve.  Having said that, I would strongly favour a more open approach –  of the sort that works well in several countries abroad – and would encourage the government to appoint people (as Governor and as committee members) who are committed to building an open institution, and yet who can engage effectively, and with mutual respect, with each other.

I’d also establish a statutory provision allowing the Minister of Finance to appoint an external reviewer perhaps every five years, to encourage periodic  independent external review of how the system is working, and of how the Bank has been conducting monetary policy.

Many of the issues are about culture rather than statute, but I would hope that the new Governor will look carefully at encouraging staff to engage more openly on policy and analytical issues.   Blogs have been adopted by several overseas central banks, but the precise vehicle is less the issue than the cultural change that should be encouraged.

None of this sketch outline should be considered as the details of what I might recommend to the government’s review when it gets underway.  There are lots of fine-grained details to consider in reshaping the statutory provisions around monetary policy, and quite a few interdependencies among them (let alone interdependencies with other functions, and issues around what –  precisely –  an MPC would and wouldn’t be responsible for).  If they invite proper submissions, I will make one –  and publish it –  but my point today has really just been twofold:

  • open systems work well in various other countries –  including countries with central banks that are at least as well-regarded (generally better in my view) than our Reserve Bank, and
  • to sketch out a set of arrangements that look as though they could be workable for New Zealand and which could, with goodwill and the right people appointed, deliver us a more open, more effective, and better-regarded central bank for New Zealand.

And to suggest that, no matter how genuinely Spencer and Bascand might believe their points in opposition to serious reform, the views of the Reserve Bank “old guard” are best seen as (predictably) serving the interests of Bank management, rather than those of the public, and shouldn’t be taken very seriously unless they can advance much more evidence (than the zero so far) of the sort of potential problems the sorts of open systems that work well in other countries might credibly pose.

It isn’t clear how committed the government is to serious reform. But they have an open opportunity to put in place something much better and different, more suited for this generation.  Doing so will require good laws and good people.  I hope they don’t let the opportunities –  on either front –  slip by.