Choices: New Zealand and the PRC

There was an article on interest.co.nz the other day from the New Zealand resident American geopolitical and strategic affairs consultant, Paul Buchanan.  In his column –  well actually even in the headline –  he argues that

New Zealand is facing a very tough choice between our security interests and our economic interests, and that choice may have to be made very soon.

This is, as he sees it, a choice between the PRC and that of the United States (and our traditional allies).

Perhaps, but I reckon Buchanan misunderstands the nature of New Zealand’s economic exposure to the PRC.  The economic interests involved aren’t those of the country as whole –  countries make their own prosperity – but rather of a relative handful of, perhaps politically influential, businesses (and universities)  And if there is a choice it is more likely to be between the sort of values and friendships that have guided this country for the last 100 years and more, and those of one of the most brutal aggressive regimes on the planet; a regime which, as this article highlights, is becoming worse –  more threatening to its own and others –  not better.  It should be no choice at all, unless our politicians are now quite without shame.  Values and beliefs –  the things that unite people, communities, countries, beyond just common material interests –  don’t appear in Buchanan’s story.

Buchanan sets up his article noting that New Zealand`s trade and security relationships had diverged.   He seems to present it as a matter of active choice, whereas I would see it –  at least on the trade side –  as a natural evolution.  There was no conceivable world in which the bulk of our firms` overseas trade (and it is firms that trade, not governments) would continue to be with UK counterparts, or even with Australian or US firms.   That is true in respect of both imports and exports.   Our previous position –  buying and selling from firms in a single dominant country –  was historically not the norm.   These days –  though you wouldn’t know it from Buchanan’s article –  our foreign trade is relatively unusually widely spread.  No single country’s firms –  not even the very largest or the very closest –  take or provides more than a quarter of our foreign trade.  And, unfortunately, our foreign trade is rather smaller, as a share of GDP, than it would be if our economy were more successful.   To the extent that one worries about trade with the PRC –  and some individual firms clearly should, having chosen to sup so large with the “devil – a much larger share of Australia’s trade is with PRC counterparts than New Zealand’s.

Buchanan presents New Zealand as caught on the horns of a dilemma, or as he puts it

…that makes the New Zealand’s stance more akin to straddling a barbed wire fence while standing on ice blocks rather than balancing between competing great power interests.

It seems he sees it as a choice because he has bought into the narrative, often promoted by the previous government, that somehow our (so-called) prosperity (weak productivity, shrinking tradables sector etc) owes much to the PRC.

On the one hand, the Chinese presence in New Zealand has been materially beneficial. But that has come with strings attached that are believed to compromise the integrity of New Zealand institutions. For its part, New Zealand’s Anglophone orientation has not recently paid similar material dividends even though it gives it a seat at the table in security meetings with our traditional partners.

But where is the evidence that, in anything other than a willing buyer/willing seller sense, New Zealanders as a whole have particularly profited from the relationship with the PRC?   Is there reason to suppose that more milk powder would have been produced, if PRC buyers hadn`t purchased it from New Zealand sellers?  It is a globally-traded product, and what isn`t sold in one place is sold in another. In that respect, it is a little like oil.   The same goes for many of our exports, which aren`t specifically designed from the Chinese market.  And no one supposes that the PRC is about to impose export bans on the sort of stuff New Zealand firms purchase from the PRC.

Trade is, generally, mutually beneficial, and so things that disrupt trade patterns are generally costly.  But the cost of any particular disruption can easily be overstated, especially in a bilateral relationship where total exports to a particular country (in this case, New Zealand to the PRC) total only around 5 per cent of GDP.   Dairy prices fluctuate from week to week and, quite a lot, from season to season.  On the other side, so do oil prices.  But economies have a lot of capacity to adapt, and instruments like monetary policy and a flexible exchange rate that help smooth the adjustment.  It isn’t always easy for particular firms –  but they’ve made choices about their exposures, and the failure to manage them effectively – but the focus of policymakers needs to be on the economy, and country, as a whole.

Buchanan sets up a looming almost inevitable choice, about rising US/PRC tensions (economic, but even more so strategic)

The question is therefore not a matter of if but of when and for/against who?

He offers this scenario of “going with” the PRC (although it isn’t entirely clear what specifically he thinks this choice would involve doing, or not).

Should New Zealand choose China, it will lose the security umbrella and suffer the diplomatic wrath of our most traditional and closest international partners. The consequences will be felt in a loss of trade and diplomatic ostracism, but most acutely in damaged security relations with other Western democracies. The Five Eyes listening posts in New Zealand will be dismantled and all of the highly sensitive equipment, to say nothing of archived records and stored data, will be removed under duress. This could prompt a revolt within the New Zealand intelligence community given its Anglophone orientation, and when coupled with “dark” influence operations by former allies could cause civil unrest amongst those disinclined to cast their lot with the Chinese. It could even lead to covert and overt hostile responses from jilted partners, who will likely discontinue military relations with New Zealand, including sale and supply of equipment. There will be a moment of national reckoning.

I`d certainly join any protests against such a choice – utterly morally reprehensible as it would be.  It would be akin to Marshall Petain treating with Hitler, with less excuse. It isn`t entirely clear why Buchanan thinks this opting for the PRC option is a realistic possibility though.   All he offers is economic coercion initiated by the PRC.

Should New Zealand opt to side with the US and its security allies, it will suffer serious economic losses as a result of Chinese retaliation. This has already been presaged by the PRC response to New Zealand’s support for the International Court of Arbitration’s ruling in favour of the Philippines in its dispute with China over island-building in contested waters, where state-controlled media editorials warned New Zealand over the consequences of siding against China (including in trade). More broadly, there is ample record of Chinese economic retaliation against countries that do not toe its preferred line on a number of issues, so New Zealand has both immediate and contextual reasons to see the writing on the wall.

This is all rather overwrought.   I’ve written previously about PRC attempts at economic coercion.   In a case that will have bothered the PRC far more than anything New Zealand could do, and where the PRC authorities had far more effective leverage, –  missile defence system being installed very close to the PRC – the central bank of Korea estimated an effect from PRC coercive measures of perhaps 0.4 per cent of GDP.

As I noted in that earlier post, a couple of industries –  one government-owned anyway (the universities) – have made themselves overly-dependent on the PRC.  A sudden stop on PRC students or tourists coming to New Zealand (the option that would hurt here and do least harm to PRC people themselves), would be very disruptive to those industries.  But those are risks they need to be managing –  and not just by persuading governments never to see anything upsetting to Beijing.     No matter what the PRC did, there is no sense in which the “writing is on the wall” for the New Zealand economy.   The next international recession –  whatever its cause – is more of an issue to worry about (especially as our authorities aren’t that well prepared).

So we can choose to abandon traditional allies, and abandon any interest in supporting democratic countries in the east Asia region, and in doing so abandon any sort of self-respect as a nation.  Or we could summon some self-respect, and perhaps give some lead (moral if not military) in pushing back against PRC intrusions abroad (including here specifically), and abuses at home.  But whichever choice our leaders ended up making –  and it should be no choice at all –  it isn’t one that seriously threatens our (rather attenuated) economic prosperity (let alone our physical security).

On which note, it was interesting to see that in a week the government had moved from being unwilling to name the villain in the South China Sea, to being a bit more explicit in the Strategic Defence Policy Statement released on Friday.  Even then, they can barely bring themselves to disapprove, and cloak there concerns in all sorts of rather laughable diplospeak such as the suggestion that “China is deeply integrated into the rules-based order”.  When it suits perhaps, but that is not at all the same thing –  what matters is the choices made when it doesn’t suit.  And those aren’t encouraging.

Also interesting to note the contrasts in the comments of two senior officials, one from New Zealand and one from Australia.  Our outgoing ambassador to the PRC, John McKinnon, was profiled in the Dominion-Post on Saturday.

Some have expressed unease over China’s expanding influence in the Asia-Pacific region. Canada’s Security Intelligence Service has claimed China is busy “co-opting political and economic elites” in New Zealand.

McKinnon makes it clear it is not a topic he will comment on; nor will he discuss current government policy towards China or the policies of the ministers he has served while in Beijing.

He also does not want to venture an opinion on whether China will move towards a more Western-style democracy.

“To understand the dynamic of what’s driving China now you have to understand where they’re coming from. It’s something they have to make their own decisions about and I can’t foreshadow what will happen.”

I’m enough of a bureaucrat to not encourage officials to speak out-of-turn openly. But clearly his masters also had no interest in him ruffling any feathers at all, even as the defence strategy document was being released.

And on the other hand, in his final days in his role, the outgoing head of the Australian defence forces comments thus

Defence chief Mark Binskin says Beijing’s broken promise not to militarise the South China Sea means it has squandered the trust of its neighbours and undermined its aspirations to regional leadership.

and

Asked about China’s trajectory since he took over in 2014, Air Chief Marshal Binskin agreed “it has changed” and cited the “very, very concerning” militarisation of features as well as “the influence of some nations starting to come down into the south west Pacific”.

Chinese President Xi Jinping said during a 2015 visit to Washington that his country had “no intention to militarise” the artificial islands it had built in the strategically important South China Sea.

Air Chief Marshal Binskin dismissed Beijing’s claims that its placement of weapons on built-up features in the Paracel and Spratly archipelagoes were purely defensive and said other countries around those waters were entitled to stand up for their legal and territorial rights.

 “I don’t think there is trust there … because [according to] all the reports that you see, they are militarising,” he said. “They’ll put a spin on that and say it’s only for defensive reasons. But … if you didn’t build an island, you wouldn’t need to defend it. If there are weapons on those islands, they are militarised.”

Asked what the militarisation was for, he said: “I think that they are looking to expand into there and I think it is quite obvious what their approach is.”

Not, sadly, the sort of thing one hears from New Zealand ministers or their senior officials.  But then, why would they, when they seem unbothered by Jian Yang as a member of Parliament, and where the parties seem to compete over which president can offer the most laudatory praise of Xi Jinping and the PRC.

Do our leaders –  National, Labour, New Zealand First, or Green –  care any longer about anything but the quiet life, and the next trade transaction? Do they feel no shame at all about associating with such a heinous regime?  If so, how would we know?  Thank goodness that wasn’t the approach of people like Michael Joseph Savage, Peter Fraser or their then Opposition counterparts.

11 thoughts on “Choices: New Zealand and the PRC

  1. Yes Buchanan presents a false choice but it is one that is dangerously appealing to the Wellington establishment where Muldoon’s old saw “foreign policy is trade” lingers on. This is especially the case among the priestly “trade negotiator” caste who believe an understanding of tariff schedules is some kind of revealed wisdom. New Zealand did not hesitate in 1939 to step up to fight the Nazis; one can only hope our moral core has not been completely eroded since those days.

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  2. New Zealand, sadly, remains primarily a commodity exporter. Even if we were locked out of one market for our products – say the worst case scenario being WMP into China – we can still clear our market over the GDT platform and the price implication may, or may not, be that serious depending on whether third parties can sell the product into China.

    Our politicial servants need to understand some basic trade economics.

    Also, they need to understand some basic growth accounting. China’s growth momentum continues to fall – and will continue to do so for many years – while other countries in Asia, notably India, Indonesia and the Philippines have excellent longer term growth prospects. We aren’t going to get locked into China and in many ways China’s regional ascendency is going to erode over the next 20-25 years.

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  3. 1. I fantasise that a country needs a hunker down position to help it weather readjustment. How would we get on if (unlikely) we were blockaded? People often opine (for instance in the UK): if we didn’t import food we couldn’t feed ourselves?

    2. Is it true that the China free trade agreement stipulated a right to buy houses here (or something equally abhorrent)?

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    • Further. Yes we know about the Diversity Dividend [sic] but do any academics study a downside of diversity. As in a society that is held together by a bullying media and political correctness: the sort that would ban Lauren Southern and Stephan Molyneaux?

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      • The diversity dividend that has been the focus of most research is about women on boards. There have been some major extrapolations made to that research to extend it to ethnic diversity. Ethnic diversity on boards is probably a good thing, especially if more Māori were on boards, but I’m not familiar with much research on diversity dividends for ethnic diversity.

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  4. I thought the Strategic Defence Policy Statement was a step in the right direction, albeit a much smaller step than what Australia has been taking – but that is no surprise. Sam Sachdeva at Newsroom covered the divergence in language and policy from previous statements made by the Foreign Minister and the Prime Minister.

    The document contains a clear articulation of Chinese militarisation of the South China Sea (along with extending influence in the Pacific, and Chinese desires to be a world leader) – though it didn’t follow up this statement of the bleeding obvious with any clear ‘so what’. However, the policy statement is clear that Chinese values are not compatible with NZ’s views on human rights and freedom of information, nor has it “adopted the governance and values by the [international] order’s traditional leaders”.

    The implication of these statements of fact in the document, which is essentially justifying spending $20Bn on replacing (very, very) worn out NZDF equipment, is that China poses a threat to NZ. Whilst it is somewhat remarkable that the NZ Government is willing to be so bold, it is less remarkable when a couple of other observations are made – firstly, that there is no foreword by the Prime Minister. Every previous Defence White Paper has a foreword by none less than the Prime Minister. Now, this statement is not a White Paper, but it looks, walks and talks like one, and the lack of any input from either Jacinda Ardern or Winston Peters is telling. Secondly, there is an easy escape hatch that may be deliberately kept open by Winston Peters in particular – by removing Ron Mark as his deputy party leader, and not contributing anything to this statement, it may be easy under future pressure / retaliation from PRC for the current government to simply paint Ron Mark as a rogue minister, and back away from more bold anti-PRC sentiments expressed.

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  5. If NZ politicians end up echoing the Chinese propoganda then the easy access of NZers to Australia and USA may disappear. I find the current NZ leadership (Jacinda & Winstone) to be despicable in that they are betraying the long term safety of NZ.. The current Opposition is no better.

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    • Access may be easy at the moment under the Australian Special Visa Category but this is already a 3rd class entry Visa anyway. Not too sure why Kiwis continue to flock across as 3rd class beggars.

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    • Israel’s response to adverse and unfavourable outcomes is even far more aggressive. When we voted against Israel in favour of the Palestinian recently, they declared war on poor NZ and withdrew their embassy. Surprising we do not even get a single page blog or comment on the issue here.

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      • Around 5 years ago, one of my workmates suddenly had to get a flight out of NZ and I find out from his sister that he was a spy for Israel. Apparently the NZ intelligence Agency was onto him. It does seem that Israel is far more active in NZ than probably China is with active agents caught with dead persons names on their kiwi passports.

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