Parliament’s Justice Committee today has the second (and final?) public hearing of submissions on their foreign interference inquiry. The first such session was described to me by someone who watched it all as “just hopeless”, and accounts I’ve read don’t suggest any reason to doubt that take. If there were signs of seriousness about the process, they seemed to be about trying to play down, or pretend there was nothing to, concerns around the PRC. The acting chair had introduced the hearing by suggesting she would prefer not to hear names. Her party, earlier this week, launched a foreign affairs discussion document in which they talked of their “friends in Beijing”. What hope for a serious investigation.
Reports this morning suggest the Committee is just about to have another acting chair, with previous acting chair Maggie Barry deciding to leave the committee, and substantive chair Raymond Huo (who initially opposed any public submissions, claiming government departments could say all there was to be said) having belatedly recused himself, as someone about whom concerns had been raised, notably in Anne-Marie Brady’s paper. In another sign of the unseriousness of the exercise, a senior National MP on the Justice Committee told the committee two weeks ago, when Brady appeared, that he hadn’t even read the paper. I might not have expected all MPs to have done so – although all should – but a senior MP, actually sitting on the committee, part of National’s international affairs team…..
It is reported that National MP Chris Bishop is to be the new acting chair. As I happened I was engaged with Bishop briefly on this issue on Twitter yesterday, when he politely took exception to my suggestion that the inquiry, especially around the PRC, was really a faux inquiry. His claim was that
and went on to ask the basis for my concern. 240 characters really isn’t the length for such discussions, so I simply pointed him to my submission to the inquiry, and in addition to some of the points above noted the Jian Yang situation. Perhaps he was in earnest. Perhaps his acting chairmanship will really mark some sort of turning point in the inquiry. It would be great if it did, but it is hard to have any optimism given how deeply entrenched, especially in the two main parties, the wish to pretend there are no problems, and to just get on treating the PRC as a normal country (“our friends”) has become, from Jacinda Ardern and Simon Bridges down.
There was another example of the establishment approach in this area in the Herald yesterday, in a column by lobbyist and former trade negotiator Charles Finny, offering to “make sense of the US-China dispute”. Par for the course for the Herald, general readers would not have any idea that Finny serves on the Advisory Board of the (largely taxpayer-funded) New Zealand China Council, set up to champion closer ties with the PRC (and never known to have said anything critical of the regime), and he is also chair of Education NZ, the government body charged with promoting export education, much of it to the PRC. On a good day, Finny appears to be alive to some of the risks around the PRC – he did after all go on national TV and suggest that he was always careful what he said around Jian Yang and Raymond Huo given their apparent close ties to the PRC embassy – and I suspect he is mostly a true-believer in the mantra of the “rules-based order” and of the ever-increasing web of preferential trade agreements New Zealand is party to.
But his “making sense of the US-China dispute” column didn’t make sense of it at all, because it totally failed to place the rising tensions in a wider strategic or political context. It was, on his telling, all the fault of the Americans (“the Trump Administration’s ‘America First’ mentality), and not at all about choices made by the PRC. Later in the article, Finny does actually note first that some of the approaches that bother him began under Obama (judges for the WTO), and that there isn’t necessarily much difference between the approach being adopted by Trump and that by Democratic Party contenders, which you would think might matter. But instead all we get is a worry that New Zealand could see
enormous pressure on New Zealand to stop buying Chinese technology or to co-operate with Chinese universities or research entities,
(Shouldn’t any decent media outlet have thought at that point that Finny should have to disclose his Education NZ and China Council involvements?)
Finny’s approach seems to be that no matter the character of the regime, we should simply keeping on doing more trade, buying more technology, allowing more investment. There seems to be no sense at all of anything around security risks – be it Huawei, Hikvision or whoever – no sense that, however the New Zealand government labelled it in a treaty, the PRC is no market-economy, but one with an ever-increasing role for a state with totalitarian aspirations and abilities. Simply no recognition of the way the PRC has sought to inject its pernicious influence – and don’t pretend it is just another state – into the affairs of all sorts of other countries, including our own, including our own ethnic Chinese New Zealand citizens. Now, you might think Trump is going about tackling these challenges in a poor way – or perhaps won’t even follow through – but that is a quite different matter from whether there is a real issue that needs addressing. Finny – and the New Zealand political establishment – would, it appears, prefer to pretend otherwise. And don’t pretend – as some try to – that this is just about another big country getting richer and stronger. There would be nothing like the level of concern there now is across the US political spectrum if China were opening up, reducing the power of the state, reducing the power of the Party, stopping the threats to Taiwan, stopping corroding freedom in Hong Kong, demolishing artificial islands in the South China Sea, not engaging in state-sponsored intellectual property theft, not imprisoning a million Uighurs, not attempting to exert control over diasporas and foreign Chinese-language media, and so on. Those are the sorts of things that should be concerning our MPs and ministers, but not one will utter a word. (And by contrast I listened to an interview yesterday with Pete Buttigieg, one of the fairly left-wing Democratic contenders. I can’t imagine he agrees with Donald Trump on almost anything, and yet on China and the risk and threats he was fluent and serious. I was impressed.)
As it happened, a reader this morning posted a link to a column from the New York Times by the (often rather breathlessly enthusiastic) champion of globalisation Tom Friedman on the US/China issue. I don’t suppose he is generally much of a Trump fan either, and yet
A U.S. businessman friend of mine who works in China remarked to me recently that Donald Trump is not the American president America deserves, but he sure is the American president China deserves.
and, for example,
But when Huawei is competing on the next generation of 5G telecom with Qualcomm, AT&T and Verizon — and 5G will become the new backbone of digital commerce, communication, health care, transportation and education — values matter, differences in values matters, a modicum of trust matters and the rule of law matters. This is especially true when 5G technologies and standards, once embedded in a country, become very hard to displace.
And then add one more thing: The gap in values and trust between us and China is widening, not narrowing. For decades, America and Europe tolerated a certain amount of cheating from China on trade, because they assumed that as China became more prosperous — thanks to trade and capitalist reforms — it would also become more open politically. That was happening until about a decade ago.
But, as he goes on to note, it simply isn’t now. And New Zealand politicians seem to refuse to confront the implications of that, accentuating local issues that were already building (as one small but prominent example, Jian Yang was already in country – told by Beijing to lie about his past – and in Parliament before Xi Jinping took the top job).
In somewhat the same vein the government has a consultation open at present (submissions close tomorrow) on possible changes to the overseas investment regime. I took the opportunity to make a short submission for two reasons:
- first, I generally favour greater openness to foreign investment, but
- second, the discussion document dealt (rather superficially) with national security issues and how the rules might best handle those.
These days, New Zealand does not get much foreign direct investment – and especially not much in the way of greenfields new developments. I don’t think the screening etc regime is the main reason – mostly, I suspect, we don’t have that much foreign investment because (a) there are few opportunities here, and (b) for the same sorts of reasons business investment generally has been weak for decades (high cost of capital, high real exchange rate, high taxes on business profits – in that case, especially for foreign investors). But I’d generally favour a more liberal environment, for almost all industries and for investors of almost all countries.
It is also worth recognising that most of any benefit (to productivity in New Zealand for example) from foreign investment will come from investment by firms based in rich and advanced countries. Of course, there might be rare exceptions – a firm based in Zambia, Laos or El Salvador – but they will be exceptionally rare (the best ideas, technologies, management systems etc) will be in the rich countries – part of why they got, and stay, rich. So I’d favour a pretty-much open slather approach to foreign investment – existing assets or new – for investors based in rich countries (the OECD membership might be a decent starting point, and one could add in places like Singapore and Taiwan.
For most of the poorer or smaller countries, I really don’t care much what the rules are. Probabilistically, there is almost nothing at stake (at least in economic terms) in maintaining restrictions on Zambia, Laos, El Salvador (or 100 others) if that is what the political process demands. But, equally, there isn’t much risk or downside to opening up to them either, especially if one is focused on the benefit of New Zealanders being (generally) able to sell to the highest bidder.
There are various odious regimes in the world. Most them don’t matter much to New Zealand at all (thinking places like Equatorial Guinea). But the PRC does and in my view we should – while the regime remains as it is – be treating investment from there quite differently, for various reasons. One is a straightforward economic one. Almost any large PRC firm is either an SOE or has a significant element of state/Party control to it. We spent years here trying to reduce the hand of the state in direct business operations in New Zealand. State entities typically don’t run businesses well, don’t allocate investment efficiently, and so on. There is no more likelihood (to put it mildly) that PRC state-controlled companies will do so than the New Zealand government ones will – and at least the New Zealand government ones are ultimately answerable to New Zealanders. Such investment is likely to be a net negative for New Zealand even if the price paid to the initial New Zealand vendor is higher than that vendor could have got from another – private – purchaser, whether from New Zealand or another country.
But the deeper reason is that the PRC is a big and powerful totalitarian state, that has repeatedly displayed aggressive intent, which has values antithetical to those of most New Zealanders. Individual PRC buyers may well be perfectly decent well-intentioned people – as plenty of 1930s Germans were too – but a totalitarian state has, and repeatedly demonstrated, its leverage over its own people, by fair means and (too often) foul. We would simply be ill-advised to allow PRC-associated interests to have significant investments in many sectors in New Zealand. One could think of media or telecom companies, or tech firms. The PRC banks operating here should be a matter of concern, especially if they get materially larger than they are now. But the concern should range wider. For example, the greater the control PRC interests have of elements of the dairy industry, the more difficult New Zealand might find it to be handle the sort of economic coercion the PRC has attempted to engage in re various countries in recent years.
And, of course, to circle back to my earlier point, it is not as if the PRC is one of the world’s advanced economies. Productivity levels languish far behind even New Zealand’s modest levels, and everyone recognises the dependence the regime has had on industrial espionage. Deep pockets aside – with a mix of market and non-market motives – how much genuine benefit to New Zealanders is there likely to be from PRC foreign investment over time?
It is possible that this sort of restrictive regime could come at some economic cost, in terms of lost productivity opportunities for New Zealand. My sense is that it would probably be quite a small cost, but we can’t be sure. Perhaps more importantly, many precautions have a cost – whether it be a national defence force, Police, anti-virus software, or a lock on your front door. The PRC is a threat to New Zealand and countries like us, and we need to be willing to spend some resources (perhaps sacrifice some short-term opportunities) to establish some resilience to those threats.
But, of course, our elected “leaders” and business establishment figures have no interest in any of this. For them, it seems, the character of the regime matters not a jot, it demonstrated track record at home, abroad, and in New Zealand matter not a jot. There are deals to be done, donations to be collected, and – if there are any risks – well that will be someone else’s problem another day. And in the process they’ve allowed our political system to become corrupted, indifferent to the character of the regime, indifferent to the values of New Zealanders. But their “friends in Beijing” are no doubt happy.