On the background of Zhang Yikun

Last week the original Chinese version of the article below appeared in the Chinese-language magazine Beijing Spring.  It is about the background of Zhang Yikun the (non-English-speaking) Auckland businessmen who suddenly emerged into the public spotlight recently when Jami-Lee Ross released a tape of a conversation with National Party leader Simon Bridges.  Zhang Yikun had, it appeared, arranged/facilitated a set of donations to the National Party, totalling $100000, and had discussed with Bridges and Ross the possibility of another ethnic Chinese MP, apparently naming as a possible candidate one of his own employees/associates.  Once the spotlight fell on Zhang Yikun it turned out that he had had extensive associations with senior figures in both main New Zealand political parties.  And both he and his associate appear to have extensive involvement with the PRC’s United Front programme.

The article was written by Chen Weijian. The full version of his article, in Chinese, is here.  When it appeared Anne-Marie Brady described it as a “must read”.  The English translation below was done by Daisy Lee, an Auckland-based China researcher (with a few suggestions from me to improve the flow for an English-speaking readership).     The translated version omits some detail that is in the original article, and reorders some material (but from the fuller version I’ve seen, this version omits nothing that is central to his case).   I offered to make the translation available here.

I asked for some biographical material and this is what I received

Chen Weijian is Auckland-based prominent Chinese political commentator.

He is the chief editor of online pro-democracy magazine Beijing Spring. The magazine was established in the United States in 1982 and the current president is Wang Dan, one of the most visible student leaders in the Tiananmen Square protests of 1989.

Immigrating to New Zealand in 1991, Chen Weijian and his brother Chen Weiming  published the weekly Chinese newspaper “New Times” from 1996 to 2012.  Chen Weiming is a famous artist and sculptor known for his works of the 3-meter bronze statue of Edmund Hillary and 6.4 meters tall Goddess of Democracy.

In late 1970s when Chen Weijian lived in Hangzhou city of China,  he founded a private magazine Silent Bell which was banned by the Chinese government as illegal publication.

On my reading, the author’s key point is that the evidence of Zhang Yikun’s close association with the Chinese Communist Party, and the high regard in which he is held by the Party, is crystal clear.  Among that evidence is his very rapid ascent in various significant organisations that are part of the party-state’s overall United Front programme.

Chen Weijian’s article reinforces my view that New Zealand political parties and political leaders should steer well clear of those individuals like Zhang Yikun who are so closely associated with the Chinese Communist Party; a Party that is the source of so much evil at home in China, and which seeks to control the Chinese diaspora (and turn it towards Beijing, challenging the ability of migrants to become loyal to the country they’ve settled in) and to neutralise political opinion in countries around the world, including New Zealand.   There is no sign that such people –  and Zhang Yikun appears to be one of the most important of them in New Zealand –  have the interests of New Zealand and New Zealanders at heart in their interactions with, and donations to, our political parties.  And yet our politicians court him, and honour him.

If it is of use to anyone, I have put the text below in a separate document available here

State patriotism by Chen Weijian Oct 2018

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State patriotism 

By Chen Weijian

4 June 1989 was a bloody day that cannot be erased in Chinese history. The Chinese People’s Liberation Army (PLA) opened fire on unarmed students whose blood stained Tiananmen Square. 29 years later, on the same day, a New Zealand overseas Chinese leader, former PLA member Zhang Yikun, received the New Zealand Order of Merit.

On September 12th, Zhang Yikun was formally honoured at Government House. The news was even covered by China’s CCTV: a star in the overseas Chinese community was on the rise. But while awaiting his spectacular future,  Zhang Yikun this month burst into public view in New Zealand following his undeclared $100,000 donation to National Party.

The question of what political donations are legal and illegal is a matter for the relevant authorities. What I want to talk about is Zhang Yikun’s political background in China and the role he has been effectively playing in New Zealand as a “patriotic overseas Chinese” leader.

In his motherland, China, Zhang Yikun has held quite a few resounding political titles which distinguish him from all the other community leaders of the CCP’s United Front organisations in New Zealand.

In 2012, Zhang was elected as the vice chairman of Hainan Provincial Federation of Industry and Commerce.

The website’s home page says the Federation is a group of people’s organisations and chambers of commerce under the leadership of the CCP.  It is a bridge between the Party and the government to connect with the private sector.

That all members of the Federation must serve the party’s interest was explicitly addressed by Sun Chunlan, the minister of the United Front Department, when she spoke at a national training conference in July 2017 to the chairmen and party secretaries from all of the provincial Federations of Industry and Commerce.

She said then that “where the work of the Party and state is progressed, the Federation of Industry and Commerce should organize the  majority of people in the non-public economic organisations to follow”.

Zhang Yikun’s superior, the chairman of this Federation, is a famous businessman, Chen Feng, the co-founder and chairman of the Chinese conglomerate HNA Group.

HNA is known in New Zealand after the Overseas Investment Office declined its $660 million bid to acquire ANZ Bank’s UDC Finance last December.

Ranked No. 205 on Forbes 2017 China Rich List at $1.7 billion, Chen Feng is also a former PLA member.

It is unclear if Zhang Yikun’s wealth in China can be compared with Chen Feng’s holdings in HNA,  because on several Chinese websites Zhang is only declared as the chairman of Hainan Lian Sheng Fa Industrial Co., Ltd.  and there is no information about the company’s financial position.

However, one thing is certain: Zhang Yikun is not a normal business person, otherwise he would not have been able to become the vice chairman of the Hainan Provincial Federation of Industry and Commerce.

In Hainan province, Zhang Yikun plays an important role in another United Front Organisation, the Hainan Provincial CPPCC (Chinese People’s Political Consultative Conference ) where he was promoted to the Standing Committee in January 2013.

A Brief History of the CPPCC in its website explains that the CPPCC, established in 1949, is a creation of the CCP which combines the Marxist-Leninist theories on united front, political parties and democracy, with China’s concrete practice.  In its new century and new stage of development, China’s united front has further expanded and become the broadest possible patriotic united front composed of all socialist workers, builders of the socialist cause, and patriots who support socialism and the reunification of the motherland.

Five months after he was elected in the Standing Committee of the CPPCC, Zhang Yikun was nominated by the United Front Work Department of the Hainan Provincial Committee as a “ Builder of the Socialism with Chinese Characteristics.”

At the top of a list of criteria, any potential nominee is required to have good political quality, resolutely support the leadership of the CCP and the socialist system, the party’s line, and its principles and policies.

Chen 2Southland District Mayor Gary Tong says Zhang Yikun, posing here with John Key, is well known in central government.

While Zhang Yikun has been diligently fulfilling his political responsibility in China, he has also been highly committed to the United Front Work in New Zealand.

Although he has been in New Zealand for nearly 20 years and is still unable to speak English, it has not affected him networking with politicians.  Gary Tong, the mayor of Southland, who is currently travelling with Zhang in China, said that Zhang is well known in central government and has close links to high level ministers and MPs. They include National Party leader Simon Bridges, former PM John Key, party president Peter Goodfellow, Deputy Leader Paula Bennett, Auckland Mayor and former Labour leader Phil Goff , current Justice Minister and former Labour Party leader Andrew Little and other senior politicians.

Chen 3Auckland Mayor Phil Goff at Zhang Yikun’s house wearing a gifted Chinese costume.

Among them, Auckland Mayor Phil Goff, who was in Hong Kong on 4 June 1989, and saw the massacre on live broadcast TV. The experience had moved him and he has showed sympathy for activists in the past.  For example, when Wei Jingsheng, a famous Chinese democracy activist visited New Zealand, Goff invited him to lunch at Parliament. Times have changed, and though Goff is still particularly fond of China, his favour now seems to rest with interests associated with the CCP.

In New Zealand, Zhang appears to have been almost fated to succeed. He is admired by many immigrants who have been working hard for small achievement. Zhang talks of his own success quite modestly, as if “ I was not intending to pursue wealth, but prosperity just landed on me without my intention”.

Zhang Yikun was born in a village called Nigou in Puning County of Guangdong Province.   In 1990, at the age of 18, he joined the People’s Liberation Army in China. Joining the army was an opportunity for a rural youth to get out of the countryside. In his brief time in the army, Yikun was promoted to the headquarters.   In 1992, he was discharged, and started to work at the government of the Hainan Provincial Special Administrative Region. The fact that he was able to transfer positions implies that he was already well-regarded, since only those who were could get such transfers.

In 1996, Zhang Yikun was sent to the (prestigious) Chinese Academy of Social Sciences for postgraduate study. This in-service postgraduate program is specially designed by the CCP for the training of its officials. Having joined the army at age of 18, his education was at most an intermediate level. What led to him, an official with only an intermediate school education, being sent to an institution for higher education? We can only speculate.

Soon after his arrival to New Zealand in 2000, he ran his own restaurant called “China Yum Cha Restaurant”,  located at a premium location near Princes Wharf in Auckland. Unlike most Chinese immigrants who start washing dishes and cutting vegetables, Zhang directly became the boss of a large-scale restaurant (and subsequently opened another two restaurants). He had never run his own business in China nor apparently had any opportunity to make extra money. His monthly wage was just 800RMB in 1996. A large investment was required to finance this restaurant, so we can wonder where did the money came from?

Since then his business has becoming extremely successful. He has successively founded New Zealand Huanglian Group Ltd, HLG property Management Ltd, New Zealand Huanglian Natural Food Ltd and KCC Construction Ltd. The penthouse of 175 Queen St Auckland, the most expensive commercial building in New Zealand, has become the heart of his business empire. His business has developed to encompass multiple fields and multiple countries.  Activities include property development and management, export and import, commercial investment.  Several overseas offices have been set up in Hainan province, Guangdong province, Hong Kong and Thailand.

After establishing his business empire, Zhang Yikun began to build his career as an overseas Chinese community leader. Unlike Steven Wai Cheung Wong, the former head of the United Chinese Association in New Zealand,  who had to cultivate his relationship with the Chinese consulate for some years for his dreamed position, Zhang Yikun’s political promotion has been as astoundingly rapid as his commercial success.

In 2015, he formed the New Zealand Chaoshan General Association (CGSA),  for people from Chaozhou and Shantou district of Guangdong province, and has taken the role as the chair of the International Chaozhou Federation after two years.

Undoubtedly, Zhang Yikun is treasured by the senior Chinese politicians or he wouldn’t have been given this significant role to unite those wealthy ethnic Chinese who are valuable to the CCP in their attempts to expand China’s global influence.

As just one example of his connections, on 3 September 2015, Zhang Yikun was invited to Zhu Ri He military base in Inner Mongolia to watch the military parade. He stood on the viewing platform watching the armed forces marching, various new types of military vehicles and missiles in the parade, and the aerial display. He emotionally said, “as a military officer, seeing the country is strong, (my) feeling of pride is rising.”

In New Zealand, he has been frequently visited by high level Chinese delegations. On 8 June 2018, his former comrade, Luo Baoming, the former party secretary of Hainan province, now the vice chairman of OCAC (Overseas Chinese Affairs Office) was warmly hosted by Zhang Yikun and his CGSA in Auckland.

At the reception dinner party, the two Chinese MPs who have made such a contribution to the New Zealand-China relationship, Jian Yang and Raymond Huo, witnessed how this senior OCAC official praised Zhang Yikun.

“The fulfilment of China’s dream needs the overseas Chinese community leaders like president Zhang Yikun who has the strength and passion for the state patriotism”.

State Patriotism! Here we have Jian Yang, former officer lecturer of a PLA spying school, and his fellow PLA veteran, Zhang Yikun, both members of “New Zealand Veteran Association” (Zhang Yikun is the president of the association), standing together to welcome a high ranking Chinese communist official, is it a coincidence?

Chen 4Jian Jian Yang (far right) and Zhang Yikun (second from right ), the two former PLA members greet Luo Baoming, the vice chair of OCAC

If the above is not enough to set the scene, here is another photo. This one was taken on 30 August this year in Beijing. Zhang Yikun is staring at the display wall of propaganda and listening. The display wall is themed in communism red, titled “Always Go With the Party” and next to it is the symbol of communism, the hammer and sickle.

Chen 1 Zhang reading the “Always Go With The Party” display banner in Beijing on 30 Aug 2018

The New Zealand government granted him a high honour on 4 June, the day the whole world commemorates the young students whose lives were taken by the evil party. Zhang Yikun, the former PLA member, carried his honour back to Beijing to express his love to the party.

Is his beloved country New Zealand or China?  There is nothing wrong if he says he loves China.  But in reality, he loves the Communist Party and is following the steps of the party forever. Of course, we can’t simply conclude just from a photo that he wants to follow the party all the way. For that, we should see what he has done in the past and what he is doing now.

The revelation of Zhang’s donation has brought back to fore stories that had been dormant for a while. The National MP Jian Yang, exposed last year for his hidden past as a PLA intelligence officer and teacher in PLA spy school, and later sitting in the Foreign Affairs committee of Parliament.  And now, another (former) PLA member, Zhang Yikun has emerged on the stage.

New Zealand is the land of the long white cloud, often described as the last pure – uncorrupt – land in the world. Unfortunately, it has been polluted by CCP’s Human Common Destiny. The clean-up of the pollution may have begun, but completing it will take time.

Too few mortgagee sales?

This chart appeared in an article in yesterday’s Herald, heralding (so to speak) mortgagee sales of houses hitting the lowest level for more than a decade.

mortgagee sales

The chart isn’t clearly labelled, but it appears to be quarterly data.  Elsewhere in the article, it is noted that the peak in annual mortgage sales was 2616 in 2009 –  the trough of the last recession, when the unemployment rate had risen quite sharply and nominal houses had fallen quite a bit (down 9 per cent nationwide in the year to March 2009).

In many respects, one wouldn’t wish a mortgagee sale on anyone.  But one also wouldn’t wish any individual to find themselves overstretched and having to sell the house themselves (and thus not a mortgagee sale).

But, equally, risk is part of a market economy.  And the housing stock financed by mortgage isn’t just the (sympathetic) case of the first home buyer owner-occupier, but also investment properties, beach houses, and fancy houses (the Herald story includes a piece about a pending mortgagee sale of a $3 million house in St Heliers).   In a country of almost five million people (and more than 1.8 million dwellings) one might reasonably wonder whether a mere 250 to 300 mortgagee sales in an entire year is lower than might be, in some sense, entirely desirable.   After all, the nature of taking risk –  and both purchaser and financier do –  is that sometimes things will go wrong.   The optimal number of mortgagee sales is very unlikely to be anywhere near zero.

The key combination of factors that tends to drive the number of mortgagee sales sharply upwards is higher unemployment and falling nominal house prices occurring together.  If unemployment rises but house prices stay high then even if the borrower runs into servicing difficulties they can usually sell the house themselves, repay the mortgage, and move on, without the additional and humiliation of being sold up by the bank.   If nominal house prices fall but unemployment is still low, borrowers will typically still be able to service the debt, and banks are reluctant to sell up people with negative equity who are still servicing the debt, even though they are legally entitled to do so.

We had that combination in 2009 (although in neither case to extremes) and you can see the consequence in mortgagee sales in the chart.

What is often lost sight of is that in a properly functioning housing and urban land market, mark to market losses on houses shouldn’t be uncommon, even in nominal terms (with, say, a 2 per cent national inflation target).   In such markets, land use can readily be changed in favour of housing development, and new houses/apartments readily consented and built.  In such markets there is no reason to expect a trend increase in real house prices, even if the population is growing rapidly.  Across a full country, some areas will do well and some not.  So some localities will more often see, perhaps modest, trend falls even in nominal house prices.  And, of course, without ongoing maintenance individual properties would depreciate in most localities.

For those who doubt that such things are possible, I could bore you with charts from US cities where the markets function well, but instead I will use it as an excuse to reproduce what was for a long time one of my very favourite charts (written up here), showing prices for a street of houses in central Amsterdam from 1628.

herengracht11

There are ups and downs, but over several hundred years no strong trend.

And, of course, that is now what marks out housing markets in New Zealand (and Australia, and various other places, including parts of the US, where land use restrictions have become binding).   In recent decades there has been a strong upward (regulation-facilitated or induced trend) in real (and even more strongly in nominal terms) house prices.  As I noted yesterday, REINZ numbers show that over the last five years prices in Auckland and out of Auckland have averaged 8-9 per cent increases every year.  And that was on top of substantial increases in the 1990s and the 2000s.  It isn’t that easy (although not impossible) to get yourself into a position where the bank sells you up when house prices are rising that strongly.  But in a well-functioning market, we wouldn’t see such pervasive trend increases.

It is interesting that the number of mortgagee sales is now lower than it was in the mid 2000s (even though the housing stock is bigger now than it was then).      The unemployment rate has come down quite a long way, but is still about a full percentage point higher than it was in 2006/07 (and underemployment rates linger high).  For the sort of people –  a diminishing number –  who can afford a house anyway now, unemployment probably isn’t a big consideration now.  But, again, in a well-functioning housing market –  in which the Prime Minister wasn’t doing photo-ops with professional couples who’d won the lottery to buy a subsidised four bedroom house, but appearing with a working class couple of similar age able to buy their first house in one of our larger cities –  it might well matter more. Downturns hit harder people in less skilled jobs, and with more marginal attachments to the labour market.  In a better functioning system, more of those sorts of people would be buying houses, and some would end up unlucky and having to sell up later.   That is the “price” we pay for better access to the home ownership market.

The other relevant consideration is access to finance.   If a bank won’t lend more than, say, 40 per cent of the value of the property, it would be extremely difficult to ever see a mortgagee sale (only, say, idiosnycratic shocks such as the house burning down when the borrower had forgotten to pay the insurance bill or some such).     At the other extreme, of course, if banksare  lending 115 per cent of the value of the property –  in some over-exuberant mood in which everyone believes property values only ever go up, and where new buyers want to have extra cash for, say, fancy furniture, then it doesn’t take very much to go wrong for there to be lots of cases of negative equity, and potentially lots of mortgagee sales.  Mostly –  and to the credit of the banks –  we’ve avoided those sorts of excesses.

But for five years now we’ve had the unprecedented situation of the Reserve Bank limiting how much banks can lend to individual purchasers of residential properties (LVR limits).   We went through successive waves of these controls, and although they were eased somewhat last year binding restrictions are still in place.   The economic case for these controls was never robustly made (the Bank could never quite get round the fact that its own stress tests kept showing that banks were in fine health, or that mortgage lenders –  public and private –  had for decades been lending 90 per cent LVR loans in New Zealand and been able to managed the associated risks).

The Reserve Bank has been keen to boast about how effective these controls were in limiting the amount of high LVR lending banks were taking on.  They always presented this as “a good thing” even though they could never demonstrate (a) that banks were safer as a result (all else equal, banks need less capital when they have fewer risky loans),  or (b) that their judgement on prudent lending standards was better grounded than that of willing borrowers and willing lenders, with their own money at stake, or, incidentally (c) what other risks banks might have chosen to take on to keep up profits if prevented by regulation from lending to housing borrowers.

There wasn’t much doubt, though, that LVR controls applied tightly enough –  and the RB controls became increasingly tight – could restrict the amount of high LVR housing lending.  And high LVR loans will be disproportionately represented among those where a mortgagee sale eventually occurs.  So, even in a period of moderate unemployment, it is quite likely that LVR restrictions have reduced the number of mortgagee sales.

But it simply doesn’t follow that that is a good thing.  The other side of the same equation is that some people who would otherwise have been able to purchase a property using credit, whether owner-occupiers or investors, won’t have been able to do so.   Perhaps those people will have got into the market a few years later, but in the interim they will have missed out on the opportunities of home ownership –  and in most localities, being forced to wait means the entry price will be higher than it would have been if Reserve Bank controls had not intervened.   Those are real missed opportunities, while regulations skewed the playing field (cheaper entry levels) for cashed-up buyers.

In a well-functioning market, house prices rise and fall (although typically not that dramatically) and it is unlikely anyone will be much good at forecasting the movements that do happen.  With the best will in the world, and the best countercyclical monetary policy, economies will fluctuate, and some people who’ve taken on debt will find themselves unable to service the loan.  Painful as that no doubt it, it is only one of the many potential vicissitudes of life –  probably not the end of the world if you are in your 20s and have decades to get back in the market.  The alternative to expecting that a reasonable number of people will eventually have to sell up, in a world of uncertainty and unforecastability, is to have credit policies so tight that they also exclude substantial cohorts for much longer than necessary from being able to enter the housing market at all, whether as owner-occupiers or investors.

I don’t wish a mortgagee sale on anyone, any more than I’d wish a business failure or a redundancy on anyone. Even the transactions costs associated with any of these of events are often non-trivial.   But without them –  while still in a world where the future can’t be foreseen – we’d be living in an economy so cossetted that many opportunities –  for individuals and for the economy as a whole –  would be missed.  In the housing market, between regulatory restrictions on access to housing credit and other regulatory restrictions which impart a strong upward bias to real house prices, we are probably in that sort of situation now.  Too few people can get into the market at all, and too little risk may well mean we are in a position where a higher level of mortgagee sales might be desirable for the efficiency of the economy, the financial system, and the housing market itself.

Is that the best you can do Prime Minister?

There was a headline on Newsroom this morning “Ardern softly raises concern over Uighurs”.  That sounded interesting, even if that “softly” word was a bit of a giveway.  Here is what the article actually said

Ardern told media at her weekly post-cabinet press conference that she was concerned by the Uighur’s plight, although she had not recently been briefed on the subject.

She said she might raise her concerns at a future meeting with Chinese officials, but made no firm commitment.

“Generally speaking we take the opportunity to raise issues of concern,[but] it would be pre-emptive to say what I would discuss,” she said.

Presumably she was asked a question and had to say something.  That she was “concerned” was about as weak as you could possibly get –  by contrast her Labor counterpart in Australia yesterday managed a “gravely disturbing”.    The Prime Minister apparently went on to play down the issue further by specifically noting that she hadn’t been briefed recently.  When a Prime Minister cares about an issue, the briefings will come quickly.

And then, in case anyone (businesses, donors, Yikun Zhang or the like) was worried that she might have said too much, when asked if she would raise her concerns with the Chinese government she couldn’t muster more than “I might”.

This for one of the gravest and most large scale abuses in modern times, being committed by a Security Council member.  And the Prime Minister having called only recently for “kindness” to be some watchword of policy.   Not much on display if you are a Uighur.

The Newsroom article, which seemed to be doing as much as possible to put the Prime Minister in a good light, ended with this comment.

Ardern flagged human rights concerns in a recent meeting with Li Xi, the Party Secretary of Guangdong Province, who visited earlier this year, as reported by Newsroom.

And so I clicked through to that article to refresh my memory.

“We acknowledged of course we are both countries on different development paths, that the nature of our political systems, but that we’ve always as our two countries found ways to discuss those differences in a way that works for our relationship, and I put human rights under that category,” Ardern said.

The detention of Uighur Muslims in Chinese “re-education camps”, the subject of concern by a United Nations panel, was raised under that banner, Ardern said.

Asked of Li’s response to the human rights issues, Ardern said: “It was heard and received.”

I suppose it is good to know it was mentioned, but a mere mention in a private meeting hardly seems likely to bother Beijing.  And hardly likely to reassure New Zealanders that our elected “leaders” actually care much about the imprisonment of a million people, for little more than being who they are, let alone the more recent report of those Uighurs not in prison having regime spies forced on them, living in their houses to report on their attitudes and behaviours.

As it happens, we have a PRC perspective on the Prime Minister’s meeting last month with Li Xi, available on the PRC embassy website.  This was the meeting where, so the PRC reports, the Prime Minister suggested strengthening relations between the Labour Party and the Chinese Communist Party (emphasis added)

New Zealand is ready to deepen bilateral cooperation with China in economics and trade, tourism and innovation, strengthen party-to-party exchanges

Isn’t there quite enough obsequious praise of Xi Jinping, courting of CCP-connected donors etc from Labour figures already?

Of course, the PRC account doesn’t mention the Prime Minister raising any human rights issues (which isn’t to suggest they weren’t mentioned) but how seriously do you suppose they would have taken any concerns anyway when they can report that the Prime Minister said this (again, emphasis added)

Ardern said New Zealand and China have something in common in improving people’s wellbeing, protecting the environment, and enhancing coordinated development, adding that the development strategies of both sides are highly compatible, with broad room for cooperation.

I guess at the most reductionist level there is something to the first point: both governments probably do want to lift the wellbeing of their people, although in the PRC case even that is arguable (control and submission to the interests of the Party seems more paramount).   But it is a statement that is devoid of meaning, or moral content, when you contrast what a free and democratic society might mean by such statements, and what a regime that runs mass concentration camps, allows little no religious freedom, little or no freedom of expression, and no lawful vehicle for changing the government might mean.   As for “development strategies” being “highly compatible”, is the Prime Minister giving a nod of approval to strategies that involve widespread theft of intellectual property, the absence (boasted of by the chief justice) of the rule of law, growing state control of even private companies (let alone a massive credit-fuelled, and highly inefficient, domestic boom that ran for some years)?  It is just shameless pandering.

I don’t suppose the PRC is going to change any of its policies because New Zealand expresses disapproval, but what we hear from the Prime Minister and from the PRC’s reports gives us no basis to think the PRC would even believe that New Zealand governments cared.

Which is a good opportunity to include this tweet I noticed yesterday from someone abroad who comments on China issues.

The Churchill quote –  from his famous ‘iron curtain” speech – is very apposite, but in the specific New Zealand context, and the way our politicians court the regime and fear doing or saying anything even slightly controversial, the commentators own line was a nice place to end.

It comes back to the values, not bank balances, we want to have for ourselves and for our children.

Fortune for the favoured

The coverage in recent days of the first (branded) KiwiBuild houses –  one purchased by a young well-travelled couple, no children, she just graduating as a doctor, he something in marketing –  brought to mind the books I’d had sitting on a pile for ages intended for a post about the first Labour government’s state house building programme (we used to be told that the KiwiBuild vision was modelled on the earlier programme).

As for the KiwiBuild houses themselves, even the purchasers are unashamed in talking up their good fortune (at the expense of the taxpayer).

The owners of one of the new homes have compared their purchase to winning Lotto.

Couple Derryn Jayne and Fletcher Ross paid $649,000 for their four bedroom home, which they said is great value for money, compared to prices elsewhere in Auckland.

They had given up hope of finding a house on the open market after a year-long search.

Which, frankly, is a bit odd.  Of course house prices in Auckland –  and much of the rest of the country – are obscene, but even in Auckland you can pick up a first house for well under $649000.   I googled houses for sale in Clendon Park for example.  It mightn’t be a suburb entirely to everyone’s taste but my in-laws lived there until a decade or so ago.  And it is a first house we are talking about, where it isn’t obvious why the taxpayer should be assisting a lucky young couple into a brand-new four bedroom house.

Defenders of the government are quoted in the media.  There is an article in this morning’s Dominion-Post (which I can’t find online) in which, for example, Shamubeel Eaqub notes that

…the eligibility criteria were broad. “People also may not know how challenging it is to be a doctor without a private practice and with large debts.  I have heard stories of young doctors leaving places like Queenstown because they couldn’t see a way of ever owning a home there.”

Another person quoted in the article observes “even doctors have to start somewhere”.

No doubt. And no doubt it is quite tough for many people starting out, even professionally-qualified couples.  But lets just think for a moment about people rather further down the income ladder, typically without the sort of future income advancement opportunities that (many) doctors have.  Teachers and nurses for example, or motor mechanics, or retail managers, hairdressers, and so on.   If we “need” special lotteries to help favoured young professional couples into homes, how are people further down the income scale ever supposed to manage?  Ah, but, says the minister Phil Twyford, that is to miss the point: apparently KiwiBuild isn’t supposed to help low-income families, even though if there was ever a case for direct state intervention in the market it would surely be for those people rather further down the income scale; the sorts of people who not many decades ago could reasonably have expected to buy a basic first house.

An Auckland University economist (Ryan Greenaway-McGreevy) is also quoted in the article.  He argues, sensibly enough, that “it shouldn’t be a surprise that a new doctor could qualify. ‘Perhaps it speaks to how unffordable housing has become.'”

Which is, surely, the point.  Most people further down the income scale, and especially in Auckland, simply can’t afford to purchase a house at all, at least not without ruinously overburdening themselves. The economist goes on to suggest that KiwiBuild will lower prices for everyone.   Even if that were true, it still wouldn’t justify a lottery in which the favoured few pick up a house below market price at the expense of the taxpayer.  But, of course, there is little sign that it will be true –  many of the early KiwiBuild projects are just rebadging construction that was already going to happen, and over time there is no clear reason as to why we should not expect any specific KiwiBuild construction not to displace private sector activity that would otherwise have taken place.

And surely the evidence against that optimistic hypothesis is in the market prices.   If people really believed that whatever the government was doing –  KiwiBuild or whatever –  was going to lower house and urban land prices over time, then those prices would be dropping already, perhaps quite steeply.  Sure, Auckland prices seem to have gone sideways over the last 18 months or so –  after a huge surge over the previous few years –  but those in many other urban areas are still rising (in both real and nominal terms).   Over the last five years, the REINZ numbers now indicate that Auckland and non-Auckland house prices have risen at around the same rate (on average 8 to 9 per cent per annum).  CPI inflation is, by contrast, averaging under 2 per cent.   When nothing has been done to fix the land market, and most KiwiBuild construction is likely to simply displace private sector construction, none of that should be very surprising.  KiwiBuild is producing photo-ops, and Lotto-like wins for the favoured (and lucky) middle class few, but it is no fix  –  not even any material part of a fix –  to the dysfunctional housing market successive governments have delivered us.

And what of the first Labour government’s state-housing programme?  Actually, it didn’t do a lot for people at the very bottom either.  In the mid 1930s there was much talk of “urban slums”.   Ben Schrader’s history of state housing in New Zealand has a nice quote from a newspaper editorial written just a couple of weeks after the 1935 election, contrasting the newly built National War Memorial Carillion tower with the surrounding neighbourhood (in Wellington’s Mt Cook)

“The Tower was built right in the middle of Wellington’s slum area, and a stone’s throw away from it, men, women, and children are making a different kind of sacrifice.  They live  in squalor and dirt, in little shacks lacking even the ordinary comforts of existence.”

But the state house programme wasn’t for these people. They couldn’t afford the rents.  In fact, as Schrader records, one contemporary critic calculated that a worker would have to earn 20 per cent above “the weekly living wage (the amount the Arbitration Court determined was necessary to support a familiy in “reasonable comfort’) to be able to afford the rent on a state house.    In its defence, Labour argued that people moving into state houses would free up other houses for poorer people –   and in those immediate post-Depression years without the sort of tight land use controls we have today perhaps there was even something to that story (but I’m not aware of any evidence to confirm that conclusion).  But it certainly wasn’t a programme targeted to help those at the bottom (indeed, when later governments offered to sell state house to sitting tenants there was often a material wealth transfer to the fortunate minority).   And for the first decade or more Maori was also explicitly excluded.  Again from Schrader:

“This thinking [around separatism] was challenged in 1944 after the Department of Native Affairs surveyed Maori housing conditions in the industrial Auckland suburb of Panmure.  It found Maori crowding into tents and shacks made from rusting corrugated iron and discarded packing cases. Cooking was mostly done over open fires and sanitary conditions were primitive. Sobered by this and other similar reports, the government agreed in 1948 to build state houses for Maori.”

As for the photo-ops in an earlier age, everyone is familiar with the picture of Prime Minister Savage helping to carry the dining table into the first state house in Miramar, but Schrader records

“The Fife Lane function was so successful that a coterie of cabinet ministers repeated the furniture-carrying stunt at the opening of the first state house in each of the main cities.”

I wonder how more photos of Jacinda Ardern and Phil Twyford appearing with new KiwiBuild owners there will be?  And how people further down the income scale –  perhaps mostly Labour voters –  will be feeling about their own prospects of ever owning a modest house (not even a four bedroom brand new one) in one of our major cities.  That only seems likely if the government were to tackle the regulatory constraints on our urban land market, and despite the pre-election talk there is still as little sign of that so far as there was action under the previous government.  Very little.

(On a completely different topic, I’d just add my voice to the long list of those seriously troubled by the government’s decision to give residency to an imprisoned Czech convicter of dishonesty, and convicted and imprisoned for drug importing, and not even to be willing to explain why.   Personally, I can’t conceive any circumstances under which I would support giving such a privilege to a person with such a –  very recent – background, the more so when such a person comes from an EU country –  none of them is perfect, but none is Somalia or the People’s Republic of China.  There are plenty of decent and honest people who would like to live here, and we only take so many: why favour the Czech drug smuggler over any of them?   As with the extraordinary exercise of ministerial discretion under the previous government to grant Peter Thiel citizenship, these sorts of cases point to a need for much more openness and accountability.  If you want ministers to exercise personal discretion in your favour, you should expect all the details of your case to be published routinely, so that ministers can be properly held to account.  It simply isn’t good enough to have the Prime Minister tell us we should “read between the lines” and then refuse to go further.   Why would we be inclined to believe that ministerial discretion is being appropriately exercised in this case –  and that a drug smuggler with gang associations should be free to stay among us – when the track record (under both parties) inspires so little confidence?

I noted that there are plenty of decent and honest people who would be keen to live in New Zealand.  Stuff’s new article on the utter failure of the Immigration New Zealand arm of MBIE to take seriously the scams suggests that many of those who do get to live here probaby do so at the expense of the honest and decent ones.

[head of immigration advisory agency Carmeto] Malkiat believed most visa applications contained some level of exaggeration and misrepresentation, and significant number involved substantial corruption. There was now a generational pattern of exploited migrants in turn exploiting the next wave to arrive, he said.

“The reality is that if all immigration advisers speak up, 80 to 90 per cent of all applications are wrong, and should not be approved – it is a massive number,” he said.

“Most of the industry exists because of fraud. If there was no fraud, many advisers and lawyers would leave the industry [because they wouldn’t be needed].”

It was clear Immigration NZ was not equipped to deal with the widespread fraud that it was encountering, Malkiat said.

Former immigration minister Tuariki Delamere, now an immigration adviser himself, said he too had sent tip-offs to INZ but seen no action. “I sympathise with that adviser [Malkiat] doing that. Senior [INZ] staff have said to me they are understaffed and there are so many [cases to investigate]. I sympathise with them … but I am happy you are exposing it because the only way you stop [these frauds] is by prosecuting them and publicising it.”

Lawyer Alastair McClymont said he “used to tell INZ about them all the time as well – but nothing ever happened”.

Immigration New Zealand declined to comment on the complaints about its service.

That final line says it all really.  It is a disgrace.  Whether through these immigration scams or the political donations process, Labour and National in turn preside over the increasing corruption of the New Zealand system.    And yet their inaction –  and silence –  suggests they just don’t care. )

 

Three central bankers

Three heads of central banks feature in this (perhaps rather bitsy) post.

The first is one of the heroes of modern central banking, Paul Volcker.  Now aged 91, and clearly ailing, he has a new (co-authored) book out tomorrow, part memoir and part (apparently) his perspectives on various public policy challenges now facing the US.  (His successor Alan Greenspan, now aged 92, also had a new book out a couple of weeks ago.   At this rate, Don Brash –  a mere stripling at 78  –  could be just getting going.)

There are various articles and interviews around (I liked this one with the FT’s Gillian Tett) but what I wanted to write about was an extract from the Volcker book, published last week by Bloomberg (and which a reader drew to my attention), under the heading “What’s wrong with the 2 per cent inflation target”.     Volcker was, of course, the person who as head of the Federal Reserve from 1979 to 1987 took the lead role in ensuring that monetary policy was finally run sufficiently tightly, for long enough, to get US inflation enduring down.   One can debate how much was the man, and how much was an idea whose time had come, but it was on his watch that the hard choices were made.

This was, of course, before the days of formal inflation targeting.  Volcker has never been a supporter, citing approvingly in his article Alan Greenspan’s famous response to a mid -1990s challenge from Janet Yellen.

Yellen asked Greenspan: “How do you define price stability?” He gave what I see as the only sensible answer: “That state in which expected changes in the general price level do not effectively alter business or household decisions.” Yellen persisted: “Could you please put a number on that?”

The Fed finally came to do so, now adopting its own numerical target (2 per cent annual increases in the private consumption deflator.

Volcker takes the opportunity to blame us, writing of his visit to New Zealand in 1988 (when I recall meeting him).

The changes included narrowing the central bank’s focus to a single goal: bringing the inflation rate down to a predetermined target. The new government set an annual inflation rate of zero to 2 percent as the central bank’s key objective. The simplicity of the target was seen as part of its appeal — no excuses, no hedging about, one policy, one instrument. Within a year or so the inflation rate fell to about 2 percent.

The central bank head, Donald Brash, became a kind of traveling salesman. He had a lot of customers. After all, those regression models calculated by staff trained in econometrics have to be fed numbers, not principles.

He is probably a little unfair.  Rightly or wrongly, the rest of the world would have got there anyway (eg Canada adopted an independent inflation target very shortly after we did), and in time it was the New Zealand inflation target that was revised up to fall more into line with an international consensus centred on something around 2 per cent. His bigger point is that he doen’t like tight numerical targets: some of his reasons are defensible, but it is also worth recalling the Volcker was in his prime in an age when there was much less transparency and accountability more generally.

But my bigger concern with the article, and argument, is about what comes across as complacency about the risks the US (and many other countries) face when the next serious recession hits.  He is opposed to any steps to push inflation up to, or even a bit above, 2 per cent, and he also  doesn’t propose doing anything to remove, or even ease, the constraint posed by the near-zero lower bound on nominal interest rates.

Deflation, or even a period when monetary policy is constrained in its ability to bring the economy back to normal levels of utilisation following a serious recession, just doesn’t seem to be a risk that bothers him, provided financial system risks are kept in check.

The lesson, to me, is crystal clear. Deflation is a threat posed by a critical breakdown of the financial system. Slow growth and recurrent recessions without systemic financial disturbances, even the big recessions of 1975 and 1982, have not posed such a risk.

I found that a fairly breathtaking claim.  After all, the effective Fed funds interest rate in 1974 had peaked at around 13 per cent, and in 1981 it had peaked at around 19 per cent.  There was a huge amount of room for real and nominal interest rates to fall.  Right now, the Fed funds target rate is 2.0 to 2.25 per cent.

For most of history the Federal Reserve didn’t announce an interest rate target, but in this chart I’ve shown the change in the actual effective Fed funds rate (as traded) for each of the significant policy easing cycles since the late 1960s.

fed funds cuts

The median cut was 5.4 percentage points (not inconsistent with the typical scale of interest rate cuts in other countries, including New Zealand, faced with serious downturns).  Some of those falls were probably falls in inflation expectations, but even in the last three events –  when inflation expectations have been more stable –  cuts of 5 percentage points have been observed. (I was going to use the word “required” there, but there seems little doubt that policy rates would have been cut further after 2007 –  consistent, for example, with standard Taylor rule prescriptions –  if it had not been for the lower bound on nominal rates.)

And what of the current situation?  With a Fed funds target rate of about 2 per cent, if a serious recession hit today the Federal Reserve has conventional policy leeway of perhaps 2 percentage points (if they treat 0 to 0.25 per cent as the floor next time as they did last time) or perhaps as much as 2.75-3 percentage points (if they treat the effective floor as more like the -0.75 per cent a couple of European countries have operated with).  The Fed has given no public hint that they would actually be prepared to take policy rates negative in the next recession, so for now markets can only guess –  and perhaps hope.   But either way, the conventional monetary policy leeway is much less than was used in any of the significant US downturns of the previous 50 years.   That should be worrying someone like Paul Volcker more than it seems to, especially when three other considerations are taken into acount:

  • when markets know those limitations –  and firms and households will quickly learn them when the recession comes –  inflation expectations are likely to drop away more quickly than usual, because no one will be able to count on the Fed being able to keep inflation near target,
  • US fiscal policy has been so badly debauched that there is going to be little (political) leeway for material discretionary fiscal stimulus in the next recession, and
  • most other advanced countries have even less conventional monetary policy capacity now than the US does (and even less than usual relative to past history).

Reasonable people can quibble about the place of formal inflation targeting, but there needs to be much more urgency in planning to cope with the next serious recession, whatever its source or precise timing.

As readers know, I was not one of the biggest fans of former Reserve Bank Governor Graeme Wheeler.  But in Herald economics columnist Brian Fallow’s article last Friday there was some quotes from a recent speech Wheeler had given in Washington that had me nodding fairly approvingly as I read.

If the advanced economies face a recession in the next few years, much of the burden for stimulus will fall on fiscal policy, Wheeler says. The scope to cut interest rates is limited as policy rates in several countries remain at or near historic lows. Countries accounting for a quarter of global GDP have policy rates at or below 0.5 per cent, whereas policy cuts in recessions have often been of the order of 5 percentage points.

“In such a situation central banks would rely on additional quantitative easing and governments would face considerable pressure to expand their budget deficits through spending increases and/or tax cuts.”

They are words that need more attention even in a New Zealand context, where the OCR is only 1.75 per cent.  It was 8.25 per cent going into the last serious downturn.

Wheeler’s speech (a copy of which Brian Fallow kindly, and with permission, passed on) – to a conference on sovereign debt management –  is mostly about debt management issues.  It has a number of interesting charts from various publications, including this sobering one.

wheeler chart

Perhaps what interested me was that in his discussion of the issues and risks, Wheeler seemed not to touch at all on the two approaches often used in very heavily indebted countries –  even advanced countries – facing serious new stresses: default and/or surprise sustained inflation.   To the credit of successive New Zealand governments, fiscal policy here is in pretty good shape, and debt is low, but looking around the world it would perhaps be a surprise if Greece is the only advanced country to default on its sovereign debt (or actively seek to inflate it away) in the first half of this century.

And finally, our own current Governor.  He has just brought up seven months in office without a substantive public speech on the main policy areas he has responsibility for; monetary policy and financial stability.   It is quite extraordinary. He has been free with his thoughts on climate change, infrastructure financing, tree gods, and so on and so forth, while batting away questions about the next serious recession and its risks in a rather glib, excessively complacent, way (hint: QE and its variants is not –  based on international experience – an adequate answer).

Anyway, the Governor has repeatedly told us about his commitment to greater openness and communications.  I’ve been a sceptical of that claim –  both because every Governor says it in his or her own way, but also because of the track record that is already building.  There have been, as I said, no substantive speeches from Orr on his main areas of legal responsibility.  Speeches that are published apparently bear little or no relationship to what the Governor actually says to the specific audience.  There have been no steps taken to, say, match the RBA in making generally available the answers senior central bankers give in Q&A sessions after speeches, and we heard not long ago of a speech Orr gave to a private organisation, commenting loosely on matters of considerable interest to markets and those monitoring the organisation, but with no external record of what was said.

And it seems that there is likely to be another example today.  The next Monetary Policy Statement is due next week, as is the joint FMA-RB statement on bank conduct and culture (FMA responsibility that the Governor has barged into), both surely rather sensitive matters.  And yet the Governor is giving a significant speech this evening at the annual meeting of the lobby group Transparency International.

Guest Speaker: Adrian Orr

Adrian’s speech will encourage discussion about the relevance of transparency, accountability and integrity in the New Zealand financial sector.

Adrian Orr will be introduced by State Services Commissioner, Peter Hughes, and thanked by new Justice Secretary, Andrew Kibblewhite.

And yet his speech –  to Transparency International, introduced by the State Services Commissioner, thanked by the head of the Prime Minister’s department –  on transparency, is to be, well, totally non-transparent.  From the Reserve Bank’s page for published speeches

Upcoming speeches
There is nothing scheduled.
It seems like a bad look all round: for Transparency International (admittedly a private body) and its senior public service people doing the introductions, and for the Bank itself.   This isn’t some mid-level central banker doing a routine talk to the Taihape Lions Club, but the Governor himself on a topic of a great deal of interest –  to a body itself reportedly committed to more transparency and better governance.
I’d encourage the Bank to rethink, and to make available a script (or preferably a recording, given the Governor’s style) of his speech, and of the subsequent Q&A session.  It should be standard practice, and Transparency International would be a good place to start.

New Zealand, the PRC, and our traditional partners

An interesting, thought-provoking, comment appeared yesterday afternoon, in response to Thursday’s post prompted by the Prime Minister’s claims (reported here, with a link to the original radio interview) that New Zealand was free of foreign interference (particularly from the People’s Republic of China).   The comment was from Peter Jennings, head of the think-tank the Australian Strategic Policy Institute.  Jennings was previously a senior Australian defence and national security official.   This was the text of his comment.

I listened to Jacinda Ardern’s Radio NZ interview and in fairness to her, she does say that the issue of Chinese interference is ‘a live item for me’ that ‘we’re never not looking’ and that ‘constant vigilance’ is being applied.

I take that to mean that the NZ national security establishment and intelligence services are indeed doing their job. The problem is that NZ politicians have no appetite to tell their voters what is really going on.

Contrast that to the very active political debate in Australia and even more strident comments by US Vice President Mike Pence in a speech to the Hudson Institute earlier this month (which I write about here: https://www.aspistrategist.org.au/the-us-shift-on-china-australias-options-narrow/.)

New Zealand’s allies are showing increasing alarm about China’s disruptive role in regional security, their industrial scale use of cyber and human intelligence to steal intellectual property and their active promotion of United Front organisations and political donations to ‘influence’ local politics.

NZ political and media sensitivities being what they are, I’m loath as an Australian to offer any advice, but it must surely be a worry to some in Wellington that NZ’s closest partners are taking a radically different approach to dealing with China. How will this impact on Wellington’s relations with Canberra and Washington DC?

You will know of Hugh White book, The China Choice, which argued that Australia’s ‘ultimate’ choice was between siding with the US or with China as the two countries contested for primacy in the Asia-Pacific. If New Zealand has a China choice it is surely between Canberra and Beijing. So what Australia thinks about China should matter to New Zealand.

Does what New Zealand’s leaders think about China matter to Australia? Most certainly. I regret that Canberra doesn’t pay as much attention to NZ as the relationship really deserves, but the current passivity among NZ’s leadership towards Beijing’s influencing of your own political system is most certainly being watched with concern in Canberra. I ask a genuinely open question: does NZ still value the defence and intelligence relationship it has with Australia?

On the first paragraph, I think that is probably a fair summary.    We can reasonably conclude that the intelligence services are probably doing their job, and the Prime Minister explicitly referred to espionage and telecommunications laws.   This is also consistent with what (little) was released of the intelligence agencies’ post-election briefings last year, and to what I heard at this session earlier in the year, attended by people in a position to know.

Speakers were keen to convince us that officialdom was right up with the play (the issue being “owned” overall by DPMC), and working hand in hand with our Five Eyes partners,  They weren’t, we were told, “naive and unprepared” but rather actively engaged in “detecting and countering interference” –  apparently some overseas partners are even envious of some of the telecommunications legislation implemented here a few years ago (an observation that should probably leave New Zealanders a bit nervous).  Any suggestion of a threat to our membership of Five Eyes is, we were told, “spurious”.  I presume that means “false”.

I guess I came away with the impression that officials think they are more or less on top of the outright illegal stuff.   One hopes they are correct.

But that stuff wasn’t really the focus of the interviewer’s question earlier in the week to the Prime Minister.

It was the other stuff, mostly (perhaps all) legal, that was where the concerns were being raised, and the questions posed to the Prime Minister.    And there I don’t think the issue is just (in Jennings’ words) that

The problem is that NZ politicians have no appetite to tell their voters what is really going on.

It is worse than that.  By her own behaviour –  mostly by neither doing nor saying anything, just letting things be – the Prime Minister demonstrates that she does not believe there is a problem at all, or that if there is stuff going on, it just doesn’t matter. (The Opposition is at least as bad, but they aren’t now in government.   Things like

  • she is content to have (well, she appointed him) Raymond Huo, reportedly heavily involved in various United Front groups, chairing a major parliamentary committee,
  • she is content to have Labour campaign among the Chinese community using a Xi Jinping slogan,
  • she is content to have her party president praise Xi and the regime  (although it was marginally encouraging to read this story this morning and see that Nigel Haworth had declined to become an honorary president of one of Yikun Zhang’s activities –  unlike Peter Goodfellow, Jian Yang, and Raymond Huo.)
  • she was content to honour Yikun Zhang,
  • she has expressed no discontent at the large mainland donations her predecessor Phil Goff used to fund his mayoral campaign (or initiated any law changes to close that loophole in future),
  • she is content not to call out the Jian Yang situation as unacceptable,
  • she seems content with the dominance of the local Chinese-language media by interests sympathetic to Beijing, and PRC news sources.
  • she seems content with Confucius Institutes –  funded from Beijing –  in our universities and schools,
  • she is apparently content with public universities forming close commercial and research partnerships with PRC universities, themselves increasingly under the thumb of the regime (in the last few days a former security official was appointed head of Peking University) and with
  • the increasing reliance of our universities on (the income from) students from the PRC.
  • and despite her calls for “kindness” to be some sort of watchword guide to policy, she is apparently content with the way no one in the New Zealand political system –  her party or others –  ever says a word of criticism of Beijing, despite the growing internal repression and the external expansionism.

Either she is blind, or she simply doesn’t care about this quasi-vassalage and the debauchment of our political system.   I’m not sure which would be worse.   Just possibly, she isn’t that comfortable with the situation personally but….she isn’t just any citizen, she is the Prime Minister.

Jennings goes on to note how the approach of the New Zealand political establishment (National and Labour, New Zealand First and Greens) seems increasingly out of step with that of our “closest partners” –  he mentions the US and Australia, but there is also increasing sign of the UK taking the issues more seriously, including having ships assert freedom of navigation rights in the South China Sea.  He wonders “how will this impact on Wellington’s relations with Canberra and Washington DC?” and goes on to note, and pose a question, as follows

….the current passivity among NZ’s leadership towards Beijing’s influencing of your own political system is most certainly being watched with concern in Canberra. I ask a genuinely open question: does NZ still value the defence and intelligence relationship it has with Australia? 

One of the interesting things about the Australian situation –  where former Labor Foreign Minister Bob Carr is a vocal defender of Beijing and suggests there are few/no issues for Australia –  is that the leaders of the two main parties seem fairly united in treating the issues as serious, including in passing the recent new legislation.  No one can seriously suggest that Australia has dealt with all the issues –  only yesterday the PRC successfully managed to go behind the Federal government’s back and get Victoria to sign up to the Belt and Road Initiative –  but they seem in a much better place than the New Zealand situation, where the leaders of all the parties (especially the two main ones) seem united in an unspoken agreement not to call out any behaviour.  Australian Labor got rid of Senator Sam Dastyari; New Zealand Labour won’t even criticise the presence in our Parliament (on the other side) of a former PRC intelligence official, one who acknowledges deliberately misrepresenting his past to get into New Zealand.

But Jennings’s question is an interesting one?  Does “New Zealand” still value the defence and intelligence relationship it has with Australia (or the United States)?   I presume the answer depends on who you are talking about, and perhaps there are parallels to the rupture with the US – which also put us offside with Australia –  in 1985?  Back then, the defence and intelligence hierarchy probably put a great deal of weight on those relationships.  But in the end it didn’t matter.  Probably not many politicians really wanted to break with the US even then, but no one was willing to pay the price –  perhaps small internationally but substantial in terms of internal party politics – to avoid it.   The New Zealand public had probably never been that consistently keen on the US relationship –  it had been a relatively new thing after all, mostly post-Suez –  and there was enough angst and disapproval of Ronald Reagan, and reaction post-Muldoon, that an isolated little country was willing to step off the playing field.

I wonder how different it is now.    (Probably like most Australians) most New Zealanders are strongly anti-Trump (and instinctively Democrats), and if anything the fact that Trump and Mike Pence are talking about issues around China, including domestic political interference, probably inclines many New Zealanders to downplay the issue further.  As for Australia, (justifiably or not –  I think mostly not) there is a widespread disapproval here around the treatment of illegal migrants, asylum seekers (“boat people”) by Australia (easy for New Zealanders, when we are so far from the immediate risk), and a resentment among many about Australia’s deportations of some of the shady New Zealand citizens who’ve fallen foul of Australian law.  New Zealand governments have, over the years, become mendicants, begging on behalf of their “guest workers” in Australia, and it doesn’t automatically foster attitudes of trust or camaraderie as regards Australian governments.  I’m not defending these attitudes in New Zealand – mostly I don’t share them –  just attempting to describe them.

And, of course, as in most countries most citizens most of the time don’t give much attention to defence or foreign policy, let alone the subtleties of the activities here of a regime like the PRC.  And with no moral leadership from the heads of our political parties, no real leaders calling out the nature of the risks/threats, it is hard to imagine that the mass of New Zealanders would be unduly bothered if at some point in the next few years New Zealand were eased (or booted) out of the Five Eyes grouping.  Many –  that strange mentality that seems to value “independence” for its own sake, regardless of the rights and wrongs of the alternative sides (and how much “whatabout-ism” do we hear, suggesting that somehow US “interference” here is a thing –  let alone a thing on a par with the PRC) –  might well wear it as a badge of pride, as (in different circumstances) so many did in the mid-80s.   At least the 80s stance had an (arguable) moral dimension, but whatever moral clothes people attempted to wrap around an opting out now, they would be threadbare at best, given the nature of the PRC regime, and the threat it poses now here, and abroad, let alone to its own people.

Of course, it is worth noting that the government did announce a few months ago the purchase of the P8 aircraft.   That suggests some value being put on maintaining the US and Australian relationships.  Still, one has to wonder whether a Labour/Greens government –  feasible if last week’s poll numbers carried into an election –  would have been willing to have paid that price.    And that price didn’t involve making any calls that, at least directly, upset Beijing.  But when a few weeks later the government released a defence policy paper, with a few mild remarks about the PRC, (a) the Prime Minister never associated herself with that stance, and (b) the leader of the National Party took the opportunity to warn the government not to upset Beijing.

So there is no political leadership apparently willing to take any stands, and without it probably few New Zealanders will much care that our traditional partners and allies are taking a different stance.  Many would probably wear it as a badge of pride.   Perhaps it would be different if the White House changes hands in 2021, or when (as seems most probable) Labor takes office in Australia next year, but I rather doubt it –  and it is worth remembering that Labor was in power in Australia in 1985.

I’m not sure what the circuitbreaker could be, what might shift politics and political debate to a more serious and self-respecting plane.  More likely, as with the continued failure to do anything about decades of relative economic decline, the established political parties just will keep on together, debauching our system and society, too craven ever to make any sort of stand, somehow persusaded that on the one hand Beijing holds the whip hand (it doesn’t) and on the other, that it really doesn’t matter much and no one cares.   If so, the sad and shameful degradation of New Zealand will continue.

Meanwhile, anyone interested in yet more on the evil way in which Beijing treats its own people –  while our government (and most others) say nothing –  might consider reading this article, detailing how the regime simply (compulsorily) moves its agents (a million of them reportedly) into the houses of Uighur people in Xinjiang province –  those not already in concentration camps – to live alongside them.  The agents are supposed to chivy people into conformity and report any deviations –  diet, ideology, religion, or whatever –  to the authorities.   And this is the regime our political “leaders” provide cover for.  They court –  and even honour – its agents and supporters, take their money, recruit them into Parlisment, act as honorary patrons to their organisation, and seem to care not a jot what the regime does here, at home, or anywhere in between.

Australia: not even close to the most successful economy

In another useful reminder as to why I don’t subscribe to The Economist –  with a news, politics, and international affairs junkie 15 year old I’m tempted from time to time – it was hard to go past the heading of that magazine’s lead story this week:

What the world can learn from Australia: It is perhaps the most successful rich country

In the text, they make it clear that the “most successful” claim specifically includes economic success.

Okay, I’m happy to grant that Australia has done well around fiscal policy –  government revenue and expenditure as a share of GDP have been stable and moderate, and government debt has been kept low.   But Switzerland does about as well, and Sweden has much lower net government debt (large net assets), and both those countries manage productivity levels that are reasonably materially higher (almost 10 per cent more) than Australia.

Productivity is, in the old phrase, if not everything in the longer-term about economic performance then almost everything.  And here is a simple chart showing two comparisons, using OECD data which start in 1970.   The first line compares Australia’s real GDP per hour worked to the median of the top-tier group I’ve used in various posts and articles this year (the US, France, Belgium, Netherlands, Germany and Denmark).   And the second line compares Australia to Norway.

australia performance

Did anyone in The Economist think of Norway –  not only does it have much higher average productivity (think oil and gas and few people –  and good institutions/smart people) but huge net government financial assets?

Average productivity in that frontier group of six is 20 per cent higher than in Australia.  In Norway it is 50 per cent higher.  And 50 years ago, Australia outperformed the median member of the six, and was level pegging with Norway.   Sure, the last 25 years or so haven’t been too bad, but at that rate of convergence it would take another couple of hundred years  (or more) to catch up again to the top tier group.    And even the very modest convergence has been supported by massive new natural resource developments.  Blessed with those opportunities if a country can’t do better than Australia has done, there looks to be something quite badly wrong.

And here is the ABS measure of real net national disposable income per capita, which takes account of (a) changes in the terms of trade, and (b) the portion of the GDP gains accruing to Australians.

RNNDI

They had a good 15 years, but there has been no growth in this measure of real purchasing power this decade.

What might be so very wrong?   Well, I’m sure there are plenty of micro regulatory things Australia  –  like every country –  could do better.      But what really stands out about Australia, relative to the other countries, is its rate of population growth.   Indeed, this is what The Economist really seems to like about Australia, lauding the country’s “enthusiasm” for immigration.   Whether one looks from 1970, or just over the last quarter century or even the last decade, Australia’s rate of population growth has materially outstripped those of the other countries.   In the last 25 years, Australia’s population (UN annual numbers) increased by 41 per cent, while the population of the median of those high productivity group of six rose by 13 per cent.    The difference isn’t wholly about migration, but immigration is the bit governments make choices about.

In a country with an export base almost entirely dependent on a fixed stock of natural resources –  farm products, mineral products, tourism – and actually with foreign trade shares of GDP among the very lowest in the OECD, it is bordering on the insane to be actively importing lots and lots more people (as successive Australian governments have been doing in the last 15 years or so).     It is a quite different matter in countries –  like most advanced OECD countries now –  that are trading the fruit of ideas, or that are tightly bound into sophisticated manufacturing supply chains.  But this is Australia –  one of the most remote countries on that planet which (like New Zealand) has failed over decades to develop many outward-oriented industries that don’t depend largely on natural resources (or immigration subsidies around export education).    The fruit of the (vast) natural resources is, to a first approximation, just spread more thinly.   Being based in a global city –  the ultimate ideas trading location –  in northern Europe I guess these considerations simply never occur to The Economist’s writers, who probably enjoy the beaches and the climate when they jet into Australia without troubling themselves over whether or not the natives are actually earning leading first world incomes.  Hint: they aren’t (any longer).

And thus I end up agreeing with The Economist. 

“Even more remarkable is Australia’s enthusiasm for immigration”

Truly astonishing in fact, in the specific circumstances of Australia.  The enthusiasm of Australian governments for high immigration to Australia is just as wrongheaded –  and more culpable –  as that of The Economist’s editorial writers.  All sorts of daft ideas have had their day over history.   This one –  at least in modern Australia –  seems based more on belief and ideology than any serious evidence that Australians themselves might actually be benefiting from the immigration.

(And that without even considering the house prices, traffic congestion etc –  all of which, immigration advocates will note, could –  in principle – be fixed separately, but of course in practice aren’t. )

UPDATE: A post from a couple of months back that made similar points, but with some different data and a longer time horizon.