Deferring to Beijing

The Prime Minister is off to Beijing, to spend April Fools’ Day chatting with Xi Jinping and Li Keqiang, leaders of the brutal Chinese Communist Party regime.

It has seemed as if the carrot and the stick have both been at work in the PRC’s effort to keep the New Zealand government in line.   We had the failure of the Prime Minister to secure a visit Beijing last year.  Perhaps there really were some “scheduling difficulties” but no one really believes that was the whole story.  Only a few weeks ago the impeccably well-connected former New Zealand Ambassador to Beijing, John McKinnon, was telling us that a visit would happen but “not necessarily soon”.   And then suddenly 15 March happened, and suddenly a one day visit is scheduled at short notice.

In the meantime, we’d had the need to cancel the grand opening of the New Zealand-China Year of Tourism, at the PRC’s behest.  No one really supposes it was just “scheduling difficulties” –  even in a modestly sized bureaucracy if the key person does happen to be busy, you find someone else to turn up to significant events that matter to you and your friends.  But the bureaucratic and political “elites” scurried around, made clear their obeisance, and had the PM make coordinated statements with the CCP’s representative in New Zealand, and before long the opening of the year of tourism was back on again.  Lucky us, we were told, we were even getting a PRC government minister.

Who knows quite what really was going on.  Neither government is going to give a straight account.  But no one really doubts that the PRC was more than a little miffed at New Zealand and its government (the National Opposition was meanwhile doing its very best to demonstrate its cowed and subservient approach –  from Simon Bridges and Peter Goodfellow on down through Jian Yang).  Perhaps the New Zealand government hadn’t actually said or done much –  not a word of concern had ever been expressed by the Prime Minister –  but the PRC had previously had New Zealand pretty much where it wanted our government, and it wouldn’t do to let them back away from that silent subservience (on anything that concerns Beijing).   And their approach –  pretty mild in the scheme of things (no apparent deliberate hold-ups of coal deliveries, canola seed orders or whatever) –  seems to have been quite enough to scare the locals and bring the government more or less back into line for now.   The Huawei situation still hasn’t gone Beijing’s way – perhaps it eventually will, perhaps it won’t –  but probably even Beijing recognised that a heavy-handed approach over that specific issue might well enrage the natives and spark a political backlash (against them) at a time when they had other battles to fight (notably Canada).  And they’ve already demonstrated that even the mildest, deniable, expressions of unease can get official Wellington not just jumping, back asking how high.  Of one of the most odious and evil regimes on the planet (which has little substantial clout over New Zealand, except perhaps among a few businesses that have chosen to over-expose themselves to supping with the devil).  Much relief at the New Zealand China Council, in MFAT, among our universities…..and, no doubt, in Beijing.

And so the Prime Minister will head off to Beijing for lunch, tea, or whatever with Xi Jinping.   If anything of substance is on the agenda –  and the main purpose of the visit appears to be being seen in Beijing, so quite possibly nothing will –  we can confident that it won’t be things like:

  • Xinjiang,
  • the South China Sea,
  • the East China Sea,
  • Taiwan (PRC threats to),
  • the abduction, and continued detention, of two Canadians,
  • attempts to use economic coercion on Australia and Canada,
  • state-sponsored thefts of intellectual property,
  • the imprisonment, torture and intimidation of Christians,
  • the organ transplant business (highly dubious acquisition of organs),
  • other domestic repression (such as this, just this week).

And should there be any mention of Xinjiang (which seems unlikely, since she’ll say nothing critical here), it is perhaps more likely to be along the lines of “so tell me about those vocational training camps….”.

Most likely it will be an act of supplication on her part (“please Mr Xi, could we please have some more FTA…….please”), and a beneficient smile from the CCP rulers of Beijing. bestowing some sort of favour on one coming so compliantly.  More of this –  never ever saying anything that might upset Beijing – and perhaps we can be helpful again.

Why would an, apparently decent, person do this?  Does she (and one could ask the same of Simon Bridges) represent no values, no morality?  Is there any sense of national self-respect?

Which brings us nicely to how these parties operate at home.  A few weeks ago there was one day flurry of excitement when Labour MP Raymond Huo got his Labour colleagues on the Justice select committee to agree to block a request from Anne-Marie Brady to appear before the committee as part of its inquiry into possible foreign interference in our election.  This bit of the inquiry had been requested by the government after public submissions on the wider review of the 2017 election had already closed.    National’s Nick Smith, to his credit, took this public.  The Prime Minister’s office initially defended the effort to bar Brady, claiming that government departments could tell the committee all they needed to know (isn’t that a typical minister-captured-by-officials sort of line?).  And then the resistance collapsed and word came that Huo had been told to rethink.

And then the waters closed over the story and no more was heard (even before the 15 March murders).  None of our media seemed remotely interested in pursuing the story –  asking those other Labour MPs on the committee, for example, about what they’d been thinking when they blocked one of New Zealand’s experts on such matters (at least as regards the PRC), or asking the Prime Minister what her office had been doing backing Huo.  Let alone asking pointed questions of Huo, and insisting on answers.  For example, about he can possibly chair the committee, or have even involved himself in the specific decision on Brady, when he himself is the subject of serious concerns identified in Brady’s Magic Weapons paper (reported/excerpted in this post).  They might even have asked the National MPs –  who had done the decent thing in taking the issue public, and who perhaps even warned Huo that his stance would backfire –  why they still seem unbothered about Huo serving as chair on this particular issue.  How come they didn’t insist –  and aren’t now insisting – that he recuse himself?  It would be a quite standard application of any decent conflict of interest policy (even Shane Jones had declared his conflict of interest).

But, as it happens, the Huo-chaired committee has reopened submissions, from anyone. You have until 26 April to make a submission.  This is, quite clearly, what should have happened in the first place, once Andrew Little belatedly asked the committee to focus on foreign interference issues.  They’ve even approached Professor Brady and invited her to submit, and she says she will do so.

But it has hardly been done with good grace by the government members (all Labour in this case.  Here is Raymond Huo in the Stuff article earlier in the week on the reopening.

Huo said reopening submissions and updating the terms of reference had always been the preferred option of the committee.

“I should emphasise, Labour members of the committee did not ‘block’ Prof Brady or anyone from making a submission as the due process is to reopen the submission session, which would allow and encourage anyone who’s interested to make a submission,” he said.

The perception that Labour members, chaired by a Chinese-born MP, blocked her submission was so entrenched that nobody seemed to care about the due process, he said.

How does he even say this stuff with a straight face?  He was chair of the committee.  He was quite at liberty all along to have moved a motion to reopen submissions.  Instead, not ony did he not do that but he persuaded his Labour colleagues –  who should have known better – to go along with blocking the efforts of National members to allow even Professor Brady to submit. And all the time with a clear conflict of interest which it appears that, even now, he doesn’t acknowledge.  It would have been much better for him, at this late date, if he’d just kept quiet –  if he couldn’t bring himself to apologise –  than to open his mouth and further condemn himself.

Then again, it is not as if National MPs are calling on him out on it.

It is also worth bearing in mind that the reopened inquiry is (presumably deliberately) conveniently narrow in focus.  This is the notice from the Committee.

huo inquiry

I suppose people can submit on anything relevant to that broader question of “how New Zealand can protect its democracy from inappropriate foreign interference” (is there “appropriate” foreign interference –  perhaps the committee could offer its thoughts on that point in their eventual report?), but there is pretty clear steer on what members (chaired by Huo) actually want to hear about.

I’m no more keen than the next person on private emails of candidates or political parties being hacked, but to be honest I don’t see it as more or less of a concern than foreign powers hacking anyone New Zealander’s emails.  Official New Zealand government websites etc (as the PRC hack of the US government personnel database) might be more concerning.

As for the second item, I guess I don’t use Facebook, and we’ve all heard of these Russian bot-farms, but it looks a lot like a second-order issue in a New Zealand context (where Russian interests seem slight).  I’ve not heard any credible suggestion that the 2017 election here was influenced by such activity.

And, as for the third item, at present the law allows foreign entities to make (small) direct donations to political parties, and there are (apparently) few/no restrictions on such donations to local election campaigns.    There probably is a real issue there –  and it is one on which the National Party seems to have had a belated conversion –  but it is almost certainly less of an issue than legal donations made by New Zealand citizens and residents (individuals and companies) where there is reason to be concerned that even the ostensible donor has associations with, and interests to pursue with, a foreign power whose interests are not routinely aligned with those of New Zealanders.  But the committee shows no sign of being interested in pursuing that avenue.

I have had an exchange with someone encouraging me to submit, not as any sort of expert in the specific issues, but as a concerned New Zealander. I probably won’t do so, for two reasons.

The first involves the framing of the inquiry.  It is set up in a way that suggests that if there is an issue, around protecting our democracy (not just specific election results) from foreign interference, then (a) the responsibility rests abroad (bad foreign actors pursuing their interests, and innocent put-upon New Zealanders, and (b) that the answers are likely to lie with new laws or new powers for government agencies etc.

Evil regimes –  notably the CCP-controlled regime in Beijing –  will do what they will do.   But in my reading of the situation, very little about what is problematic in New Zealand is down to Beijing, it is about the choices –  quite explicit, and frequently renewed –  made by New Zealand MPs, ministers, and political parties.  Thus, as I’ve noted here before, I don’t (broadly) disagree with many of the policy recommendations Anne-Marie Brady has put forward.  And I do think the foreign donations law  – and donations law generally –  should be explicitly tightened so that only people enrolled to vote in New Zealand can donate (thus no corporate donations), and all donations above, say, $200 will be disclosed in near real-time.  Perhaps –  but I’m not convinced –  there is a place for some sort of register of people working for foreign interests.

But none of this gets near the real issue.  Things like:

  • party presidents of both main parties tripping off to Beijing to sing the praises of the regime and its leader (in public),
  • both main parties having MPs with strong United Front affiliations and widely seen as close to the PRC Embassy,
  • the way governments of both main parties stay almost totally silent on gross human rights abuses, and external threats, committed or posed by the PRC,
  • a National MP who formerly worked for the PRC military intelligence system, is/was a Communist Party member, and who acknowledges –  openly, to the Herald –  misrepresenting his past on his immigration/citizenship forms (and who is very much in the good graces of the PRC Embassy and its affiliate organisations in New Zealand),
  • the fact that no government agency has done anything about those acknowledged misrepresentations,
  • the fact that all political parties are now totally quiet on Jian Yang (none will call out his position as unacceptable), and that no political party seems bother about Huo (not even about him chairing the committee on foreign interference),
  • the fact that our two main parties got together to bestow a royal honour on someone with very strong PRC/CCP affiliations for what amounts to services to Beijing,
  • and the fact that the main parties (more so National in the past, although that may be changing now that Labour is in government) is totally unbothered about raising large amounts of donations from parts of the ethnic Chinese community that are closely aligned with PRC interests.

Decent parties wouldn’t do any of that.  New Zealand political parties do.  Beijing doesn’t make them make those choices.  None of those actions appears to be against the law (well, misrepresentation on the forms may well have been, but my focus is on the response of government and political parties).   Each of those things could be fixed now.  Today. No law changes needed, no inquiries needed, but the word would go out from party leaders –  who’d suddenly had an outbreak of decency –  that this sort of stuff just isn’t on.    But nothing happens.

Instead, we have a half-hearted inquiry, run by the very people – National and Labour Party MPs – who are the source of the problem. Perhaps individually they are decent people, but they are active participants in a corrupted system.  Probably both sides have an interest in appearing a bit open –  Labour is probably keen on playing the (US Democratic Party) card about social media or email hacking, and National seems willing to promote essentially cosmetic change around foreign donations.  But they show no sign of wanting to confront the real issue: themselves, and their party leaders (Ardern, Bridges, Haworth, Goodfellow).  The problem isn’t primarily Beijing – evil states will pursue their interests in whatever way they can –  but them.

And so anyone who submits to this inquiry, let alone appears, risks giving the inquiry a degree of legitimacy it doesn’t deserve.  It is a bit like the choices parties in troubled semi-democracies have to make about whether to participate or not to participate is the least-worst choice.  I won’t criticise anyone for appearing –  and someone of Professor Brady’s stature will likely attract considerable coverage, at “the hearing the chairman tried to ban” – but it isn’t choice people should make without careful thought.

After all, in addition to the bigger picture issues around the two main parties’ complicity (and it isn’t obvious the others are any better, just less important), the inquiry is still being chaired by Raymond Huo, the man with strong United Front connections, the man who adapted one of Xi Jinping’s quotes as the Labour slogan among the ethnic Chinese community, a man who (in a quote from Brady’s paper) apparently said

In 2009, at a meeting organized by the Peaceful Reunification of China Association of New Zealand to celebrate Tibetan Serf Liberation Day, Huo said that as a “person from China” (中国人) he would promote China’s Tibet policies to the New Zealand Parliament.

You really couldn’t make it up.    But no wonder Xi Jinping is happy to host the Prime Minister.  She is the leader of Huo’s party, she controls select committee apppointments and chairmanships.  She, via Andrew Little, controlled the narrow scope of the inquiry.

And all for what?  Deals and flow of donations.  Most people would thought she was better than that.

For anyone who wants another angle  –  to Brady’s – on Huo, here is an article (scroll down) from 2017 by the commentator who goes by the pseudonym of Jichang Lulu.

It should be sufficiently clear that Huo is another United Frontling. There’s nothing surprising about his incorporation of Xi’s personality cult into electoral politics, or his silence regarding the revelations about Yang Jian’s background. Regardless of his views on non-China related issues (which do indeed differ from the National Party’s), Huo isn’t Yang’s opponent as far as the CCP agenda is concerned. For united-front purposes, Huo is simply an egg in another basket.

By focusing on two key individuals from both sides of New Zealand politics, I have attempted to show how successful united-front tactics have been in ensuring permanent control of the Chinese community politics by hedging against democratic power shifts. This is only one of its successes. I refer you to Brady’s work for an overview of the extent of its penetration in politics beyond the Chinese diaspora, business and media. Its pervasive character helps explain why the reaction to the Yang case has been so muted, suggesting a ‘code of silence’, with the most senior figures in the major parties essentially glossing over the problem.

And, more generally, he ends this way

The Brady report isn’t about finding spies. Reactions seem to be addressing a straw-man. Raymond Huo, the Xi-quoter, denied “insinuations against his character”, but it’s not clear that any have been made. If anything, Huo is consistent in his support for CCP policies and increased PRC influence in New Zealand. This is not a spy thriller, but a story about the institutions of a democratic country being coopted to serve the agenda of a much larger state ruled by an authoritarian regime. Most of the people involved may very well have acted legally at all times, and their support for certain policies isn’t necessarily an issue of moral ‘character’. The issue is whether the actions of many members of the NZ elite are a risk for the country’s security, independence and democratic system. The latter has obviously been damaged. …..

The intersection of each of ‘National’ and ‘Labour’ with ‘Chinese’ is firmly under the aegis of the United Front. Perfunctory reactions from top politicians are a sign that UF successes aren’t limited to that community. Such control over an advanced democracy is something the united-front pioneers in the 1920s and 1930s could hardly have predicted.

 

 

Updating the Governor’s OCR view

In the wake of the Reserve Bank’s Monetary Policy Statement in February I wrote

As for the overall tone of the monetary policy conclusions to the statement, count me sceptical.  …for the Governor to suggest that the risks now are really even balanced, even at some relatively near-term horizon, seems to suggest he is falling into the same trap that beguiled the Bank for much of the last decade; the belief that somewhere, just around the corner, inflation pressures are finally going to build sufficiently that they will need to raise the OCR. We’ve come through a cyclical recovery, the reconstruction after a series of highly-destructive earthquakes, strong terms of trade, and a huge unexpected population surge, and none of it has been enough to really support higher interest rates. The OCR now is lower than it was at the end of the last recession, and still core inflation struggles to get anywhere 2 per cent. There is no lift in imported inflation, no significant new surges in domestic demand in view, and as the Bank notes business investment is pretty subdued. Instead actual GDP growth has been easing, population growth is easing, employment growth is easing, confidence is pretty subdued, the heat in the housing market (for now at least) is easing. Oh, and several of the major components of the world economy – China and the euro-area – are weakening, and the Australian economy (important to New Zealand through a host of channels) also appears to be easing, centred in one of the most cyclically-variable parts of the economy, construction. …

From a starting point with inflation still below target midpoint after all these years, it would seem much more reasonable to suppose that if there is an OCR adjustment in the next year or so, it is (much) more likely to be a cut than an increase.

The Governor appears now to have come round to that view.   If his re-think is overdue, it is welcome nonetheless.

I don’t take issue with much about his statement. but two lines did catch my eye.  The first was this one (emphasis added)

This weaker [global] outlook has prompted central banks to ease their expected monetary policy stances, placing upward pressure on the New Zealand dollar.

Perhaps that is correct –  although in the data the effect looks small –  but it is quite a dangerous line to walk down.  Either an easier stance of policy was warranted here on the New Zealand fundamemtals (including our exposure to the world economy) or it wasn’t (it was).   The exchange rate should be largely irrelevant to that choice, and reintroducing it like this risks some sort of MCI mentality taking hold.  He’ll remember those bad old days.

And the second, of course, was this claim

As capacity pressures build, consumer price inflation is expected to rise to around the mid-point of our target range at 2 percent.

To which one can really only say two things, a) yeah right, and b) isn’t this the same story the Bank has been telling for almost the entire decade?  Of course, as the former chief economist used to point out, in one sense they had to believe it –  if it wasn’t something they could say hand on heart then they should have adjusted policy already.  But if they really believe capacity pressures are going to intensify from here, they must now be in a pretty small minority.

Even though the data suggest that the Bank should have an easing bias in place (and perhaps should already have had a lower OCR in place), I was a little surprised that having walked past the opportunity in February, the Governor chose to act now.  After all, this is the last OCR decision that he will take as the Bank’s sole decisionmaker on monetary policy.  On Monday, the new statutory Monetary Policy Committee will take over responsibility.  Even though I’ve been consistently running the line that the Governor will, in effect, control all the appointments to the MPC and will effectively control the overall votes, I’d assumed he’d want to observe the proprieties and at least pretend that the new voters might make a difference –  might see things differently from him.

On paper, the Governor’s statement that

the more likely direction of our next OCR move is down.

doesn’t mean much. I’m sure he made this decision with two of the likely new MPC members (Deputy Governor Bascand and the very new Assistant Governor Hawkesby), but the new MPC will have four other members, most probably the new (as yet unannounced) chief economist, and three externals.  Most likely the externals (in particular) won’t want to rock the boat –  they’ll have been selected partly for that quality – but they might quite reasonably see the data differently than the Governor.  That could get a little awkward.   Perhaps the Governor ran risks whichever tack he took, but he could easily have explicitly noted the regime change and could then have eschewed any sort of bias statement (leaving the rest of the statement pretty much as it was).

(Presumably the Minister of Finance will finally announce the MPC members today or Friday.  When he does, I would be delighted to revise my view that they’ll have been selected for their inoffensiveness, if such a revision is warranted.  But I’m not holding my breath.)

And what of inflation?   As readers will know I have been tantalised by the implied inflation expectations derived from the indexed and nominal government bond markets.  Here is the latest update of that chart, the last observation being yesterday’s.

breakevens mar 19

Implied inflation expectations (for the average over the next 10 years) –  implied by people with money at stake, or the opportunity to stake it to clear out anomalies – have been nowhere near target for almost five years now.  In the last few months they have been dropping away again and now are barely 1 per cent.   The Reserve Bank never references this series, but they really should, even if only to make the case for why they think there is no meaningful information in it.

Perhaps you are thinking this is just a global phenomenon.  After all, nominal bond yields have been falling pretty much everywhere.  But here are the 10 year inflation breakevens for the US

us breakevens mar 19

Not only have the breakevens rebounded (risen) in recent weeks, but they remain near the Fed’s target inflation rate (also 2 per cent).

With core inflation still below target after all these years, market-based expectations measures low and weakening, with increasing unease about the world economy (including the economies of our two largest trading partners), with most of forces that impelled the (productivity-less) growth in recent years having exhausted themselves, and with weak business survey measures, the case for a lower OCR already looks pretty strong.

What, realistically, would be the worst that could happen if the Bank had cut and the cut turned out to be unnecessary?  Unemployment would be a bit lower, even if temporarily, and core inflation might rise to the height of, say,  2,2 or even 2.4 per cent.  Perhaps not desirable outcomes in their own right –  the focus is supposed to be 2 per cent — but after all these years undershooting the target hardly likely to destabilise public or market confidence in the Bank’s conduct of monetary policy and delivery of medium-term price stability.

UPDATE:  The Minister of Finance has announced the appointments to the MPC this morning.  My initial reaction is that there is no need to revise my judgement about the structure and likely dynamics of the MPC.  It is quite disconcerting that one (internal) member has been appointed for only a one year term, which will place that person even more than usually under the heavy influence of the Governor.  The Minister would have been better to have started the committee with 3 internals and 2 externals and made the final external appointment when the new permanent Chief Economist is finally appointed.