Thoughts prompted by the tape

What to take from Jami-Lee Ross’s tape of his conversation with his (then) boss?  I’m not interested in Bridges’s vulgar and insulting talk about his own MPs (although being, like him, a child of a Baptist manse, I can only surmise that he wasn’t raised to use that sort of language) or even that interested in the minutiae of whether and how donations are recorded and disclosed, including to the party hierarchy itself (significant as those issues probably are generally).

As compared to the situation a few days ago, we know that there was a $100000 donation to the National Party, initiated apparently (whatever final form the lesser components took) by Auckland businessman Yikun Zhang who (despite apparently coming here as a poor former PLA soldier 18 years ago) doesn’t speak English.   The first person I asked the other day about Yikun Zhang responded along the lines of “bad news”, and the more I read around the various sources which various Chinese speaking commentators have highlighted, the truer that summary description appears to be.

Several things struck me about the Bridges-Ross conversation:

  • the first was about how normal both of them  (one the leader, one the 8th ranked front bench MP) seemed to regard this sort of tawdry business.  Sure, fundraising is a vital function of a political party, but it is a far cry from Barry Gustafson’s description in his 50th anniversary history of the National Party: “an unwritten but scrupulously observed rule has always been that no MP should be placed in the position of seeking, receiving, or even being made aware of money collected on behalf of the party” (p201).   Perhaps (although I don’t know) National is no worse on this score than other parties, but it is a pretty bad situation that has been allowed to develop –  or, more to the point, actively fostered.
  • the second was about how utterly unbothered they were (leader and no. 8) about the Jian Yang situation.  Sitting in your caucus is a former PLA intelligence official, Communist Party member, close asociate of the PRC Embassy, someone who acknowledges misrepresenting his background when he came to New Zealand, and someone who even a former diplomat –  who knows him well – says he is careful about what he says in front of the man.  As leader, perhaps you are under pressure to defend the man publicly.  But perhaps, a very generous –  naive – observer might have thought, after last year’s fuss had died down, and some face saved, the party would be looking for a way to quietly retire, and replace, Jian Yang going into the next election.    But when Simon Bridges is caught talking about his colleagues, we hear about the unfortunate Maureen Pugh, about those (Finlayson, Wagner and Carter) everyone assumes would go before long,  but the only reference to “Chinese MPs” is to adding another one.  Jian Yang’s continued presence seems just taken for granted: none of that background stuff apparently bothering either of them in the slightest.  Lacking any decency themselves –  and not facing any uproar from other parties –  Jian Yang is presumably much too valuable in tapping the potential donors.
  • third was the utterly transactional way in which they approached the donation Yikun Zhang proferred (and presumably arranged) and the bid for another ethnic Chinese National MP.

    Ross: Yeah they’re good people. Now there’s no catch or anything to it. You may recall at the dinner they did discuss candidacy, and another Chinese candidate.

    Bridges: Two MPs, yeah.

    Ross: Colin Zhang? The younger one, he’s put his name in for Candidates’ College and so I assume he’ll get through and we’ll make some decisions as a Party further down the track as to what we want to do with candidates.

    Bridges: I mean, it’s like all these things, it’s bloody hard. You’ve only got so much space. Depends where we’re polling, you know? All that sort of thing…two Chinese would be nice, but would it be one Chinese or one Filipino? What do we do?

    Ross: Two Chinese would be more valuable than two Indians, I have to say.

    It was fine for Ross to say “there’s no catch or anything to it”, but everyone involved knows  how reciprocity works.  It is about an exchange of favours over time.  When, in the same conversation a wealthy businessman talks of a big donation and proposes that one of his staff might get a winnable place on National’s list, and they take the donation anyway, there is a quid pro quo, in expectancy, if not in some written contract.  No sense presumably, either at the earlier function or in this phone call of anything improper or unethical.  It is clearly just the way the National Party now does things.

But bad –  really bad –  as all this is, I think what disgusts me is the utter indifference of either Bridges or Ross (and to the extent there is ongoing silence from elsewhere in the party, or anywhere else in the political spectrum, the rest of our political class) to the character and interests of the man they were dealing with.  Not at a basic interpersonal level –  frankly it sounds hard not to be a nicer person than, say, Jami-Lee Ross –  but as someone actively and on an ongoing basis fully involved with the PRC government and its activities, in China and abroad.   And this seems to be the bit that most of our mainstream media is either missing or downplaying.

If we are going to have private funding of political parties (which I happen still to favour), the issue isn’t whether immigrants of whatever ethnicity or natives (of whatever ethnicity) should be able to donate to political parties.  It is much more specific than that, about whether political parties (openly or secretly) should be taking substantial sums of money –  indeed, actively pursuing it –  from people who they either know, or really should know, are in league with or in active support of hostile or egregiously awful foreign powers.  From people over whom the hostile foreign power has leverage, direct or indirect.  And when the egregiously awful foreign power has a track record of using threats, and economic leverage, to buy silence (or worse).    And with the question in the background: in what ways are we tailoring what we do or say –  party presidents, for example, praising the egregiously awful regime and its leader – to keep that donor flow going.

The issues could arise from somone in league with any egregiously awful foreign power but – not having many North Korean migrants –  the PRC is the one we in New Zealand need to be most worried about right now.  At some other time, it might have been the Soviet Union, Nazi Germany, or maybe even apartheid South Africa.  In the 1980s, emigre French business people, with close links to the DSGE, donating large amounts to our politicians, would rightly have attracted extreme disapproval.  There never were such donations, but today both main parties enrich themselves from donors with close ties to Beijing.

I noticed that Stephen Jacobi, the (NZ) taxpayer-funded lobbyist for keeping New Zealanders in line on things Beijing, was out today suggesting that perhaps state funding of political parties might be desirable after all.  His argument was a bit different from most though.

I haven’t seen anyone suggest that Yikun Zhang shouldn’t allowed to donate, or even to talk to politicians.  I have seen, and made, suggestions that our political parties shouldn’t touch his money –  or that channelled through bodies he runs or influences –  with a barge pole.   The suggestion is that the man is being “vilified”, but all I’ve seen so far is straight reportage –  often drawn directly from bodies he is involved on, or the Chinese language media – about his involvements and associations.  At least in Chinese –  he not speaking English –  he seems rather proud of and unapologetic for those involvements.

For those with Financial Times access, there is a nice article here which captures some of his close ongoing official involvement with the PRC government.  In a formal sense, he seems to have much stronger ongoing ties to the regime than (for example) Jian Yang does.   For others, and anyone interested, I suggest keeping an eye on these two Twitter accounts (both have been posting copious snippets of Yikun Zhang’s associations here and in the PRC): @geoff_p-wade and @jichanglulu.    As Wade (an Australian) urges

Reading the local media coverage, it strikes me that most of the local media is still reluctant to engage with the nature of the PRC United Front programme/agenda.   These aren’t just people who happen to have a few incidental ties to the homeland. Their organisations aren’t just neutral bodies.    The PRC is widely recognised as having an active agenda of influence –  and to say so isn’t vilification, but analysis, description, and reading.  As I noted, many of the links aren’t hard to find, at least for those with the language skills (to whom the rest of us can be grateful).   Some of it is even just pictures

This afternoon, for the first time in a while, I went back and read the whole of Anne-Marie Brady’s Magic Weapons paper, which has had so much attention (arguably more abroad than here, given the studied disinterest of our political leadership) since it was released last September.

Here are a few relevant snippets

United Front Work Department personnel often operate under diplomatic cover as members of the Ministry of Foreign Affairs, using this role to guide united front activities outside China, working with politicians and other high profile individuals, Chinese community associations, and student associations, and sponsoring Chinese language, media, and cultural activities. The Party has a long tradition of party and government personnel “double-hatting”; holding roles within multiple agencies. 17 Chinese consulates and embassies relay instructions to Chinese community groups and the Chinese language media and they host visits of high-level CCP delegations coming to meet with local overseas Chinese groups. The leaders of the various China-connected overseas Chinese associations in each country are regularly invited to China to update them on current government policies.

Yikun Zhang appears to have been on such missions regularly, and he (and the acolyte he wants to put into Parliament) are apparently in the PRC now (hosting the mayor of Southland).

And this longer piece

1. “Bring together the hearts and the power of the overseas Chinese”  Xi Jinping’s ambitious strategy to harness the overseas Chinese population for the CCP’s current economic and political agenda, builds on existing practices and then takes it to a new level of ambition.

Agencies: State Council Overseas Chinese Affairs Office, CCP United Front Work Department, Ministry of Foreign Affairs, Ministry of State Security, PLA Joint Staff Headquarters’ Third Department, and other relevant organs.


• Monitor the local long term Chinese community via community organizations (侨务社团工作); establish Overseas Chinese Service Centres (海外华侨华人互助中 心) to coordinate this work, cherry pick which groups to work with.

• Sponsor and support the emergence of new united front organizations to represent the overseas Chinese, recognizing that they are a diverse group and flexibility is required to establish a positive working relationship with them. Avoid directly interfering in overseas Chinese community affairs unless there is a situation that directly affects China’s political interests,….

• Unite the ethnic Chinese communities through nurturing and subsidizing authorized Chinese cultural activities.

• Supervise Chinese students and visiting scholars through the united front organization the Chinese Student and Scholars Association (中国学生学者联合会).

• Encourage influential figures within the overseas Chinese community who are acceptable to the PRC government to become proactive in helping shape ethnic Chinese public opinion on political matters.

• Encourage wealthy overseas Chinese who are politically acceptable to the PRC government to subsidize activities which support China’s political agenda.

• Draw on China’s agents and informers abroad to enhance China’s political influence.

• Encourage political engagement of the overseas Chinese community (华人参 政). This policy encourages overseas Chinese who are acceptable to the PRC government to become involved in politics in their host countries as candidates who, if elected, will be able to act to promote China’s interests abroad; and encourages China’s allies to build relations with non-Chinese pro-CCP government foreign political figures, to offer donations to foreign political parties, and to mobilize public opinion via Chinese language social media; so as to promote the PRC’s economic and political agenda abroad.

It doesn’t seem unreasonable to wonder whether the Chao Shan General Association –  so much in the media in recent days as one of Yikun Zhang’s key involvements –  is not one of those “new United Front organisations”; able to attract many key figures of the New Zealand political establishment to its functions.

Political donations aren’t the whole story by any means.  They are simply the bit brought into focus, almost incidentally, in Jami-Lee Ross’s revelations of the questionable activities he was, apparently, a leading figure in.  The other half of the story is, of course, trade.  The PRC has a now-established track record of using economic coercion to attempt to silence any government that ever takes a stand or utters more than the meekest and mildest concerns.  As I’ve noted here before, most of what New Zealand firms export to the PRC is fairly homogenous commodities which if not sold to China would be sold somewhere else (someone else in turn selling to China).  In other areas –  notably tourism and export education –  there are greatly vulnerabilities. But no doubt representatives of all these industries also bend the ears of our political leaders, providing them another excuse for staying silent –  or worse, gushing in praise –  of one of the more heinous (and getting worse) regimes on the planet.   Perhaps it is really true that even without the donations, the politicians (all of them) would still lack any willingness to speak out, but the donor flow –  whether direct or through charity auctions – seems likely to reinforce the supine shameful state of New Zealand political leaders as regards the PRC.

The situation needs to change, but not one person on the New Zealand political scene offers any hope of making it happen.  Jami-Lee Ross probably only wanted to be at the top table making the “sellout” of New Zealand longer-term interests and values happen his way.  I did a media interview yesterday about some of these issues, and was asked about the potential cost of making a stand –  even just separating ourselves from Beijing-affiliated ethnic Chinese money.  As I noted to the interviewer, the only real test of what you value is what you are willing to sacrifice  –  pay a price –  for.  On the evidence to date, the integrity of our political system –  let alone the freedoms of other democratic states in east Asia –  clearly isn’t one of those things for the current crop of politicians, from any party.

Bernard Hickey has a nice article on some of these issues at Newsroom.  I agree with most of what he says, and commend it to your attention.   Of the Prime Minister’s responsibility he writes

Prime Minister Jacinda Ardern has been conspicuous in her lack of comment on Jian Yang and on the role of Chinese influence in New Zealand politics. She has also not criticised China directly over its South China Sea incursions or the persecution of minorities in China.

She should draw a line under New Zealand’s acquiescence to China and review the transparency of the Electoral Finance Act in relation to overseas influence. She should call for Jian Yang to resign from Parliament at the least, and follow the example of her Australian counterparts by asking for an official inquiry into China’s influence in politics here.

The Prime Minister talked a good game about human rights and sovereignty at the United Nations recently. How serious is she when her own party’s finances may be affected by pushing back against China?

Not talking, as the PRC Embassy reported her recently, of strengthening ties between the Labour Party and Communist Party of China.

And, finally, Anne-Marie Brady has re-linked to a couple of pieces she wrote late last year (here and here) on what can and should be done, including by the new government.  I will always defer to her expertise on the nature of the PRC programmes and interventions, although in thinking about policy responses, she probably put relatively more emphasis on national security issues, (while –  charitably? – presuming governments will want to do something serious), while I tend to emphasise the problems that lie within our own political processes.  In my view, it isn’t that people don’t know what could be done, rather that our politicians simply don’t want to do anything, or be seen to express serious concerns.    In that sense, the bigger problem –  the one we could control but refuse to –  lies here, not in Beijing (evil states will do what evil states do, including suborning the locals, encouraging the mindset of a tributary. Our political processes –  in a state far away from Beijing, and simply not that reliant on them for anything much –  make choices whether to fall into line, or whether to stand up.   Of course, one test may loom quite soon: what, if anything, will our government be prepared to do if is found that PRC agents were responsible for the break-ins at Anne-Marie Brady’s house and office.  Will we even be told?



What to make of the inflation data

The CPI data were released a couple of days ago.   There was, inevitably, a lot of commentary around higher petrol prices, although most commentators noted that the Reserve Bank was likely to “look through” what we are seeing, and not adjust monetary policy just because of higher petrol prices.  That would, indeed, be consistent with the Bank’s mandate –  and practice –  over almost thirty years of inflation targeting.

One can have all sorts of debates about what sorts of effects should be “looked through”.  We used to have lengthy discussions attempting to distinguish between petrol price effects themselves, indirect effects (eg higher airfares or courier costs directly resulting from higher fuel prices) and second-round effects –  the real worry, if changes in oil/petrol prices came to affect the entire inflation process, including medium-term expectations of inflation.   Those risks were real, and realised, back in the 1970s oil shocks, and that set the scene for much of the subsequent discussion and precautionary debate.

SNZ only has a CPI ex-petrol series back to 1999.  In this chart, I’ve shown the headline CPI inflation rate, the CPI inflation rate ex-petrol, and the Reserve Bank’s preferred core inflation measure, the sectoral factor model.

petrol price inflation

I’ve highlighted four episodes in which petrol price inflation was much higher than overall CPI inflation, and one (quite recent) when it was much lower.

In the first of those episodes –  around 2000 –  the surge in petrol prices coincided with quite a lift in core inflation.  Bear in mind that the economy was recovering from the brief 1998 recession, and the exchange rate had fallen sharply.

In the second episode –  2004 and 05 – the surge in petrol price inflation coincided with no change in core inflation.

In the next episodes –  2008 and 2010 –  the surge in petrol price inflation coincided with a fall in core inflation.  In the 2008, the Reserve Bank explicitly recognised some of this at the time, and talked of scope to cut the OCR soon, despite the high headline inflation.

And in the recent episode when petrol price inflation was very low, there was no fall in core inflation –  if you look hard enough, it may actually have increased very slightly.

There is talk that, if oil prices persist, headline inflation could get as high as 2.5 per cent before too long.  The experience of the last couple of decades suggests that will tell us nothing useful about underlying/core inflation trends, or about the appropriate stance of monetary policy.  And the preferred core inflation measure remains below the target midpoint, as it has been for almost a decade now.

Here are a couple of other series worth looking at.

other infl measures

The blue line is a fairly traditional sort of exclusions-based core inflation measure: excluding volatile items (food and fuel) and (administered) government charges (altho not tobacco taxes), and the orange line is non-tradables inflation excluding government charges and cigarette and tobacco taxes (which, you will recall, have been raised relentlessly each year, in a political non-market process).  There is no sign in either of these series of underlying inflation moving higher in the last year or two.  Core non-tradables inflation of under 2.5 per cent is not consistent, typically, with core (overall) inflation being at 2 per cent.

Having said all that the financial markets appear to have taken a slightly different view of this week’s inflation data.  Here is a chart of the breakeven inflation rate from the government bond market –  the difference, in this case, between the 10 year conventional bond rate and the 2030 indexed bond (real) rate.  I’ve highlighted the change since the inflation data were released.

IIBs oct 18 2018

At 1.4 per cent, the gap is still miles off the 2 per cent target midpoint (or than the comparable numbers in the US), but the latest change does look as if it is worth paying at least a bit of heed to.  Perhaps it will dissipate over the next few weeks, but if not it wouldn’t be a cause for concern, but some mild consolation that –  after all these years –  there was some sign of market implied inflation expectations edging a little closer to target.

What about a longer run of data?   We only have a scattering of inflation indexed bonds, in this case one maturing in September 2025 and one maturing in September 2030.  The 2030 bond was first introduced five years ago this month.    Creating a rough constant maturity 12 year indexed bond series –  the 2025 bond had 12 years to run in 2013, and the 2030 one has 12 years to run now –  and subtracting the result from the Reserve Bank’s 10 year conventional bond series produces this (rough and ready) chart.

iib constant maturity breakeve

A clear rebound from the lows of 2016, but implied breakeven inflation rates still much lower than they were five years ago.

There still seems to be quite a long way to go for the Reserve Bank to really convince investors that, over the decade ahead, they will do a better job of keeping inflation averaging near target than they have done this year to date.

Continuing to talk down the risks of the next serious recession, and the limitations of policy here and abroad to act decisively to counter such a recession and the likely deflationary risks, is cavalier and irresponsible.  It might (seem to) help confidence in the short-run, but if those risks crystallise –  and central banks should focus on tail risks in crisis preparedness –  the Bank will bear a lot of the responsibility if the economy performs poorly, and inflation ends up so low as to vindicate (and more) the evident lack of confidence among people putting real money on a view about the average future inflation rate.