NZ and the PRC: Friday bits and pieces

I noticed in the Herald’s “Dynamic Business” supplement, associated with the Deloitte Top 200 awards (themselves notably short on successful outward-oriented companies based on anything much other than natural resources), that the former Prime Minister John Key was interviewed about China.   It was, to say the least, a bit of a mixed bag.  In his first answer this line appeared

“I think Xi Jinping’s going to go down in history as a good leader of China.”

That would be in the history as written by the Chinese Communist Party (assuming it survives that long)?  I’d accept “consequential”, “influential”, even (in a bleak way) “pathbreaking”, but “good”?  What does John Key possibly see as “good” –  a term that usually has some moral connotation to it – about Xi Jinping’s rule?   It isn’t even as if the economy has been set on firmer foundations, let alone the seizures of power, seizures of territory,  the Xinjiang situation, or whatever.  But I suppose the PRC embassy will have taken note, and doors are likely to remain open in Beijing.

Key was then asked about the (straw man) question about balancing China and the United States.  I don’t particularly agree with his stance but at least –  in contrast to our current Prime Minister –  he seems capable of giving a straightforward answer, including recognising where our values, our culture, and our history take us.

…the reality is that our relationship with China is still a very economic relationship…. In the case of the US and our traditional allies –  Australia particularly – it’s a much different relationship.  They are the people that we culturally feel most at home with.  We share such a massive history.  Everything lines up much more closely there…..

I think if we turned our back on the Chinese, we’d find a lot more Irish an Dutch dairy products would flow into China and less would flow from New Zealand. It might be a bit mercantile but I think that would be negative for the New Zealand economy, for dairy farmers and for lots of New Zealand businesses –  from tourism to education services

I think he is mostly wrong about dairy –  it is a globally traded market and as we are seeing in the soybean market at present in time what doesn’t go to one country ends up going to another (if, say, the Irish and Dutch industries had WMP capability, to divert that product to China would involve not selling to the people they are now selling to).  But at least Key seems willing and able to give a straight answer –  even if it is an amoral one:  “never mind the nature of the regime, we should give priority to businesses selling stuff there”.

There was an interesting snippet in the Herald’s (typically rather well-sourced) “Insider” column in which it is noted that

NZ diplomats have been told the long-expected invitation for Jacinda Ardern to go to Beijing won’t come any time soon.

Perhaps that is the explanation for her shameful refusal to front up for the Herald’s longstanding interview request.  But if so, she needs to rethink her priorities.  Tea at today’s Berchtesgaden beats an open and honest discussion with –  and accountability to – her own citizens and voters, confronting concerns about the activity of the regime at home, abroad, and here in New Zealand?

You could read the account on the Chinese Embassy’s website of her meeting with the PRC Premier Li Keqiang and not come away with any sense of any awkwardness at all, with bizarre talk of working together for the “peace and prosperity” of the Asia-Pacific region.  We are presumably supposed to accept with a straight face words like these from the Premier

He also encouraged New Zealand companies to expand investment in China and boost technological cooperation with China, saying that China will conduct the cooperation on the basis of strict protection of intellectual property rights.

Surely only that distinctive New Zealand “Yeah right” should greet claims like that?.  Perhaps the Prime Minister’s perspective on the meeting would be different, but there is no similar account on the Beehive website (and if MFAT had problems with Beijing’s account, no doubt they have raised those concerns).

Can it really be that deals and donations are all that now matter to her?    If she doesn’t care about the citizens of the PRC, or about surrounding states, or even about how closed an economy China is in many respects, is she really not bothered about the PRC activities here?  Presumably not.  After all, Raymond Huo chairs the Justice committee and sits in her caucus, and Jian Yang sits on the other side, and not a word in heard from the Prime Minister.

There was an interesting post a couple of days ago from Paul Buchanan, the American (but New Zealand resident) former academic and now consultant on issues international.  He began by addressing the somewhat extraordinary suggestion (made by David Parker and the Prime Minister) that New Zealand could be some sort of bridge or broker between the US and China. He is simply dismissive of it, and doesn’t think either Beijing or Washington is likely to take it seriously.

For my tastes, Buchanan’s discussion  is altogether too cold (then again, perhaps his future isn’t tied to New Zealand?).   He suggests

While New Zealand audiences may like it, China and the US are not fooled by the bridge and broker rhetoric. They know that should push come to shove New Zealand will have to make a choice. One involves losing trade revenues, the other involves losing security guarantees. One involves backing a traditional ally, the other breaking with tradition in order to align with a rising power. Neither choice will be pleasant and it behooves foreign policy planners to be doing cost/benefits analysis on each because the moment of decision may be closer than expected.

I’ve disagreed with him in comments here on earlier posts, because I think he grossly overstates the extent of any sort of “economic dependence” of New Zealand on China.

On trade, New Zealand has an addict-like dependency on agricultural commodity and primary good exports, particularly milk solids. Its largest trading partner and importer of those goods is China. Unlike Australia, which can leverage its export of strategic minerals that China needs for its continued economic growth and industrial ambitions under the China 2025 program, New Zealand’s exports are elastic, substitutable by those of competitors and inconsequential to China’s broader strategic planning. This makes New Zealand extremely vulnerable to Chinese economic retaliation for any perceived slight, something that the Chinese have been clear to point out when it comes to subjects such as the South China island-building dispute or Western concerns about the true nature of Chinese developmental aid to Pacific Island Forum countries.

But even if there is some potential for short-term disruption to some sectors or firms, countries largely make their own medium-term fortunes. That was true of us in the past, is today, and will be still in the future.  Policymakers here have been very unwise in continuing to encourage stronger trade links with China, even as they recognise the sorts of threats and disuptions China has proved capable of in other countries, and the more aggressive approach China is taking internationally across a range of fronts.  No serious and free country, none with any integrity whatever, ever prioritises (for any length of time) the interests of a few of its export firms, over the values of its people.  In the medium to longer-term values and interests amount to the same thing.

And it is not as if other countries in years past have not faced these sorts of tensions.  Denmark and the Netherlands had Germany as a major trading partner in the late 1930s, but they didn’t simply roll over and invite Hitler in.

Perhaps more importantly, and a reason why I think the US vs China framing is a distraction, is that whatever the US is or isn’t doing, we face the interference activities of the PRC in our own country.  Simply taking a stand there –  clearing Jian Yang and Raymond Huo out of Parliament, standing up for Anne-Marie Brady and for those ethnic Chinese New Zealanders facing regime pressure and threats, being more open and serious about the cyber-security threats, shunning people with recognised United Front connections (not honouring Yikun Zhang), protecting and promoting an independent Chinese language media here.  These are the sorts of things a minimally decent government would be doing, even if it said not a word about abuses in China or China’s near-abroad.  But not our government: faced with the choice not between China and the US, but between decency on the one hand, and deals and donations on the other, they seem to side with the deals and donations.  And the National Party provides them cover to do so.

On the topic of cyber-security, the Australian papers this week had several stories about PRC cyber-attacks on Australia.   There were two classes of attack in the stories I saw –  one about a resurgence in direct cyber attacks on Australian companies, in violation of some deal Malcolm Turnbull and the PRC had done a couple of years ago.    The other built on this academic article, in which the authors report the results of a study showing how the PRC appeared to get round a similar deal between Barack Obama and the PRC in 2015, by using China Telecom to route selected international internet traffic through China –  where presumably the PRC could spy on it, copy it or whatever –  rather than following the standard (shortest distance) protocols. The authors provided evidence to the Australian media strongly suggesting a specific such attack involving Australia last year.

But here is the thing that interested me.  In the newspaper articles I read we saw senior government officials confirming “a constant, significant effort to steal our intellectual property”, and even a senior Cabinet minister expressing concern about the number and severity of such attacks.

By contrast, what do we get here, but blather from the Prime Minister about needing to keep an eye on cyber-security, and otherwise silence –  “national security” don’t you know, providing cover for anything ministers and officials don’t want to talk about.  I did see a Radio New Zealand article quoting a PWC person saying there was no evidence New Zealand had been caught up in the first class of attacks described above.  It would be nice to hear it from official sources, but even if it is true in the specific case, how likely is that the PRC approach to New Zealand is very much different than that to Australia –  take what they want, and can get at?   Occasionally, I make glib remarks about how perhaps New Zealand has nothing much advanced to steal, and when I do I get firmly put in my place, with links to various advanced university departments (for example).  Surely we might reasonably expect the Prime Minister or the Minister for the Intelligence Services to front up on this sort of issue, at least to give us reason to believe (confidently) that they aren’t living in some fool’s paradise, convinced they are uniquely immune from the efforts of the Ministry for State Security?

And finally,  I was sent yesterday a copy of a statement by a group called the New Zealand Values Alliance, which appears to be a group of ethnic Chinese people living in New Zealand who are concerned about the intrusion of the PRC into New Zealand.  (There is a similar, more prominent group in Australia, called the Australian Values Alliance.)   This was the statement

We, New Zealand Values Alliance(NZVA) , hereby issue the following declaration:

It is learned from media that the prominent China researcher Anne-Marie Brady has encountered on-going harassment which has recently widened to include a vehicle  sabotage of her private car, which “absolutely posed a risk to her life”.  We hereby express our concern and condemnation on the matter.

To our knowledge, similar harassments and threats sometimes happen to people who criticize CCP. Such harassments include text intimidation, tracking, stalking and a variety of harassment activities which has now escalated to sabotaging private vehicle to seriously threaten life safety.

We are very concerned about the personal safety of people who publicly criticize CCP. We earnestly appeal to the NZ government and police to pay close attention to the safety of those human rights activists and researchers against dictatorships and give more attention  to the rampant activities related to foreign political infiltration. Meanwhile an investigation into foreign interference should be started ASAP   and relevant laws be established for deterrence and punishment against related activities from agents with foreign interests.

Hard to disagree (the Values Alliance had an earlier statement about Jian Yang, reported here).  The organiser, a relatively recent migrant from China, Freeman Yu, has noted on his Twitter feed his own experience of what he talks of

Does this sort of thing bother our politicians at all?

You might have hoped that New Zealand political leaders would be speaking out  (let alone New Zealand academics working on China and/or international relations).  Former Prime Ministers, former Opposition leaders, former foreign ministers?  People like Don McKinnon, Jenny Shipley, Don Brash, Murray McCully, Helen Clark, Phil Goff, Geoffrey Palmer, Jim McLay, Jim Bolger or Mike Moore.  But, it appears, not a word from any of them, let alone Bill English or John Key.   A sad commentary, that rather tends to make the point Anne-Marie Brady was making in her paper about how too many of our elites have been persuaded that keeping quiet and going along is somehow in the best interests of New Zealand.  In fact, it largely just serves Beijing’s interests.

Not adequately reforming the Reserve Bank

Lest Reserve Bank readers think I’ve lost interest in them, it is time for an update on the Reserve Bank of New Zealand (Monetary Policy) Amendment Bill, currently before Parliament.

The government introduced this not-very-good piece of legislation some months ago, carrying out their election pledge to reform the Bank, but in such a minimalistic way that it is likely to make next to no difference.  Being seen to have done something, anything, seemed to be more important than properly overhauling our monetary policy agency, to be fit for purpose in an open and transparent democracy.   As a well-informed commenter here put it a few months ago

It appears to me that the Government has largely made its mind up about what it wants; the illusion of change rather than anything fundamental.

It’s a pity because as you say, this is probably a once in a generation opportunity to throughly review the legislation, to learn from best practice abroad, and bring into being a stronger Reserve Bank better aligned with public benefit.

What was proposed seemed only marginally better than the status quo, and even then on a couple of dimensions only.  The reforms proposed simply didn’t address the evident weaknesses in the way the Bank has been run, including:

  • the dominance of a single unelected official,
  • the structural weaknesses that made it unlikely the Board would ever really hold the Governor to account (despite being designed entirely to do so), and
  • the lack of transparency of the institution.

Some of these issues can be seen as “cultural”, but legislation supports, and underpins, the sort of culture we can expect to see in powerful public institutions.

The bill was sent to the Finance and Expenditure Committee for consideration.  I made a submission, which I wrote about here.    Although I made some specific suggestions in other areas, including a better formulation of the proposed employment objective, and on how the Board works, my main concern was about the proposed new Monetary Policy Committee where I noted

The Monetary Policy Committee provisions of this bill are unambitious and disappointing, especially when set against the expressed aspiration of a once in a generation update to the legislation to reflect the way in which the world (including central banking) has changed since 1989.  Among the features of our age are a much degree of openness, a greater recognition of uncertainty and of the benefit of an open contest of ideas, and less willingness to build institutions based on a deference.  This bill reflects almost none of that.

In considering the bill, I would urge the Committee to look closely at the experiences of open central banks in the United Kingdom, the United States, and Sweden (in particular).  All are more open than anything envisaged in this legislation, and in the way the Minister has described his intentions for how the proposed New Zealand system should work.  Each of those central banks has had strong individuals willing and able to challenge consensus views, and to debate monetary policy issues thoughtfully and openly.  They do so in part by avoiding designing a system where the Governor (chief executive) has a too-dominant formal role.  The current bill does not really address that glaring weakness in the New Zealand system.

I concluded my post on the issue this way

This shouldn’t be a particularly partisan issue.  Everyone should want a better, more resilient, better-governed institution handling monetary policy, and for the regime itself to command confidence across the political spectrum.  I hope the select committee deliberations do finally prompt the Minister of Finance and the government to reconsider, to give up their small ambitions, and to embrace the idea of more far-reaching change and improvement in the way monetary policy is governed, contested, and accounted for.

I wasn’t optimistic.    The chair and deputy chair of the committee are both parliamentary under-secretaries; the chair the under-secretary to the Minister of Finance.  It is hardly arms-length parliamentary scrutiny.  And, from their public comments and a couple of reports I saw of committee sessions, the National Party members seemed more interested in playing partisan politics –  with silly arguments that adopting a (marginally) more internationally comparable model was putting at risk New Zealand macroeconomic stability.

And, having expected little, I was not thus unduly surprised when the Committee reported back a couple of weeks ago.   It was a pretty short report, falling along partisan lines (ACT even called the bill “an invitation to corruption”), and recommending hardly any changes to the bill.    The one (welcome) change of significance relates to a new document provided for under this legislation, the charter.

The charter would impose additional requirements on the MPC relating to transparency, accountability, and decision-making procedures. The requirements in the charter would go beyond what is provided for in legislation, allowing for flexibility as best practice evolves. The charter would be set by agreement between the Minister and the MPC, while the remit [effectively the policy target itself] would be set by the Minister following a specified process. Whenever the Minister issued a new remit, the Minister and the MPC would need to consider issuing a replacement charter. We agree that there is a legitimate public interest in the MPC’s decision-making procedures (for instance, vote attribution), and that changes to the charter could potentially be quite significant. To increase transparency, we recommend requiring public consultation on key issues relating to a replacement charter alongside the consultation on the remit required by clause 37.

That is a small step forward, at least in principle.    However, since the first of these charters is to be set by the Minister and the Governor (rather than the MPC), and the initial provisions are likely to be quite influential in how the MPC operates for some considerable time, there should be a commitment by the Minister to apply the same process of public consultation to the initial charter as will be required for subsequent replacements.   I can’t see any sign of such a commitment, or legislative requirement, at present.

One of the things the Reserve Bank management has consistently opposed is the idea that members of the Monetary Policy Committee should be able to openly articulate their views on issues relating to monetary policy (whether in speeches, interviews, or in comprehensive published minutes.  The Minister of Finance appears to have allowed himself to be persuaded by those arguments –  arguments which serve the institutional self-interest of public sector managers, rather than the public interest, which is advanced by robust debate, inside and outside the institution, on issues characterised by huge uncertainty, and where bureaucrats have no monopoly on wisdom.  (And, of course, the Governor himself shows no sign of any sort of personal self-restraint, apparently regarding it as appropriate for him to talk on all manner of things, whether or not the Bank has responsibility for them –  just no serious speeches on his core areas of responsibility.)   There are good, and highly-regarded, central banks abroad that do things quite differently, much more openly –  without the scary bogeyman the Reserve Bank invokes (“adds to uncertainty, lacks clarity, creates confusion”) coming to pass.

The United States is one example of such a system.  And as a specific example of how a more open system works, the Wall St Journal had a long interview with Patrick Harker, president of the Philadelphia Fed, one of the regional presidents who rotates through voting positions on the FOMC.  In fact, when I went looking for the transcript again I found they’d had three such interviews in just the last few months.


Of course, the US is a big country with much deeper journalistic resources, but the key point is that markets didn’t shake, confidence in the Fed wasn’t eroded, because citizens (and markets) were able to see and hear what these influential policymakers thought about important issues.   And it wasn’t shocking that not everyone agreed on everything. There is no reason to think it would be different in New Zealand, if our minister hadn’t allowed the bureaucrats to wrap him round their little finger.  It was, after all, supposed to be a government committed to openness and transparency.

As I’ve noted here previously, the very narrow scope of the proposed New Zealand Monetary Policy Committee, the legislated dominance of the Governor, the lack of resources for MPC members, and the tight constraints on their ability to do or say much is likely to make it hard to attract good people into those roles, and won’t encourage those who do get appointed to take the position very seriously.   Of course, that will probably suit the government and the Governor

And so it will be interesting to see what people they finally manage to attract, both in the first round, and a few years later when the novelty has worn off.  A smart (but deferential) semi-retired person would probably fit the bill quite well, but since the government and the Bank have been clear they don’t want people who might rock the boat, and they apparently aren’t keen on economists, and since even the externals together will be a perpetual minority, you wonder why someone good would be interested.   Pocket money probably shouldn’t be the motivation, at least if the government were serious about putting in place a strong, well-functioning, MPC.  Of course, as it is, there is no evidence of such intent.

The (minority) external MPC positions were advertised some time ago.   As I wrote about a few weeks ago, it appeared that the recruitment process had run into trouble.   I’d lodged OIA requests for a breakdown of applicants and of those taken to the next stage of the process, but when the Bank responded they indicated that no one had been taken to the next stage of the process at all.   I hadn’t even asked about a short-list, just about the group who hadn’t immediately been ruled out as totally unsuitable.

The other day I had a first stage substantive response, providing a breakdown of the people who had lodged applications for the external MPC positions.

There were 75 candidates in total, including candidates identified through a search process, for the roles of external members of the Monetary Policy Committee being established under the Reserve Bank of New Zealand (Monetary Policy) Amendment Bill.

Of these 75 candidates: 23 percent (17 candidates) are women, 92 percent (69 candidates) are currently resident in New Zealand, and 8 percent (6 candidates) are currently employed at a university.

It was a surprisingly large number of people (although I’d asked about applicants, and it isn’t clear from the response whether all the people “identified through a search process” were necessarily actually wanting to be considered).

But it also makes it all the more odd that the process is moving so slowly.  There was a Reserve Bank Board meeting last week (the Board is responsible for the selection of MPC members) and yet the email I had earlier this week says they still don’t have a short-list.

Perhaps in the end they will manage a barely-credible set of appointees, but even if they manage it the first time (perhaps the Minister twists a few arms, and hands the nominations to the Board to send back to him), it is going to be hard to sustain even that as time goes on, so inadequate is the model the Minister has chosen.

It isn’t democratic (even questionable Deputy Commissioners of Police are directly appointed by elected people), it isn’t broad-ranging (the MPC has a deliberately very narrow mandate), it isn’t conducive to a serious contest of ideas (being too dominated by a single unelected person), it isn’t very accountable (formally or otherwise) and it isn’t very open and transparent.  It simply isn’t very good legislation.  And that is a shame, a lost opportunity.