Pandering to the PRC

The capital’s daily newspaper the Dominion-Post had an editorial that must have warmed hearts in the Beehive and MFAT.   “Fawning” would not be too strong a word for it.

The handshakes appeared warm, the smiles generous. Prime Minister Jacinda Ardern described the talks as constructive.  China’s President Xi Jinping said New Zealand was a “sincere friend and co-operative partner”, one of his country’s closest relationships with the developed West.

Job done. Trust restored. Many billions of dollars in trade secured

Trust?  In a regime responsible for so much evil at home and intimidation abroad (wasn’t it only this week PRC fighters were intimidating free and democratic Taiwan)?  Surely not even the PM and MFAT take that line seriously?  But I guess “trust” was more about what the CCP rulers were supposed to feel towards the New Zealand government, the Prime Minister having abased herself, and joined the principle-less ranks of New Zealand politicians dealing with the PRC and eager for some deals and donations.

Then there was a little lesson to dear readers not to expect governments to speak up on the abuses of the PRC.  There is “a great deal of money at stake” don’t you know, and it isn’t the done thing to speak up.  Know your place peasants, we act for the business community.

The newspaper channels the convenient, but false, line about how much power the PRC wields over New Zealand, oblivious to the fact that countries make their own prosperity. Individual firms who over-expose themselves to thugs shouldn’t expect backing from the rest of the community, let alone from our government.  Unless, of course, our government –  once known for rhetoric about “kindness” – thinks the thugs are just fine.

And then the fawning editorial departs completely from reality, trotting out the weird line touted by David Parker a few months back that somehow we could be a conduit between “two competing superpowers” as if (a) either side would be interested, and (b) the United States and the PRC were really much the same, moral equivalents.

But it was the NZME stable of media that was really all in with Beijing today.  In no particular order I noted these pieces:

First, John Key was back, talking about how “critical” the PRC relationship was and that nothing should be allowed to get in the way.    The government is told to mind its words, and there was the bizarre assertion that

“China is the only country effectively where have unfettered access to all parts…If we treat that relationship properly we will continue to prosper off the back of that.”

Setting aside the more general claimed that New Zealand “prospers” –  when it actually languishes and has closed no productivity gaps in the last decade, or two, or three –  ask services exporters about “unfettered access to the PRC” or potential foreign investors about “technology transfers”.

He goes on

The Former Prime Minister said people don’t need to be concerned by China’s involvement in New Zealand.

I guess he would say that wouldn’t he? He works for companies trying to do business in China, he worked closely with former PLA intelligence official, Jian Yang, in his caucus, and seemed totally content with the fawning adulation his party president Peter Goodfellow has given to  Xi Jinping and the regime.   And all those party donations must have come very much in handy.

The article ends

He said our relationship with China needs to be treated really carefully.

Even John Key seems to know this is a subservient relationship he champions, about deals and donations, not about any natural friendship or commonality of values.  Values are simply of no account, it seems, in a Key view of the PRC.

And then there was the Wednesday column from NZME’s columnist Fran O’Sullivan, who travelled to Beijing, courtesy of Air New Zealand –  a big corporate very keen to keep on good terms with Beijing.  That travel support was disclosed, but not the fact that O’Sullivan –  along with Jian Yang and Raymond Huo and others –  sits on the Advisory Board of the (largely government-funded) propaganda outfit the New Zealand China Council, or that she is head of something called the China Business Summit.   It wasn’t particularly fawning, but it was framed around conveying PRC messages, and a sense that New Zealand governments owed something to Beijing.  Certainly no sense of Beijing as something of a rogue actor, at home and abroad.  More gushy was O’Sullivan’s piece in the big “China Business” supplement to today’s paper.   It isn’t so much that O’Sullivan’s views are necessarily wrong –  appeasement will always have its defenders, in 1938 and now – as the total absence of any alternative perspective in the nation’s largest paper.

The Herald was back to its fawning, if patronising to the PM, self in its editorial on the Prime Minister’s visit to Beijing.  The online title “PM makes a good start on China repair” casts her as some naughty schoolgirl who has now come to herself and made amends, as if there was ever anything to make amends for.   The Herald also did not like, one bit, the idea that the government might have dared to think that the PRC was not always a force for good, whether in the Pacific or the wider world.  As if it was channelling the People’s Daily –  then again, Beijing is reported to substantially influence the Herald’s Chinese language offshoot –  we read

In Beijing on Monday President Xi Jinping told the Prime Minister, “Our two sides must trust each other”. That is a message we must take to heart. Trust does not mean closing our eyes to possible risks but it means we should look for evidence of a threat rather than assume one is there.

No evidence of the PRC being an untrustworthy partner?  No, of course not.  Forget, shall we, small things like the GCSB joining other countries in calling out PRC state-sponsored intellectual property theft?  Or Beijing’s actions in pressuring Chinese language media here and in other western countries?  Or the intimidation of ethnic Chinese who speak up about the regime?  Let alone, the way Beijing operates around Taiwan, the South China Sea, or as regards it own people –  despite being party to all manner of international human rights covenants.  A trustworthy lot, the Herald reckons.  Yeah right.

They do get briefly descriptive

China is a monolithic state where ruling Communist Party controls every level of government and every sector of the economy. It is a nuclear-armed superpower and makes many of the world’s consumer goods.

I presume it was accidental that that first sentence was so all-encompassing that it must have included Huawei?

And then we get back to the cravenly creative.

Xi is more autocratic than any leader of China since Mao Tse Tung and is asserting China’s external interests more strongly. But he is doing so in proper ways, through diplomacy and development aid, notably the “belt and road” infrastructure schemes.

“Proper ways”!   None so blind as those who choose to look the other way.  If Taiwan or the South China Sea, or ethnic Chinese in New Zealand and other countries, don’t bother you, if state-sponsored intellectual property theft bothers you not at all, if widely-recognised attempts at economic coercion don’t bother you, then perhaps the Herald is quite right.  Most people will wonder if the text was just lifted from the People’s Daily.   And wasn’t “economic coercion” precisely what the China-panderers would have us worry about?

The first half of the very final paragraph might also have been lifted from a CCP propaganda sheet

China has been a superpower for a long time and it has not flexed its muscle much further than the South China Sea to which it has an historic claim.

“Historic claim” indeed –  a proposition for which there is very little evidence.  And might it be too much to have pointed readers to aggressive PRC activity in the East China Sea, its invasion of Vietnam in 1979, its confrontations with India –  as well as all that other interference and pressure touched on earlier.  Not the stuff friendly powers do.

But, channelling Beijing to the end, the Herald tells us that the PRC had “earned” trust (precisely how, they don’t attempt to explain) and that

Our Government now needs to show the Prime Minister’s one-day visit was not a one-day wonder.

Just stay flat on your face Prime Minister and the Herald and its business advertisers will be happy.

As I noted a bit earlier, there is a full 28 page China Business supplement to today’s paper.  It is pretty fawning from start (the front page leads with “Jacinda Ardern: Mission Accomplished”) to the end (the full page advert from Huawei).  There is the odd interesting piece in the supplement but not a word that might upset Beijing (or probably even MFAT and their front, the China Council).    The only bits I really wanted to highlights were two columns suggesting that it was simply illegitimate for New Zealand to express any serious unease about one of the most awful regimes on the planet.

There was a column by Todd McClay, National’s foreign affairs spokesman, who nailed his colours firmly to the mast last year talking of the Xinjiang “vocational training camps” (a million or more people in concentration and indoctrination camps) being no business of anyone’s but the PRC.   This time

Where we have differences, like the death penalty or South China Sea, we have learnt to raise them respectfully and diplomatically, directly between officials, leaders and ministers, and not via the media.   This is a respect that must be maintained.

Mr McClay and his party can choose to respect the butchers of Beijing if they choose, but don’t come asking for my vote while they do.  To him/them, it is all about deals and donations, and nothing else.  If he’d been the trade spokesman in December 1938 perhaps he’d have stressed how important it was to be respectful of Adolf Hitler and his henchmen and not let some local disturbance like Kristallnacht colour any sort of relationship.  It is sickening, and there is no evidence that the current Prime Minister is any different.   I thought this New Zealander studying matters Chinese at ANU put it well

(As it happens, I don’t think the PM should have been speaking out in Beijing,  She simply shouldn’t have been there, like some supplicant indifferent to the evil prepetrated daily by her hosts.)

And then there was the egregious but revealing column by a senior lawyer who is also involved in the China Council, repeating the myth that somehow the PRC is “critically important to our economic security” and offering a lecture concerned that New Zealand is “driving away” PRC investment in New Zealand –  and all that advisory work I suppose.

In business, we typically seek to avoid getting offside with a major customer.  If we have differences we tend to try to deal with those with great care with a view to preserving the business relationship beyond the immediate issue. Politicians may well disagree with me but I’d argue that fundamentally the approach should not be much different when we have a divergence of views or concerns with a major trading partner.

I guess if Ms Quinn wants to deal with thugs we probably shouldn’t prevent her from doing so.  But if you sup with the devil, or provide advisory services for the Mafia or its affiliates, don’t expect to be looked on favourably.  It is private firms that deal with Chinese companies, the New Zealand government – supposedly representing all New Zealanders, not just a few business interests – does not having a “trading partner”.  It is a government, not a business.  Private firms –  and the individuals involved –  must make their own calls about morality, but from reading article after article like this, it is almost as if they’ve chosen not to care.  Care or not, they make themselves complicit in what the regime does.   Private businesses, pursuing personal economic interests, shouldn’t be allowed to skew our foreign policy to their private ends.

It is all relentless.  Earlier today someone emailed me wondering how long it would be before the Herald was emulating papers like the Washington Post in publishing paid PRC propaganda inserts.   In the Herald’s case, why would the PRC waste money when they can get the one-sided propaganda for free?

[UPDATE: A reader points to People’s Daily material that the Herald is already running.]

But I guess it was a good day for the China Council, MFAT, and the Beehive –  unless, that is, readers actually stopped to think about the pap they are expected to swallow.

The Herald also made room today for a column from Labour MP, and chair of the Justice committee, in which he presents what can only be called a “creative reimagining” of the way in which he had led his Labour colleagues to block Anne-Marie Brady from appearing to discuss foreign interference, was backed in that stance by the Prime Minister’s office, until the blowback was just too great and he had to backdown and agree to open the inquiry to public submissions.  Amid the creativity, it was encouraging to read –  very belatedly – that Huo will recuse himself from involvement in the foreign interference bit of the inquiry (or does he just mean the Brady bits?) “to avoid any perceived conflict of interest”.



House prices

House prices keep going up.    In the decade to December 2007 (roughly peak to peak), real house prices in New Zealand rose by about 71 per cent.  In the (just over a) decade since December 2007, they’ve risen by another 34 per cent, bringing the total increase in real house prices in little over two decades to 130 per cent.   Not that it really should be a relevant comparison, but productivity growth (real GDP per hour worked) totalled about 22 per cent over the same period.

In parts of the country, notably Auckland, the housing market has levelled off over the last couple of years.  But on the most recent QV numbers, real house prices across the nation as a whole have risen again in the last year.

There is no good or necessary reason why, on a well-constructed like-for-like index, real house prices should show any particular trend over time.  Of course, as people get wealthier and technology improves people might reasonable demand bigger and/or better-specified houses, and they might be more expensive –  in real terms –  than a typical house from decades earlier.  But what we’ve seen is substantial increases in the real prices of constant-quality houses.   That is mostly down to the active and passive choices of successive people at the top of central and local government.  In a country with abundant land, create artificial scarcity around residential land and (real) prices will rise, a lot (especially if the regulatory scarcity is exacerbated by rapid policy-driven population growth).

In opposition prior to 2008, National sometimes talked a good talk about fixing the situation. In opposition prior to 2017, Labour sometimes talked a good talk about fixing the situation.  A Green Party leader, now long departed, even got herself in trouble by talking about the desirability of big drops in house prices, and the possibility of aligning policy to produce house price to income ratios of perhaps 3 to 4 (in many fast-growing US cities those ratios are under 3.5).   She only said it once.  I’ve been sceptical that her Green colleagues would ever allow the sort of freedom and flexibility that sort of outcome might take,  even if (which seems unclear) they might be sympathetic to the end.

It has been hard to know what to make of the current government as a whole.  Neither Andrew Little nor Jacinda Ardern as Labour leaders has ever openly embraced land use reform.  Instead, we had all sort of policies to distract, or paper over cracks –  foreign buyer bans, ringfencing, bright line tests, KiwiBuild, talk of capital gains taxes etc.    But never getting to the heart of the issue, and never willing to openly embrace a goal of materially lower house prices.

But there was always Phil Twyford.  Sure, he was responsible for KiwiBuild, which was never going to solve any real problem, but he showed signs of understanding the real regulatory issues. In Opposition, and on this specific issue, he’d stood shoulder to shoulder, sharing an op-ed, with the libertarians at the New Zealand Initiative.   And now that he was Minister, he even had access to one or two very good officials.

But the government’s term is now more than half over, and not much action had been seen.  Not even many words really, although there had been this in the Speech from the Throne

This government will remove the Auckland urban growth boundary and free up density controls.

But a couple of weeks ago Twyford was invited to address the New Zealand Initiative members’ retreat, where he gave a meaty speech on fixing the housing market.

The Initiative responded enthusiastically (here is Oliver Hartwich’s brief summary), and I have seen the speech described as “the most coherent and comprehensive political statement on housing we have seen in our lifetimes”.  And, mostly, it does read well –  better than anything we heard from National ministers in government, or from National’s current housing spokesperson.

The bit I liked the most was this

Our aim is to bring down urban land prices by flooding the market with development opportunities.

That doesn’t sound like a minister with a vision of (say) flat nominal house prices, taking 30 or 50 years to get price to income ratios back to where they used to be, and where they should be.  It sounds like someone who is serious.

And yet, I remain sceptical.  Perhaps Phil Twyford’s heart is really in this.

But is the Prime Minister’s?  Even though housing was a significant campaign issue, even though she has been in office for 18 months now, we’ve never heard her putting her authority behind fixing the housing disaster at source, let alone substantially lowering house prices.

And is the Green Party on board?  Quintessentially the party of well-paid inner-city urban liberals, are they really on board with bigger (physical footprint) cities, or with encouraging intense competition among landowners for their land to be developed next.  Some of them seem to believe that it would somehow be morally virtuous –  and “solve” the affordability issues –  if people lived instead in today’s equivalent of shoeboxes.

Of course, this could be one of those issues in which National and Labour got together and pushed through major legislative change.  It could have been so under the previous government, but wasn’t.  Why is a solution like that more likely now?

And sometimes talk of lowering land prices is really just cosmetic.  If you establish a vehicle whereby property owners will have to pay development costs in an annual rate over, say, 30 years, that will –  all else equal –  lower new section prices, but won’t change one iota the cost of housing.  To do that, you have to be committed to removing, or substantially reducing, the artificial scarcity that policymakers themselves created.

And then there is local government, the most immediate source of the problem.  Local governments actually impose the zoning rules.  Local governments set their own (arbitrary) debt ceilings –  and some NZIER work a few years ago highlighted how relatively low those ceilings typically are –  and make their own choices about using (not using, mostly) differential rating schedules, which could help ensure costs of new development are appropriately allocated.  Local governments –  while often talking of ‘debt constraints’ – choose to spend money on vanity projects, or ideological agendas, like (in the Wellington case) cycleways, runway extensions, convention centres, or old Town Halls.   And councils, and councillors, are all too-often champions of the know-it-all shoebox approach (we know what cities should look like, and we want people in high rise apartment blocks on this particular street, and the like).  Also, for all the talk about accommodating growth, actually all any region of New Zealand has managed in recent decades is lots of population growth: large scale new private industries and associated productivity growth (the sort of thing that might really capture the imagination, including of voters) has been scarce to non-existent.

There is quite a bit to like in the speech (as well as some questionable stuff –  including the laughable notion of looking to Australia for a lead on housing, or the wrongheaded notion that somehow too much resource has gone into residential property and not into the “productive economy”).  But for all the fine words, how optimistic should we be?

I’d say not very.  There are those domestic political factors I outlined above; for example, in a multi-party government with little that unites the parties, the only major reforms that get done will be those the Prime Minister fully embraces and champions, and our Prime Minister has shown no sign of embracing this sort of reform (or the implied fall in house prices).

There is the lack of international precedent.  For several years, I’ve been posing the quite genuine question as to whether anyone can point to an example of a country or region that had once messed up its housing and land use law this badly and then fixed the problem at source.  There are places that never got into the mess (including many parts of the US) and Japan is also a tantalising story, but they aren’t answers to my question about fixing a mess once created (and once an increasing share of the population becomes fearful of the personal economic risks of house prices falling –  more and more of them every year).   Perhaps New Zealand really could be first –  single chamber Parliament and all that means far-reaching reform (for good and ill) can be done here.  But aren’t you then back to the point in the previous paragraph: is there really the drive from the top (not just Ardern, but Robertson, Davis, Peters, Shaw) that is going to push through legislation and face down councils (and, in many cases, residents/voters)?

My scepticism doesn’t count for anything much on its own.  But market prices should.  When, for example, there was beginning to be a serious prospect of US company tax cuts a year to two back, you saw the effects straightaway in share prices. That is how markets typically work, looking forward and pricing the prospect (and probability) of change.   The Minister of Housing might be entirely serious, but in this specific sense there is no sign that his words are treated as a credible indication that significant change is actually coming. Were it otherwise, we’d already see urban (and peripheral) land prices falling, a lot.   Sure, some inner-city sites offering better intensification options might hold up, or even rise, in value, but across regions as a whole the thrust of the mooted reform is about markedly easing artificial scarcity.  If it were to happen, as Twyford talks of, median land prices in and around our cities would already be falling quite considerably.    I’m not aware of any such trends (though I’d welcome comments that pointed us in the direction of evidence that it is happening).

Perhaps the market is just wrong and the government will in the end surprise us all.  But there is a certain wisdom of crowds and – even as we might welcome the rhetoric of one minister – it is wise to respect it.  Courageous leaders can up-end conventional wisdom and change reality.  I really hope it happens this time, for the good of the country and (more personally) for the good of my own kids.   But it will take more than a pretty good speech to persuade me it is the most likely outcome.