Day: November 28, 2017

Why do our politicians ignore PRC influence?

Michael Reddell China, NZ politics, Uncategorized

Our leading politicians appear quite unbothered about the rise of China and the way it is happening.   We don’t see emerging an open, free, peaceful, and democratic state  –  as with Taiwan, Korea or Japan.    We don’t even see something that looks like a large Singapore.    Instead we see a very large totalitarian party-state, suppressing most meaningful freedoms for its own people –  in ways reminiscent of the Soviet Union or Nazi Germany –  and increasingly willing to use the combination of size and wealth (not high per capita, but there are a lot of people) to throw its weight around internationally, at times (as in the South China Sea) in flagrant and ongoing violation of international law.  It is increasingly well-documented that that strategy includes attempting to exert control over ethnic Chinese cultural and religious groupings and media outlets in other countries, to suborn (with all sorts of blandishments, whether financial, access, or whatever) key figures in other countries, and to exert influence on the domestic politics of other countries, including encouraging ethnic Chinese in other countries who have suitably close ties to the Communist Party to run for elective office in those countries.

It is easy for the world-weary, and those who want to avoid confronting the issue, to respond “but everyone does it; every country seeks to exert influence”.   And, no doubt to some extent or other, that is true.   And so we need to look to the character of the country, and political regime, in question.  The People’s Republic of China today still looks much like the Soviet Union and Nazi Germany, two of the more odious regimes (at least among large countries) in the 20th century.  We –  citizens and governments –  should be treating it as such.

Instead, all our political parties, and their leaders, seem determined to look the other way, to try to pretend –  even though surely they know otherwise –  that China is some sort of normal state.   Why, the party presidents of National and Labour were recently sending warm fraternal greetings on the occasion of the five-yearly Communist Party Congress.     Would they have turned up to the Nuremberg rallies as well?   I guess political fundraising is a difficult business, but you might have hoped that former Foreign Minister Phil Goff would walk away from a $150000 donation to his mayoral campaign from an offshore donor.  Perhaps such donations should be illegal?

And then there are the elected politicians.  We have two elected members of Parliament who left China as adults and settled in New Zealand.    One appears to have misrepresented his past in his residency/citizenship application, and certainly hid it from the public when he first ran for Parliament.  That past: membership of the Communist Party, and being a member of the Chinese military intelligence system, clearly sufficiently in the good graces of the Party to have been allowed to move abroad.  The same MP remains very close to the Chinese Embassy, and has never been heard to utter a word of criticism of Chinese government policy.   And ever since the story broke, just before the election, he has gone very quiet: refusing to account to the voters (at least as represented by the English language media).

The other member of Parliament is a less egregious, but still troubling, case.  Raymond Huo is a Labour MP, also apparently widely known to be very close to the Chinese Embassy.  Of him, Professor Anne-Marie Brady wrote

Raymond Huo霍建强 works very publicly with China’s united front organizations in New Zealand and promotes their policies in English and Chinese. Huo was a Member of Parliament from 2008 to 2014, then returned to Parliament again in 2017 when a list position became vacant. In 2009, at a meeting organized by the Peaceful Reunification of China Association of New Zealand to celebrate Tibetan Serf Liberation Day, Huo said that as a “person from China” (中国人) he would promote China’s Tibet policies to the New Zealand Parliament.

It was Huo who made the decision to translate Labour’s 2017 election campaign slogan “Let’s do it” into a quote from Xi Jinping (撸起袖子加油干, which literally means “roll up your sleeves and work hard”). Huo told journalists at the Labour campaign launch that the Chinese translation “auspiciously equates to a New Year’s message from President Xi Jinping encouraging China to ‘roll its sleeves up’.”  ……    Xi’s catchphrase has been widely satirized in Chinese social media.   Nonetheless, the phrase is now the politically correct slogan for promoting OBOR, both in China and abroad. ……. In 2014, when asked about the issue of Chinese political influence in New Zealand, Huo told RNZ National, “Generally the Chinese community is excited about the prospect of China having more influence in New Zealand” and added, “many Chinese community members told him a powerful China meant a backer, either psychologically or in the real sense.”

So whose interests does Huo represent in our Parliament?  They are quotes from his own speeches/interviews, which I’m not aware that he has contested.  He has also been remarkably quiet since the Brady paper was published in September.

Recall that on TVNZ a few weeks ago, veteran diplomat (and now lobbyist) Charles Finny, who has been keen to stick up for both men and celebrate their membership in our Parliament, explicitly stated that he was always very careful what he said in front of either man, as he knew –  and given his diplomatic/trade background he would know – that they were both close to the Chinese Embassy.   If Finny always takes care what he –  just a private citizen lobbyist now –  says in front of Yang or Huo, how should ministers or senior opposition MPs react?

In fact, their reaction tends to be to pretend there is no issue.  Bill English has simply refused to answer any serious questions, referring journalists to Jian Yang as if he can answer questions about his own suitability for office, even if he were willing to make himself available for journalists.  The previous Attorney-General, and Minister for the GCSB and SIS, tried to pretend that any concerns were just racist or anti-foreigner –  as if no one could tell the difference between, say, Joseph Goebbels and Dietrich Bonhoeffer or between Xi Jinping and Liu Xiaobo.   It was pretty despicable.

Not that there was ever much hope that the Labour Party (or their partners) would be any different.  As Opposition leader, Jacinda Ardern sought to simply avoid the issue –  as, I suppose, you would when you had Huo on your list.  People who live in glasshouses and all that, I suppose.

And so it proves in government.   Last week, Raymond Huo was confirmed as chair of the Justice select committee of Parliament.    They do the triennial inquiry into the conduct of each election.  They handle legislation around such matters as political donations, the electoral system, the rule of law, and so on.    And the government is quite happy to have as chair of that committee, someone known to be close to the embassy of the dreadful People’s Republic of China, a government with little or no regard for the rule of law –  whether domestically or internationally.  Someone who channels quotes from Xi Jinping to win votes for Labour.  Who seems to think that China having more influence in New Zealand is a good thing.

I’d be uncomfortable with an American or a Briton who had become a New Zealand citizen championing greater influence of their country in New Zealand.  But there isn’t a moral equivalence between the UK, the USA, and the People’s Republic China.  The latter is a force for evil.   And you will, it seems, never hear that from Raymond Huo.

But, of course, the National Party seems unbothered.  People in glasshouses, I suppose.

And then as if to bring the last few months full circle, there was an interview on Newsroom last week with the new minister responsible for the GCSB and the SIS (and various other portfolios, including those around electoral law), Andrew Little.  Buried down at the end of a lengthy interview, Little was asked about the issue of Chinese influence

One thing that Little is not concerned about is any perceived growing influence of China in New Zealand.

 

When questioned about the issue and Yang, Little will not reveal if he had received any related briefings but says he has no concerns.

“There’s nothing here that’s alerted me to any Chinese nefarious influence in institutions like universities…I know there’s often the line about political influence but our donations regime is pretty transparent.

“That’s a legitimate public debate right now because it’s [Yang’s background] been revealed, he said he didn’t know he was teaching spies? I can’t recall what his defence is, he’s made it into Parliament because the National party wanted him to be there, people are going to have to form an opinion themselves.”

Asked if Yang should have been allowed to stand for Parliament or if he should have been granted citizenship, Little says he does not have enough background to comment on the latter but was more comfortable with the National MP being an elected official.

“He’s a New Zealand citizen, that entitles him to stand for Parliament. There’s a variety of backgrounds. Sue Bradford, who was a regular radical protestor, took on the police, took on the establishment, she became an MP.

“I’d be very worried about saying there were criteria beyond citizenship that we should add to about whether you can stand for Parliament.”

It doesn’t look to have been the most searching interview ever, with no questions at all about Huo, but at least the journalist asked about some things.  And as he asks, Andrew Little is scampering for cover, and in the process insulting Sue Bradford (of whom I’ve probably never knowingly previously defended). Our minister for the intelligence services compares a former spy, member of the Chinese Communist Party, and someone with close ongoing ties to a heinous regime and its representatives in Wellington (the validity of whose citizenship he doesn’t feel comfortable commenting on), with a domestic activist and protestor exercising –  and perhaps occasionally stepping over –  her rights as a New Zealand citizen.  I’m not aware anyone has ever questioned Sue Bradford’s loyalty.

And even if Jian Yang’s citizenship is securely grounded, is this senior minister really serious about that final sentence?  I don’t suppose anyone is proposing amending the Electoral Act to provide specifically that (unrepentant) members of the Chinese Communist Party, past or present, and past Chinese spies, should be disqualified from Parliament.  I wouldn’t want to amend the Act to legally disqualify a whole bunch of other people either.   If some former apartheid South African BOSS agent had somehow got New Zealand citizenship, s/he might be legally entitled to run for Parliament but –  without some serious exercise in penitence and contrition –  I hope no serious political party would consider nominating him/her.  Graham Capill is probably eligible to run again for Parliament –  and I’m a Christian, and believe in forgiveness and restoration – but no party that nominated him would ever get my vote.  And so on.  The law can’t and shouldn’t try to cover all circumstances.  But decent political parties should be able to draw lines themselves.  Ours don’t seem to anymore  (our version of Roy Moore and John Conyers perhaps?)   There is no way Jian Yang should be in our Parliament at all, and if Raymond Huo won’t distance himself from the PRC –  and call out its evil and abuses, domestic and foreign, neither should he.   Decent parties simply shouldn’t select them (being list MPs, the public have little or no direct effective recourse).

These issues of Chinese influence in other countries aren’t unique to New Zealand  (there is a good recent podcast from an Australian academic on these issues in an Australian context) although from what I’ve read of countries such as Australia, Canada, and the United States, New Zealand is the only country yet with two MPs with these close PRC ties in our national Parliament.

Quite why our politicians aren’t bothered is a bit of a mystery.  There is clearly an element of not upsetting Beijing, and with it a desire not to rock the boat in ways that could have short-term economic cost through the trade ties of some large New Zealand entities with close traditional ties to our governments.   Perhaps the political donations are part of the story as well.   That’s the shameful side of the story.  Is this what it must have been like in the 1930s, when plenty of politicians wanted to smooth things over with Germany, and more egregious abuses just made the cause of appeaement seem more urgent?

But the other side must be that the voters just don’t care very much, if at all (as European populations didn’t for a long time in the 1930s).    Perhaps that is understandable.  There isn’t a lot of foreign news in our papers and other media, and certainly not on stories that deal much with China.  We don’t have good foreign affairs think-tanks, and on the one hand taxpayer money is devoted to keeping the good news stories flowing, and journalists value the opportunity of funded trips to China.  How, then, will the average voter know what our political parties make themselves –  and by extension us –  party to?

It doesn’t make it less shameful though, and it isn’t even clear what our politicians think they achieving in selling out our values, the principles our society is built on, in keeping quiet about China.  There is the mythology that somehow China makes us (or Australia) wealthy.  It’s nonsense of course.  China is a middle-income country with a badly distorted economy.  More to the point, countries almost always make (or break) their own fortunes.  I’ve pointed out before how small a share of GDP is represented by the exports of New Zealand firms to China.  Of course, that trade matters a lot for some firms, but it doesn’t matter that much at all for the nation’s overall prosperity.  Politicians seem to sell out our soul for the financial interests of a small group of exporters, whose interests are not necessarily our own.

No doubt, MFAT advisers periodically remind any minister tempted to acquire some backbone of the potential for China to disrupt the trade of New Zealand firms.   You can read the stories about Mongolia, Norway, the Philippines, and –  most recently – South Korea.  There is some potential for disruption –  the Chinese seem to have been particularly willing to cut off the tourist flow when a country steps “out of line”, and presumably the international student market is also vulnerable.  In both cases, blocking trade hurts the seller (NZ) but doesn’t make much difference to the buyers (Chinese tourists just go to, say, France that year).    But is this the sort of country we want to become, where we quail before the butchers of Bejing, rather than standing for our own values and institutions, and telling anyone who wants to export to China –  to deal with a regime on a par with Soviet Union or Nazi Germany – that they are on their own?   South Korean firms are learning now, having experienced the nature of the Chinese state, that diversification is prudent.

There seems little doubt that Chinese global influence will only increase, and that that of the United States will continue to diminish. Perhaps one day, the Communist Party will be toppled and that influence will be more benign, but that isn’t the prospect for now.  Particularly for a country as far from China as we are, that still leaves us with choices.  I’d rather our politicians (and public) decided to take a stand.  Dealing with the PRC –  dealing with Chinese entities on PRC terms –  on other that proper and limited diplomatic terms, should be no more socially or politically acceptable than pandering to the Germans was in 1939.

Not, of course, that there is any likelihood of our government taking a stand.  Flicking through the Herald over lunch I noticed an advert from a Chinese-government affiliated entity celebrating the “New Zealand China Young Leaders’ Forum” held on Sunday which, we were told, was “setting NZ up for a bright future”.  Just like China you mean?  No political freedom, no religious freedom, no freedom of expression, just the dominance of the Party (and a mediocre economy)?   The Chinese premier, Li Keqiang had, we were told, sent his greetings and the Chinese delegation was led by a Vice-Minister.   And guess who opened this forum?   Well, that was Michael Wood, Parliamentary Under-Secretary to the Minister for Ethnic Communities.  I guess he was about as far down the official food chain as it was possible to get, but one likes to think that the British government wouldn’t have been sending a representative in 1939 to open some joint forum with, say, the Hitler Youth.

Our political leaders, apparently without exceptions (certainly none with the courage to speak out even timidly) disgrace us.

Housing policy and prospects

Michael Reddell Housing, labour party

I’ve been wary for some time of Labour’s approach to the disgrace that is the New Zealand housing and urban land market –  a mess created, and/or presided over, by successive National and Labour-led governments.

Eric Crampton and Oliver Hartwich at the New Zealand Initiative (bastion of quasi-libertarian public policy analysis) had been consistently pretty upbeat about Labour’s proposals, and particularly about the stated desire of (then housing spokesman, now Minister of Housing, Phil Twyford) to free up the urban land market and fix problems around infrastructure financing.  There was the famous joint op-ed in the Herald a couple of years ago.    I have never been sure how much the NZI people really believed Labour was committed to letting the market work, how much they simply wanted to reinforce that strand of Labour’s thinking with support from a business-funded body, and how much it was just about building relationships with a party that would, one day, no doubt be back in government.   Perhaps there was an element of all three?

As for me

I’ve liked the talk, but have been a bit sceptical that it will come to much.  In part, I’m sceptical because no other country (or even large area) I’m aware of that once got into the morass of planning and land use laws has successfully cut through the mess and re-established a well-functioning housing and urban land market.  In such a hypothetical country, we wouldn’t need multiple ministers for different dimensions of housing policy.  I’m also sceptical because there is a great deal local government could do to free up urban land markets, but even though our big cities all have Labour-affiliated mayors, there has been no sign of such liberalisation.    The Deputy Mayor of Wellington for example leads the Wellington City Council ‘housing taskforce”.  Paul Eagle is about to step into a safe Labour seat.   His taskforce seems keen on the council building more houses, and tossing more out subsidies, but nothing is heard of simply freeing up the market in land.  Or even of looking for innovative ways to allow local communities to both protect existing interests and respond, over time, to changing opportunities.

There was also the fact that any Labour government was likely to depend on Green votes in Parliament, and there was no sign the Greens were keen on land-use liberalisation.

And then there was little sign of leadership commitment.

Labour’s leader, Andrew Little, devoted the bulk of his election year conference speech to housing, complete with the sorts of personal touches audiences like.  Media reports say the speech went down well with the faithful…….

But in the entire speech –  and recall that most of it was devoted to housing –  there was not a single mention of freeing up the market in urban land, reforming the planning system etc.  Not even a hint.    I understand that giving landowners choice etc probably isn’t the sort of stuff that gets the Labour faithful to their feet with applause.   But to include not a single mention of the key distortion that has given us some of the most expensive (relative to income) house prices in the advanced world, doesn’t inspire much confidence.

It has been no different since Jacinda Ardern took over as leader.

Sure, as defenders point out, reform of the planning system does appear in Labour’s manifesto, and there was a brief mention in the Speech from the Throne.  But mostly what we hear about are the same, consistently emphasised, lines they’ve been running for at least the last year:

  • the ban on non-resident non-citizens buying existing residential property,
  • the extension of the brightline test (from two years to five years),
  • ringfencing, so that rental property losses can’t be offset by other income, and
  • Kiwibuild.

As well as measures to impose new higher standard on rental properties.  In practice, the new Tax Working Group also seems likely to be focused on housing-related tax issues (capital gains tax in particular).

Two things in the last few days reinforced my unease.

The first was the new “independent stocktake of the housing crisis” the Minister has commissioned.  Given that it was announced on 25 November, and is to report “before Christmas”, it is hard to believe that the group will come up with much new and different.  Probably, that isn’t even the point.

Here is how the Minister framed the work

“Shamubeel Eaqub, Philippa Howden-Chapman, and Alan Johnson are among New Zealand’s foremost experts on housing. Their insight will be invaluable.

“This report will provide an authoritative picture of the state of housing in New Zealand today, drawing on the best data available. It will put firm figures on homelessness, the state of the rental market, the decline of homeownership, and other factors in the housing crisis.

“The Labour-led Government is already pushing ahead quickly with initiatives to make housing more affordable and healthy, including banning overseas speculators, passing the Healthy Homes Guarantee Bill, cancelling the state house selloff, and setting up KiwiBuild. This report will help the Government refine and focus that work where it is most needed.

Each of the members has some expertise in aspects of housing, but none has any expertise  in –  or known sympathy with arguments for – freeing up land-use restrictions, and allowing the physical footprint of cities to grow readily as the population does.  And then there is the third paragraph –  the same old list of direct interventions, with nothing at all about liberalisation of the land market, even though it is vital if the long-term structural problems are to be effectively addressed.

Now perhaps the Minister will argue that planning reform is proceeding on a separate track, or even point to the responsibility of his colleague, the Minister for the Environment, David Parker.  But the fact remains that in all the talk about fixing the badly-distorted housing market there is little open emphasis on land-use law, nothing on reducing the price of urban land, and nothing on (finally) letting the market work effectively.

And then there was a substantial interview  the other day with Phil Twyford on interest.co.nz.   And it was much the same again.  There was plenty of talk of the coming tax changes and the proposed foreign ownership ban.  And there was great deal of talk about Kiwibuild.  There was reference to using Crown and Council-owned land in Auckland to build on.  But there was nothing at all, in the entire 23 minute interview, on reforming or freeing up the market in urban land.  There were defensive references –  it would be hard to produce ‘affordable” houses in the $500-600K range because land was ‘absurdly expensive” –  but nothing,  not a word,  about reforms that might effectively, and enduringly, lower land prices.

There was. of course, lots of talk of how “we have to build more houses”, but no attempt to seriously address the argument that, given land-use restrictions, there may not be any material unmet demand for houses at the prevailing price.   Talk about a shortage of 71000 houses –  or whatever the latest guess is –  is mostly nonsense unless the land market is fixed, and the price of land falls considerably.  At much lower land prices, I think there is little doubt that there would be more effective demand for housing –  and no obvious reason why the private sector would not meet that additional effective demand.  That would be a highly desirable outcome, but in his interview the Minister studiously avoided any suggestion of land prices falling.   And at current (very high, but currently stable) prices, there isn’t obviously any unmet effective demand in Auckland at present.

All the Minister’s talk seems to be of state-led projects to build more houses, including more ‘affordable’ houses, and more state houses.   In some cases, it seems, it will just involve the state participating in developments that were already planned.    But unless land prices are going to fall materially, it is really hard to see how any big increase in state-associated housebuilding isn’t going to largely displace private sector building that might otherwise have taken place.    For all the talk about building at different price points, and actually building more so-called “affordable houses”, houses are substitutable, to a greater or lesser extent.  A new small place on a tiny amount of land at, say, $600,000 (a price point which even the minister conceded would be a stretch) is going to be competing with existing houses in that price range in, say, Manurewa.  Perhaps additional state-led building can alter relative prices a bit but (a) if so, it seems likely too be only by use of government subsidies (the Minister indicated that the government will not be charging for the development risk, in a way that any private developer would need to), and (b) nothing about the underlying scarcity (regulation-induced) of land will change.

In their recent Monetary Policy Statement, the Reserve Bank indicated that it was assuming that half of the Kiwibuild activity displaced other construction.    They didn’t elaborate on that point, but I have an Official Information Act request in with them asking for the analysis they did in support of that assumption.

(Incidentally, while I am keen to see LVR restrictions come off –  since they never should have been put on –  it would be quite curious to see them beginning to be removed at just the sort of time when –  on government policy –  the risks around housing lending might increase quite considerably.   If the government is to be taken at its word, and we really are to see a massive increase in housebuilding, led by government initiatives rather than market forces – and at a time when many forecasters expect net immigration to be dropping away –  the risks of an oversupply of physical housing (as in Spain, Ireland and parts of the United States) would have to be considerably greater than they’ve been in recent decades.  Of course, weirdly, LVR restrictions have never applied to the most risky type of housing lending, that for houses being built.)

Two final points:

The Minister indicated, again, that one of the government’s motivations in its housing reforms is to “shift investment”, so that people don’t so much buy houses, as buy shares etc.  On this point, they seem as confused as ever.  If there really is a physical shortage of, say, 71000 houses and that is to be met over the next few years, there will have to be much more physical investment in building houses.  And someone will need to own those houses –  whether owner-occupiers, the state, or private rental businesses.  Real resources devoted to one use can’t be devoted to another use.  And, for any given stock of houses, it isn’t that evident that it is likely to make much difference to economic performance who (among New Zealand residents) owns those houses.  I’m all for home ownership, but if owner-occupiers buy houses (with large mortgages) it isn’t obvious why capital markets etc, or investment choices by businesses elsewhere in the economy, will be much different than if rental property owners buy houses (with large mortgages).

In his interview, the Minister was also lamenting large boom-bust cycles in residential construction, and suggesting that was part of the problem in New Zealand. I was a bit puzzled by that suggestion, and wondered if there was any evidence that the fluctuations in residential building activity were larger here than in other advanced economies.  It was possible they were –  after all, our population growth rates are quite variable, mostly because of swings in the flow of New Zealanders going to Australia.  So I dug out the data, for residential investment as a share of GDP, going back to 1995 (when complete data is available for most OECD countries).  This chart shows the coefficient of variation (ie the standard deviaton divided by the mean).

construction coeff of var

At least over this period, residential building activity (as a share of GDP) in New Zealand has been less variable than in the median OECD country, and far less variable than in the countries to the far right of the chart.  Over a longer period, back to 1970, there is no sign that New Zealand’s residential investment cycles have been larger or more variable than those in Australia or the United States.  Investment is variable –  typically the most variable component of GDP.  It is how market economies work.

Where does all this leave me?  With the new government’s apparent determination to continue to pursue a “big New Zealand” approach, without any material change to immigration policy, the need for additional housing will continue to grow largely unabated (tax changes and foreign ownership bans won’t make much more sustained difference here than they have abroad).   Perhaps the government has plans, currently kept quiet, for far-reaching land use reforms that will enable the market to meet changing demands, at genuinely affordable prices –  as happens in much of the US.  But at present it looks disconcertingly as though the centrepiece is going to be a government-led house building programme that (a) never gets to grips with the land issues, (b) will substantially displace private sector building, and (c) runs all the sorts of risks that government-led investment projects are often prone to.

Perhaps it will work. But it is hard to be optimistic at present.

 

UPDATE: An interesting piece from today’s Herald on the way land prices render even moderate intensification not really consistent with more “affordable” house prices in Auckland.

UPDATE (Friday):  Twyford speech on the government’s housing policy does nothing to allay any of the concerns in this post.   Land use reforms appear, a little cryptically, very briefly and near the end of the speech.