UN Compact on Migration

Michael Reddell Immigration, NZ politics

Various readers have commented in recent weeks on the United Nations Global Compact for Safe, Orderly, and Regular Migration, due to be signed next week by as many governments as can be mustered in support.   I’d had a quick skim through it and decided not to write about it here, as not only was it a non-binding political declaration, but most of it seemed more relevant to countries dealing with substantial illegal migration (and with migration mainly from very poor or disrupted countries – again, not the main situation in New Zealand).   And, as I pointed out to various readers, who needs the United Nations for immigration policy and practice to cause problems at home.  We have successive New Zealand governments, cheered on by the business and political “elites”, to do that for us.

But when I saw yesterday that the National Party –  as pro-immigration as they come – had indicated that (a) it would not support signing, and (b) it would withdraw from the agreement when it returned to government, I thought I should take another look.  It would, after all, be unusual to find myself in more of a middle-ground position on immigration issues that the National Pary.  Then it emerged that the current government has still not yet decided whether to sign up.   My suspicion remains that National’s stance is more about positioning relative to New Zealand First –  the contest for provincial votes –  than anything of substance.

Overseas, I was aware that the United States and Australia had decided not to sign, as well as a few eastern European countries – including some places whose democratic credentials are no longer unimpeachable.    But when I went looking, I found this article suggesting the pushback in Europe is spreading.    Austrian and Italy have refused to sign, and governments in Belgium, Germany and the Netherlands are under pretty intense pressure (from within).  In Holland, for example

The government ordered a legal analysis of the text last week to ensure that signing it will not entail any legal consequences. The Cabinet finally decided on Thursday that it would support the pact, but would add an extra declaration, a so-called explanation of position, to prevent unintended legal consequences.

So I reread the document, more slowly this time.  I can’t see any substantive need for the document –  it seems more about political rhetoric and framing than anything else –  and have long been deeply sceptical that the United Nations adds any value to anything much.   And, yes, the document has a pro-migration tinge to it (it talks of wanting to “promote” migration) and a rather “globalist” set of presuppositions (including the demonstrably wrong statement –  especially in the context of remote island states – that “no State can address migration alone”).   But that doesn’t mark it out from dozens of pointless international fora and international declarations.    And there is little doubt that the “elite” mindset, in Europe and its offshoots anyway, is mostly pretty strongly pro-immigration.

But it still isn’t clear to me quite what additional damage would be done by signing up to this pointless agreement.   Sure, even “non-binding” agreements will, at times, be used in domestic and international fora as a rhetorical stick to beat governments with if they ever look like stepping out of line with the mainstream.  But those sorts of arguments rarely deflect a government for long if it has domestic public opinion behind it in some direction or another (for good or ill).

There is some questionable economics in the document.  For example

Promote effective skills matching in the national economy by involving local authorities and other relevant stakeholders, particularly the private sector and trade unions, in the analysis of the local labour market, identification of skills gaps, definition of required skills profiles, and evaluation of the efficacy of labour migration policies, in order to ensure market responsive contractual labour mobility through regular pathways.

Or, alternatively, one could just let the market work it out.  When there are incipient skill shortages, wage rates tend to rise.  Same thing happens when, for example, bad weather creates a shortage of spinach or lettuce.    But, daft as the economics is, this stuff is the mindset of politicians and officials adminstering immigration schemes all over the western world. including New Zealand.  Recall that in New Zealand the current government is trying to get more actively involved in this sort of thing.

There are also totally vacuous bits, like the commitment to support and promote the United Nations International Day of Family Remittances.  Just what the world needs: another United Nations “day”.

Perhaps three clauses troubled me a little more.

There was this one

Enable political participation and engagement of migrants in their countries of origin, including in peace and reconciliation processes, in elections and political reforms, such as by establishing voting registries for citizens abroad, and by parliamentary representation, in accordance with national legislation.

I guess I can see what they are probably driving at (diasporas helping the reconstruction of the country of origin after say a protracted civil war). But, normally, we should expect migrants to commit themselves to their new country and its processes and political values and not be creating doubts about where their loyalties lie.  But in a country in which Jian Yang and Raymond Huo are MPs –  while still closely associating themselves with political interests in their country of origin –  and people like Yikun Zhang appears encouraged to play both sides –  it is hard to see how this particular provisions make things here any worse than they already are (around a small handful of our migrants).

And then there was this one

Promote mutual respect for the cultures, traditions and customs of communities of destination and of migrants by exchanging and implementing best practices on integration policies, programmes and activities, including on ways to promote acceptance of diversity and facilitate social cohesion and inclusion.

Which presents the issues as symmetric when they really should be asymmetric: the focus should be on encouraging the assimilation of the migrants, and ensuring their respect for the “cultures, traditions and customs” of the destination community –  just as when you go to someone else’s place for dinner you respect their practices, table manners etc.   One could also argue that encouraging “acceptance of diversity” and facilitating “social cohesion” are two contradictory, often mutually inconsistent, goals.  But again, flakey as all this stuff is, it is the way our bureaucratic and political “leaders” think and act anyway.  If the behaviour is a threat, it is hard to see that the UN agreement would be more of one.

Relatedly

Support multicultural activities through sports, music, arts, culinary festivals, volunteering and other social events that will facilitate mutual understanding and appreciation of migrant cultures and those of destination communities.

Quite what business this is of the UN –  or even of national governments actually – one has to wonder, but there is the “globalist” mindset for you.   And, again, it is pretty much what central and local governments do anyway.  I was interested that “religion” wasn’t on the list

And then, of course, there is Objective 17 (of the 23 in the document) which I have seen people express more serious concern about.

OBJECTIVE 17: Eliminate all forms of discrimination and promote evidence-based public discourse to shape perceptions of migration

We commit to eliminate all forms of discrimination, condemn and counter expressions, acts and manifestations of racism, racial discrimination, violence, xenophobia and related intolerance against all migrants in conformity with international human rights law. We further commit to promote an open and evidence-based public discourse on migration and migrants in partnership with all parts of society, that generates a more realistic, humane and constructive perception in this regard. We also commit to protect freedom of expression in accordance with international law, recognizing that an open and free debate contributes to a comprehensive understanding of all aspects of migration.

If that isn’t muddled I don’t know what is –  let alone, unrealistic (in no conceivable world are “all forms of discrimination” going to be “eliminated”).

The specifics under that Objective include commitments to

Enact, implement or maintain legislation that penalizes hate crimes and aggravated hate crimes

So-called “hate crime” legislation is almost always bad law and bad policy.  Punish assaults or murders or whatever as that: bad and unacceptable acts, regardless of who they are committed against or why.

And this

Promote independent, objective and quality reporting of media outlets, including internet based information, including by sensitizing and educating media professionals on migration-related issues and terminology, investing in ethical reporting standards and advertising, and stopping allocation of public funding or material support to media outlets that systematically promote intolerance, xenophobia, racism and other forms of discrimination towards migrants, in full respect for the freedom of the media.

Again, muddled at best.  You want to stop any public funding to outlets whose views are “unacceptable”, while having “full respect for the freedom of the media”.   Since I’m not entirely convinced there is a good case for public funding of any media outlets –  and since the publicly-funded outlets in New Zealand are champions of high immigration and all “worthy” leftist causes anyway –  it isn’t clear what difference this might make in New Zealand.    And there seem to be some MPs –  particularly in Labour and the Greens –  who aren’t too keen on allowing free speech on such issues anyway, whether or not we sign up to UN non-binding declarations.

And finally under Objective 17

Engage migrants, political, religious and community leaders, as well as educators and service providers to detect and prevent incidences of intolerance, racism, xenophobia, and other forms of discrimination against migrants and diasporas and support activities in local communities to promote mutual respect, including in the context of electoral campaigns.

All very asymmetric –  nothing at all about engaging with communities that might be uneasy about high immigration, or the immigration of groups with values antithetical to those of the destination community.  Perhaps, in some respects, this commitment troubles me more than most.   “Intolerance” is not an offence (in principle or in law) and it is the perfect right of people to debate –  perhaps especially in election campaigns – the future composition of their society.   A Saudi Wahhabi, a Chinese Communist Party zealot, an American evangelical, and a French secularist are all very different sorts of people. In large numbers, each group transplanted to (say) New Zealand would make a material difference to the society and polity we have here.  Those debates matter –  unless, apparently like the authors of this document –  you regard all differences of culture, politics, religion etc as superficial rather than fundamental.

As I said at the start, there is no obvious need for this document.  And even if there were obvious gaps, the very fact that it is a non-binding political declaration suggests it could meet no substantive need.  But in a New Zealand context, there are policies and practices around immigration that are much more damaging and threatening, particularly to our long-term economic performance, and perhaps in other areas too.  Among them:

  • the immigration policies of the National Party
  • the immigration policies of the Labour Party
  • the immigration policies of the Green Party
  • the immigration policies of ACT, and
  • the immigration policies of New Zealand First

I think that pretty much covers the spectrum.

There is no conceivable universe in which some international declaration –  or even agreement – around immigration would be more liberal and (in our specific economic circumstances) more damaging than what our political parties have done to us all by themselves.

 

 

Promoting constructive vigilance

Michael Reddell China, NZ politics, Uncategorized

That was the sub-title to the substantial (200 pages or so) new report released last week by the Hoover Institution at Stanford University on Chinese (PRC) influence activities in the United States (but with eight case studies on the situation in other countries, including one on New Zealand which draws largely on the work of Anne-Marie Brady).

The report is the product of a working group of 33 academics, think-tankers, and journalists specialising in PRC-related issues.  Around half those involved are academics.  Of the 33, 10 are ‘international associates’ –  again, about half academics –  bringing perspectives to bear on PRC activities in other countries, including three Australians and Anne-Marie Brady.

I read the report over the weekend.  I’m not sure there is a great deal new in it, but it is easy to read, and extensively documented, and the accumulation of material helps build the picture.     And even on New Zealand, there are striking lines from the Magic Weapons paper that one forgets

The Chinese government considers New Zealand an “exemplar of how it would like its relations to be with other states.” One unnamed Chinese diplomat even characterized relations between the two countries as similar to China’s close ties with totalitarian Albania in the early 1960s.

Or bits I’d never noticed previously

Individuals with strong ties to United Front organizations have donated several million dollars, primarily to the National Party. One such individual, who donated $112,000 to the National Party in 2017, is listed as an officer of no fewer than seven United Front organizations.

Then again, it was Labour bestowing the QSM on Yikun Zhang.

But the focus of the report is on the United States.  In many areas one is struck by the similarity of the story to the work done on these issues for New Zealand.

The Chinese Communist party-state leverages a broad range of party, state, and non-state actors to advance its influence-seeking objectives, and in recent years it has significantly accelerated both its investment and the intensity of these efforts. While many of the activities described in this report are state-directed, there is no single institution in China’s party-state that is wholly responsible…..   Because of the pervasiveness of the party-state, many nominally independent actors— including Chinese civil society, academia, corporations, and even religious institutions— are also ultimately beholden to the government and are frequently pressured into service to advance state interests.

or

China’s influence activities have moved beyond their traditional United Front focus on diaspora communities to target a far broader range of sectors in Western societies, ranging from think tanks, universities, and media to state, local, and national government institutions. China seeks to promote views sympathetic to the Chinese Government, policies, society, and culture; suppress alternative views; and co-opt key American players to support China’s foreign policy goals and economic interests.

or (more remarkably in the much larger US market)

In the American media, China has all but eliminated the plethora of independent Chinese-language media outlets that once served Chinese American communities. It has co-opted existing Chinese-language outlets and established its own new outlets.

The report builds to a set of policy principles and recommendations.  They group the principles and recommendations under three headings: Transparency, Integrity, and Reciprocity.   Under the first two headings, most of what they suggest seems (a) sensible, and (b) relevant to other countries where these issues arise, including New Zealand.

Here are the Transparency principles (there are more detailed recommendations below many of these).

Transparency is a fundamental tenet and asset of democracy, and the best protection against the manipulation of American entities by outside actors.

• American NGOs should play an important role in investigating and monitoring illicit activities by China and other foreign actors. They should as well seek to inform themselves about the full range of Chinese influence activities and the distinctions between legitimate and illegitimate influence efforts.

• Congress should perform its constitutional role by continuing to investigate, report on, and recommend appropriate action concerning Chinese influence activities in the United States. It should update relevant laws and regulations regarding foreign influence, and adopt new ones, to strengthen transparency in foreign efforts to exert influence.

• Executive branch agencies should similarly investigate and publicize, when appropriate, findings concerning these activities, with a view to promoting healthy and responsible vigilance among American governmental and nongovernmental actors.

• The US media should undertake careful, fact-based investigative reporting of Chinese influence activities, and it should enhance its knowledge base for undertaking responsible reporting.

• Faculty governance is the key to preserving academic freedom in American universities. All gifts, grants, endowments, and cooperative programs, including Confucius Institutes, should be subjected to the usual procedures of faculty oversight.

• US governmental and nongovernmental sectors should disclose financial and other relationships that may be subject to foreign influence.

And yet, to reflect on this list of items is to realise how much more serious the issue is here.   There are few relevant NGOs, the media is struggling and thinly-resourced, and instead of Parliament taking any sort of lead we have the former PLA intelligence official sitting in Parliament, not apparently bothering either National or Labour, and Raymond Huo –  with various United Front connections, and openly championing PRC perspectives –  chairs our Parliament’s Justice committee, dealing with electoral law.    The Opposition leader is soliciting large donations through people with close connections to Beijing, and Jian Yang is reputed to be the biggest National Party fundraiser.  (Again, in this regard US campaign finance laws, including disclosure provisions, are well ahead of our own.) The National Party’s president praises the Beijing regime and its leader, and if Labour’s president hasn’t been heard from for a while, he has form in that area too.   Our system is already corrupted, whereas (from the report) on this particular dimension the threat to the US system is still nascent.

As for the executive (political and official), they remain keen to say quite as little as possible – on any dimension of the issue (donations, cyber-security, Chinese language media, threats –  whether to Professor Brady or people in the ethnic Chinese community), and direct money to propaganda outfits like the New Zealand China Council to help keep the populace in line.  Winston Peters this morning refused to even accept an interviewer’s description of the PRC as becoming “increasingly authoritarian” (although, as he implied, there has not been a time since 1949 when it been anything other than highly authoritarian and repressive).

What of disclosure?  I linked the other day to a comment from consultant and former academic Paul Buchanan about PRC funding of parts of our universities.  If true, these contributions (and those of any other foreign government) should be fully and routinely disclosed.   And what about travel?   In the flurry of stories about Yikun Zhang it emerged that the Mayor of Southland had been travelling to the PRC, working closely with (and travelling at the expense of) Beijing-affiliated Zhang.   I was struck reading the Hoover report by the observation that US members of Congress can’t accept gifts of travel, and the same day I read that a reader sent me a link to a story about Clutha Southland National MP Hamish Walker (and other local body officials) on (PRC) paid trips to China.   Shouldn’t any such (paid for) trips simply be prohibited?  I’m sure MPs do their jobs better for some travel, but either they personally or the New Zealand taxpayer should be paying.  Not vested interests –  corporate or other governments.

What about integrity?  These were the high-level principles

Foreign funding can undermine the independence of American institutions, and various types of coercive and covert activities by China (and other countries) directly contradict core democratic values and freedoms, which must be protected by institutional vigilance and effective governance.

• Openness and freedom are fundamental elements of American democracy and intrinsic strengths of the United States and its way of life. These values must be protected against corrosive actions by China and other countries.

• Various institutions—but notably universities and think tanks—need to enhance sharing and pooling of information concerning Chinese activities, and they should promote more closely coordinated collective action to counter China’s inappropriate activities and pressures. This report recommends that American institutions within each of the above two sectors (and possibly others) formulate and agree to a “Code of Conduct” to guide their exchanges with Chinese counterparts.

• When they believe that efforts to exert influence have violated US laws or the rights of American citizens and foreign residents in the United States, US institutions should refer such activities to the appropriate law enforcement authorities.

• Rigorous efforts should be undertaken to inform the Chinese American community about potentially inappropriate activities carried out by China. At the same time, utmost efforts must be taken to protect the rights of the Chinese American community, as well as protecting the rights of Chinese citizens living or studying in the United States.

• Consideration should be given to establishing a federal government office that American state and local governments and nongovernmental institutions could approach—on a strictly voluntary basis—for advice on how best to manage Chinese requests for engagement and partnership. This office could also provide confidential background on the affiliations of Chinese individuals and organizations to party and state institutions.

That last suggestion seemed like one that should be considered here, as local government figures seem all to keen on accepting PRC approaches for relationships, oblivious to (or unconcerned by) the wider political context.  I’m not sure what Yikun Zhang’s interest in the Mayor of Southland specifically is, but I’m pretty sure it isn’t just that they got on well over a beer.  As the  report notes

….it is important for local officials to understand that local American “exchange” companies that bring Chinese delegations to the United States and promote professional interactions between the United States and China all depend on official PRC sanction and have received approval to receive Chinese delegations. The business model of such companies is, of necessity, as much political as financial. Even if they conduct high-quality programs, they should not be viewed as disinterested actors. They, too, are subject to rules made by the Chinese Communist Party, its united front bureaucracy, and united front strategic imperatives.

Where I was a bit more sceptical –  and where there seems to be some ongoing debate –  was around the idea of Reciprocity.    As academics, think-tankers and journalists, they are  –  as group – frustrated over how difficult it is for many to get visa access to the PRC, research in the PRC, use PRC government archives etc.  They contrast this to the fairly open access PRC researchers and employees of PRC media outlets have in the United States, and propose that the US should tighten up to try to gain greater access for outside researchers and journalists to China.  One can understand their grievance, but are these people really suggesting that open societies (the US or places like New Zealand) should adopt a PRC approach to things?    When it comes to foreign trade, “retaliatory” tariffs mostly end up hurting consumers in the country imposing them. Perhaps things are different when it comes to idea, research etc, but surely one of the great strengths – not vulnerabilities –  of our sort of system is our openness?

Early in the report I was struck by the observation that the working group did not “generally oppose” Confucius Institutes  (three in New Zealand, very many in the US –  although some have since been closed by the host universities).  But as I read on I found the specific recommendations

Confucius Institutes We do not endorse calls for Confucius Institutes to be closed, as long as several conditions are met.

US institutions should make their CI agreements public to facilitate oversight by members of the university community and other concerned parties. Those agreements, in turn, must grant full managerial authority to the host institution (not on a shared basis with the Hanban), so the university has full control over what a CI teaches, the activities it undertakes, the research grants it makes, and whom it employs. The clause in all Hanban contracts that CIs must operate “according to China’s laws” must be deleted.   If these standards cannot be attained, then the CI agreements should be terminated.

Furthermore, universities should prevent any intervention by CIs in curricular requirements and course content in their overall Chinese studies curricula or other areas of study by maintaining a clear administrative separation between academic centers and departments on the one hand, and CIs on the other. Finally, universities must ensure that all public programming offered by their CIs conform to academic standards of balance and diversity and do not cross the line to become a platform for PRC propaganda, or even a circumscribed view of a controversial issue. In fact, this report would suggest that universities not permit Confucius Institutes to become involved in public programming that goes beyond the CI core mission of education about Chinese language and culture. To go beyond these two categories invites opportunities for politicized propaganda.

As I understand it, few of those tests would be met in respect of the New Zealand Confucius Institutes (the one that is, as I understand it, is that the Confucius Institutes are not involved in the host university’s own courses or curriculum).   And, in addition, there is the unstated dimension as to whether our governments and universities should be facilitating the presence of PRC-appointed and paid staff in our schools –  the PRC being one of the most heinous regimes on the planet (as well as ruling a relatively poor country, which means we allow the taxes of poor foreigners to help pay for the education of our kids.)  If the PRC wants to subsidise Chinese-language learning then good luck to them, but let them set up downtown and market for clients in the way other countries’ language-teaching operations (Alliance Francaise, Goethe Institute) do.

Reprising a theme in my post on Saturday, there was this line about the compromised nature of universities.

The message from China to US universities is clear: Do not transgress the political no-go zones of the Chinese Communist Party or government, or you will pay a price. Sometimes the pressure is overt; other times it is more subtle and indirect, but no less alarming. Some American faculty members report troubling conversations with university administrators who continue to view Chinese students as such a lucrative revenue stream that it should not be endangered by “needlessly irritating Chinese authorities.”

There is lots more in the report, which is well-worth reading if you have the time.

Perhaps my bottom-line unease about the report was a bit of a reluctance to call a spade a spade.    For example, at least amid the discussion of the difficulties foreign academics and journalists face in the PRC, there was either a touching naivete, or a wilful refusal to face the fact, that the PRC is not a normal country, that just needs a few nudges to bring their attitudes and behaviours into line.   Why would one expect the PRC to behave differently, given the nature of the regime?   Obviously, all those involved know much about the true situation, but there was an apparent reluctance to say out loud that the party/State is  –  and for decades has been –  a malevolent force, at home, abroad, and increasingly in other countries.  Look at the tens of millions killed under the depraved indifference of the Party, the masss incarcerations, the forced organ transplant, at the near-total absence of freedom of speech, freedom of religion, the rule of law, or at the decades of the one-child policy. Look at the huge scale industrial espionage.  Look at the militarisation of the South China Sea, the constant threats to free and democratic Taiwan, or all the influence activities the report documents in the US and other countries, including attempting to subvert ethnic Chinese abroad and pressure them –  whatever there citizenship –  to advance PRC ends.  I know some people regard comparisons between the PRC and late-1930s Germany as overstated or unhelpful.  But such parallels seem increasingly valid –  not as prophecy, but as description –  and helpful in prompting those –  some perhaps individuallly decent people –  who just go along, to stop and think about the nature of the evil they accommodate or abet.  New Zealand politicians, of both stripes, as an example.

We have to be more than sum of our deals, more than the flow of political donations.

People might (as I do) distrust Trump on these issues for his typical inconstancy.  The difference here is that there is a constancy, but one that seems determined to, in effect, serve PRC interests, not the interests of New Zealanders, or the values that underpin our society (perhaps those involved try to tell themselves the two interests are much the same?).   That is why I still regard the “choose between China and the US” line as a false one.  Our governments could choose to go along with much of whatever (limited amount) the US is doing in foreign policy (or not), and still have abandoned any sense of integrity around our own system.  Personally, much as I welcomed the decision to buy the P-8 aircraft earlier in the year, I’d be more persuaded by our “leaders” if they had

  • combined to get Jian Yang and Raymond Huo out of Parliament,
  • defunded the China Council,
  • amended electoral laws to stop Phil Goff funding his mayoral campaign with anonymous mainland donations and to force comprehensive disclosure (at the level of the ultimate human donors) of all significant political donations,
  • done something to manage the exposure of the universities and the way in which that exposure risks compromising effective freedom to speak,
  • agreed together to stop issuing statements of praise for the PRC and Xi Jinping, and
  • foreswore accepting donations from anyone with significant United Front connections.

As a start.

Without steps like that, we could end up banning Huawei,  buying P-8s, being in the good graces of the US and Australia, and it just wouldn’t matter much. We’d still have severely compromised the integrity of our political system and our own longer-term interests.

 

What?

Michael Reddell Adrian Orr, Financial stabilty

In the press release for last week’s Reserve Bank Financial Stability Report, the Governor commented that

Our preliminary view is that higher capital requirements are necessary, so that the banking system can be sufficiently resilient whilst remaining efficient. We will release a final consultation paper on bank capital requirements in December.

In commenting briefly on that, I observed

Time will tell how persuasive their case is, but given the robustness of the banking system in the face of previous demanding stress tests, the marginal benefits (in terms of crisis probability reduction) for an additional dollar of required capital must now be pretty small.

There wasn’t much more in the body of the document (and, as I gather it, there wasn’t anything much at the FEC hearing later in the day), so I was happy to wait and see the consultative document.

But the Governor apparently wasn’t.  At 12.25pm on Friday a “speech advisory” turned up telling

The Reserve Bank will release an excerpt from an address by Governor Adrian Orr on the importance of bank capital for New Zealand society.

It was to be released at 2 pm.   The decision to release this material must have been a rushed and last minute one –  not only was the formal advisory last minute, but there had been no suggestion of such a speech when the FSR was released a couple of days previously.

And, perhaps most importantly, what they did release was a pretty shoddy effort.    We still haven’t had a proper speech text from the Governor on either of his main areas of responsibility (monetary policy or financial regulation/supervision) but we do now have 700 words of unsubstantiated (without analysis or evidence) jottings on a very important forthcoming policy issue. which could have really big financial implications for some of the largest businesses in New Zealand and possibly for the economy as a whole.

The broad framework probably isn’t too objectionable.  All else equal, higher capital requirements on banks will reduce the probability of bank failures, and so it probably makes sense to think about the appropriate capital requirements relative to some norm about how (in)frequently one might be willing to see the banking system run into problems in which creditors (as distinct from shareholders) lose money.  At the extreme, require banks to lend only from equity and no deposit or bondholder will ever lose money (there won’t be any).

But what is also relevant is the tendency of politicians to bail out banks.  Not only does the possibility of them doing so create incentives for bank shareholders to run more risks than otherwise (since creditors won’t penalise higher risk to the same extent as otherwise), but there is a potential for –  at times quite large –  fiscal transfers when the failures happen.  Politicians have more of an incentive to impose high capital requirements on banks when they acknowledge their own tendencies to bail out those banks.  If, by contrast, they could resist those temptations –  or even manage them, in say a model with retail deposit insurance, but wholesale creditors left to their own devices –  it would also be more realistic to leave the question of capital structure to the market –  in just the same way that the capital structure of most other types of companies is a mattter for the market (shareholders interacting with lenders, customers, ratings agencies and so on).

But nothing like this appears in the Governor’s jottings.  Instead, we have the evil banks, the put-upon public and the courageous Reserve Bank fighting our corner.   I’d like to think the Governor’s analysis is more sophisticated than that, and one can’t say everything in 700 words, but…..it was his choice, entirely his, to give us 700 words of jottings and no supporting analysis, no testing and challenging of his assumptions etc.

There are all manner of weak claims.  For example

We know one thing for sure, the public’s risk tolerance will be less than bank owners’ risk tolerance. 

I think the point he is trying to make is about systemic banking crises –  when large chunks of the entire banking system run into trouble.  There is an arguable case –  but only arguable –  for his claim in that situation, but (a) it isn’t the case he makes, and (b) I really hope that (say) the shareholders of TSB or Heartland Bank have a lower risk tolerance around their business than I do, because I just don’t care much at all if they fail (or succeed).  Their failures  –  should such events occur –  should be, almost entirely, a matter for their shareholders and their creditors, with little or no wider public perspective.

There are other odd arguments

Banks also hold more capital than their regulatory minimums, to achieve a credit rating to do business. The ratings agencies are fallible however, given they operate with as much ‘art’ as ‘science’.

Bank failures also happen more often and can be more devastating than bank owners – and credit ratings agencies – tend to remember.

And central banks and regulators don’t operate “with as much ‘art’ as ‘science'”?   Yeah right.   And the second argument conflates too quite separate points.  Some bank failures may be “devastating” –  although not all by any means (remember Barings) –  but the impact of a bank failure isn’t an issue for ratings agencies, the probability of failure is.   And I do hope that when he gets beyond jottings the Governor will address the experience of countries like New Zealand, Australia, and Canada where –  over more than a century –  the experience of (major) bank failure is almost non-existent.

The Governor tries to explain why public and private interests can diverge (emphasis added)

First, there is cost associated with holding capital, being what the capital could earn if it was invested elsewhere. Second, bank owners can earn a greater return on their investment by using less of their own money and borrowing more – leverage. And, the most a bank owner can lose is their capital. The wider public loses a lot more (see Figure 2).

But what is Figure 2?

figure 2

Which probably looks –  as it is intended to –  a little scary, but actually (a) I was impressed by how small many of these numbers are (bearing in mind that financial crises don’t come round every year), and (b) more importantly, as the Governor surely knows, fiscal costs are not social costs.  Fiscal costs are just transfers –  mostly from one lots of citizens (public as a whole) to others.  I’m not defending bank bailouts, but they don’t make a country poorer, all they do is have the losses (which have arisen anyway) redistributed around the citizenry.  If the Governor is going to make a serious case, he needs to tackle –  seriously and analytically –  the alleged social costs of bank failures and systemic financial crises.  So far there is no sign he has done so.  But we await the consultative document.

There is a suggestion something more substantive is coming

We have been reassessing the capital level in the banking sector that minimises the cost to society of a bank failure, while ensuring the banking system remains profitable.

The stylised diagram in Figure 3 highlights where we have got to. Our assessment is that we can improve the soundness of the New Zealand banking system with additional capital with no trade-off to efficiency.

and this is Figure 3

capital chart

It is a stylised chart to be sure, but people choose their stylisation to make their rhetorical point, and in this one the Governor is trying to suggest that we can be big gains (much greater financial stability, and higher levels (discounted present values presumably) of output) by increasing capital requirements on banks.

I don’t doubt that the Bank can construct and calibrate a model that produces such results.  One can construct and calibrate models to produce almost any result the commissioning official wants.  The test will be one of how robust and plausible the particular specifications are.  We don’t know, because the Governor is sounding off but not (yet) showing us the analysis.  Frankly, I find the implied claim quite implausible.   Probably higher capital requirements could reduce the incidence of financial crises.  But the frequency of such events is already extremely low in well-governed countries where the state minimises its interventions in the financial system, so I don’t see the gains on that front as likely to be large.    And, as I’ve outlined here in various previous posts I don’t think that the evidence is that persuasive that financial crises themselves are as costly as the regulators (champing at the bit for more power) claim.  And many of the costs there are, arise from bad borrowing and lending, misallocation of investment resources, which are likely to happen from time to time no matter how well-capitalised the banks are.

There are nuanced arguments here, about which reasonable people can disagree. But not in the Governor’s world apparently.

He comes to his concluding paragraph, the first half of which is this

A word of caution. Output or GDP are glib proxies for economic wellbeing – the end goal of our economic policy purpose. When confronted with widespread unemployment, falling wages, collapsing house prices, and many other manifestations of a banking crisis, wellbeing is threatened. Much recent literature suggests a loss of confidence is one cause of societal ills such as poor mental and physical health, and a loss of social cohesion.

Oh, come on.  “Glib proxies”……..    No one has ever claimed that GDP is the be-all and end-all of everything, but it is a serious effort at measurement, which enables comparisons across time and across countries.  Which is in stark contrast to the unmeasureable, unmanageable, will-o-wisp that the Governor (and Treasury and the Minister of Finance) are so keen on today.

As for the rest, sometimes financial stresses can exacerbate unemployment and the like,  but the financial crises typically arise and deepen in the context of common events or shocks that lead to both: people default on their residential mortgages when they’ve lost their jobs and house prices have fallen, but those events don’t occur in a vacuum.  And anyone (and Governor) who wants to suggest that mental health crises and a decline in social cohesion can be substantially prevented by higher levels of bank capital is either dreaming, or just making up stuff that sounds good on a first lay read.

The Governor ends with this sentence

If we believe we can tolerate bank system failures more frequently than once-every-200 years, then this must be an explicit decision made with full understanding of the consequences.

As if his, finger in the dark, once-every-200 years is now the benchmark, and if not adopted we face serious consequences.   Let’s see the evidence and analysis first.  Including recognition that systemic banking crises don’t just happen because of larger than usual random shocks –  the isimplest scenario in which higher capital requirements “work” –  but mostly from quite rare and infrequent bursts of craziness, not caused by banks in isolation, but by some combination of banks and (widely spread) borrowers, often precipitated by some ill-judged or ill-managed policy intervention chosen by a government.   Higher capital ratios just aren’t much protection against the gross misallocations that arise in the process –  in which much of any waste/loss is already in train (masked by the boom times) before any financial institution runs into trouble (the current Chinese situation is yet another example).

Perhaps as importantly, under the current (deeply flawed) Reserve Bank Act the choice about capital is one the Governor is empowered to make.  But his deputy, responsible for financial stability functions, had some comments to make on this point in a recent speech (emphasis added)

And Phase 2 of the Government’s review is an opportunity for all New Zealanders to consider the Reserve Bank’s mandate, its powers, governance and independence. The capital review gives us all an opportunity to think again about our risk tolerance – how safe we want our banking system to be; how we balance soundness and efficiency; what gains we can make, both in terms of financial stability and output; and how we allocate private and social costs.

It may be that the legislation underpinning our mandate can be enhanced, for example, by formal guidance from government or another governance body, on the level of risk of a financial crisis that society is willing to tolerate.

These are choices that should be made by politicians, who are accountable to us, not by a single unelected and largely unaccountable (certainly to citizenry) official.  We need officials and experts to offer analysis and advice, not to be able to impose their personal ideological perspectives or pet peeves on the entire economy and society.

We must hope that the forthcoming consultative document is a serious well-considered and well-documented piece of analysis, and that having issued it the Governor will be open to serious consideration of alternative perspectives.  But what was released last Friday –  700 words of unsupported jottings –  wasn’t promising.

(I should add that I have shifted my view on bank capital somewhat over the years, partly I suspect as a result of no longer being inside the Bank. It is somewhat surprising how –  for all one knows it in theory –  things look different depending on where one happens to be sitting.  But my big concern at present is not that it would necessarily wrong to raise required bank capital, but that the standard of argumentation from a immensely powerful public official seems –  for now – so threadbare.)

Thoughts as the immigration data disappear

Michael Reddell Immigration

Last month marked the end of an era.  In a country with larger and more variable migration flows (in and out, New Zealand and foreign) than almost anywhere else Statistics New Zealand released the last ever set of permanent and long-term migration data.  The numbers were only ever approximations –  because people changed their minds –  but they were (a) based on data collected from every person crossing the border, and (b) reported quite quickly (October’s data were released on 22 November).

As I’ve written about here previously, there is a new system being put in place, but the numbers it produces will have (on SNZ’s own reported estimates) huge margins of error each and every month, and it will be at least a year after the event until we can have even moderate confidence in estimates as to what was going in any particular month.   The issue arises most seriously in respect of the outflows of New Zealanders, for which –  of course –  there is no other administrative data, such as (say) visa approvals.  It is cavalier, another step backwards in terms of having timely data  –  whether for economic monitoring, or political and economic debate –  but perhaps convenient for governments and officials who would prefer the issues not to be debated (“just let us get on with our ‘Big New Zealand’ project”).

Even the total movements data –  which was part of understanding tourist inflows and outflows data –  is now going to be worse.  This is from the recent SNZ release

Removing departure cards means changes to the timing and composition of this release. Statistics on short-term movements (including the current report International visitor arrivals to New Zealand) will be published in a new international travel release, and long-term movements in a new international migration release.

Both releases will be published on the same day, up to 30 working days after each reference month. November data, previously published just before Christmas, will now be published in January, and December data in February.

From about 15 working days to 30 working days.  That is SNZ’s –  and the government’s idea of progress?   Then again, these are the people who seem to have stuffed up the latest Census so badly  –  and no heads, political or bureaucratic, have rolled.

But to mark the passing of the PLT data, here are a few charts.  Here is the quarterly annualised data by citizenship.

Last PLT 1

For all the talk in recent years about “New Zealanders coming home”, there was only a single quarter with a (tiny) net inflow.   The net outflow of New Zealanders is still modest by historical standards, but interestingly while there is a net outflow to Australia there is still a small net inflow (the gap between the blue and orange lines) of New Zealanders from the rest of the world.   If leaving for Australia has got harder –  and the headlines about New Zealanders’ rights in Australia more grim –  perhaps it is harder still in the rest of the world?   And, despite the fall in residence approval visa numbers (mostly granted to people already here), the net inflow of non-New Zealanders remains large.

We won’t have this timely data in future.

Migration data by citizenship is available. on an annual basis, back to 1950.  Here are the cumulative PLT numbers since then.

Last PLT 2

In the early period the net outflow of New Zealanders was tiny. For the 16 years up to an including the year to March 1965, the net outflow of New Zealanders was 10576, or an average of under 1000 a year.    In a normal country you expect to see an outflow of citizens: most people obtain citizenship by being born in a place (or naturalised in it), and some proportion of natives will always choose to leave –  whether falling in love, or simply preferring the opportunities some other place has to offer. But in normal countries –  especially normal advanced countries –  those outflows are typically small.   (Estimates, such as they are, of the number of American citizens living abroad, short or long term, come to less than 3 per cent of the total US population.)

Here is the same chart starting from the year to March 1966 and coming all the way forward to the year to March 2018 –  53 years of data.

last PLT 3

Over that period a net 968000 New Zealanders are estimated to have left –  from a country that in 1966 had a population of just under 2.7 million.

And, on the other hand, successive governments have brought in (because it increasingly has been a matter of conscious and deliberate policy) almost 1.4 million non-New Zealand citizens.  Even just in the last 30 years –  when it has all been conscious and deliberate policy –  the net inflow of non NZ citizens has been 1.1 million people (in 1989, the total population was only 3.3 million).

Even allowing for the 50 year span, they are staggering numbers (in both directions).   And perhaps what is all but unprecedented is that combination.  There are countries –  even in the modern era of largely controlled immigration –  that have had very large inflows (you could think of modern Israel or Australia in the 1950s. or Portugese settlers flooding back home in the 1970s, or the French settlers back from Algeria after independence).  And you can think of countries that have had very large outflows in modern times –  Cuba, or modern day Venezuela, Syria, or some of the eastern European countries after they joined the EU.  But I can’t think of a single case that parallels New Zealand’s radical population experiment –  a mass exodus of its own people (mostly to better opportunities across the Tasman, quite rationally), accompanied by such active large scale controlled inflows of people from other countries.  Some of the places people leave from en masse are hellholes (each of the first three of my list), but the countries in eastern Europe typically aren’t –  almost all of them now, for example, have average GDP per capita above that of the median country.

As a matter of economics, I think the policies pursued by successive governments have been daft and damaging, embarked on (and, worse, continued) in a cavalier manner that paid no serious heed to the ongoing economic underperformance and constrained opportunities of New Zealand.  Or even to how unusual New Zealand’s approach to population and migration was. I’ve laid the arguments for that case out elsewhere (eg here) and am not going to repeat them here.   I’m pretty confident that –  on narrow economic arguments – material living standards for the average New Zealander would today be better (probably materially better) had governments respected the signal in the behaviour of New Zealanders, and perhaps kept the average annual inflow of non-New Zealand citizens to, perhaps, 10000.  Over the full period that would have meant perhaps 900000 fewer non-NZ immigrants.

We’d have been smaller –  but small countries abroad do just fine –  we’d have worked more within the constraints of our natural resources, we’d have reduced the extent of the disaster that is the housing “market”, and more internationally-comparable real interest rates and a lower real exchange rate would have made firms operating in the tradables sector better-positioned to succeed from here.

But as I was thinking about the issue, another dimension occurred to me that I hadn’t previously given much attention to.  The component of the population that wouldn’t have changed much with a much different immigration policy is the people identifying as Maori.    Those people were 15 per cent of the total population at the 2013 Census, and for the sake of argument we’ll assume it is still 15 per cent now.     With a different immigration policy –  along the lines I sketched above –  the population now might only be about four million, probably less  (a net 900000 fewer migrants, but they have children and grandchildren, filling out a total population effect over several decades).  A Maori population that is 15 per cent of 5 million, would be almost 19 per cent of a population of 4 million.

This is all highly-stylised, and I’m not putting any weight at all on precise numbers, but it is a reminder that immigration policy –  going back many many decades (see Vogel on this point about his immigration policy) –  has been about reducing the relative importance (numerical weight) of Maori in modern New Zealand.  Sometimes that was intentional, and at other times probably mostly not, but effects (especially entirely foreseeable one) matter more than intentions.

Reasonable people might differ on whether this is a good thing, or even a legitimate topic for discussion.  Were one Maori, one might quite easily think it a very bad thing.  You might view the resurgence of things Maori in recent years as a “good thing” and wonder about the “what ifs” around a quite different path of immigration in modern times.  Not only would your people have been clearly the single largest non-European ethnic grouping, but your overall share in the population –  and claim on power, resources, and esteem would have been that much greater.

But it is quite possible that many others would see things differently.  Many other voters –  consciously or not –  might welcome large scale immigration partly because it can be used to relativise and reduce the position of Maori (“just another minority in the cacophony of voices”).  As someone who is sceptical of our immigration policy (over decades) for economic reasons, I’m genuinely curious as to how the liberal strongly pro-immigration voices in our society reconcile their enthusiasm for high rates of immigration and their regard for Maori (the Labour Party itself, with such a substantial Maori caucus, is the most group to wonder about, although one could wonder about the National Party too.)

Of course, if one were being hard-headed about the matter one might wonder what such an alternative society might look like.  A country that was, say, 20+ per cent (identifying as) Maori  –  with higher fertility rates than other ethnic groups –  and just a couple of per cent each Pacific and Asian (a plausible mix if we’d been targeting 10000 net non-citizen migrants for the last 50 years).  That would look and feel very different to today’s New Zealand.  One can see reasons why some –  Maori and non –  would have embraced such a mix.  But, realistically, one can also see reason why for some European New Zealanders it might have been more of an impetus to have followed the economic opportunities and gone to Australia.   Who knows which tendency would have predominated, and what  political dynamics might have emerged in the process, or what the economic implications might have been.  My arguments about the economics of immigration in the New Zealand context have tended to proceed as if there are no ethnic faultlines –  and remember my “for economic purposes, I don’t care in the migrants come from Birmingham, Bangalore, Brisbane or Beijing”.  But that isn’t so, and it may –  genuine uncertainty, at least in my mind –  matter even in thinking about likely alternative economic outcomes.  In my view, it is almost always better to let societies work these thing –  including competing interests and values – out themselves over time, rather than have governments might a heavy hand on the scales (as they do by large scale immigration programmes).

(Some earlier thought on immigration policy and Maori are here.)

 

Universities and PRC-risk

Michael Reddell China, NZ politics, Uncategorized

A couple of days ago the prominent US economics blog Marginal Revolution highlighted a university in the United States which had taken out insurance against a significant drop in revenue from Chinese students.   The underlying article was here.  The policy had been taken out last year, but only now has the broker allowed the transaction to be publicised.

Here’s the gist

The University of Illinois at Urbana-Champaign has paid $424,000 to insure itself against a significant drop in tuition revenue from Chinese students.

In what is thought to be a world first, the colleges of business and engineering at the university signed a three-year contract with an insurance broker to pay the annual six-figure sum, which provides coverage of up to $60 million.

and

Jeff Brown, dean of the Gies College of Business, told Times Higher Education that the insurance would be “triggered” in the event of a 20 percent drop in revenue from Chinese students at the two colleges in a single year as a result of a “specific set of identifiable events.”

“These triggers could be things like a visa restriction, a pandemic, a trade war — something like that that was outside of our control,” he said.

Tuition revenue from Chinese students makes up about a fifth of the business college’s revenue.

Brown said that the insurance would cover the colleges’ losses if the decline was temporary and buy the university time to “make some adjustments to where we recruit” if it became a longer-term issue.

The article refers to the comments, mentioned here the other day, from a former head of Australia’s Department of Foreign Affairs and Trade

Last month, Peter Varghese, chancellor of Australia’s University of Queensland, suggested that universities should put revenues from Chinese students into a trust fund to insulate themselves against a future drop in enrollments from East Asia.

A few thoughts came to mind reading the article:

  • on the one hand, the insurance seems quite cheap (less than 1 per cent of the amount insured).  Even if a year ago there weren’t debates –  as now in the US –  about possible government restrictions on China student visa numbers – the risk of something going wrong wouldn’t have seemed small (after all, even pandemics happen more than once in a hundred years, and wars have also been higher frequency than that).
  • and, on the other, you have to therefore suppose that the contract is very tightly drawn, and it might well be difficult for the university to get a claim paid out.

It would also be interesting to have seen their analysis on the merits of paying a premium to an outside insurer as opposed to self-insuring.  The university concerned  appears to have an endowment of US$3.5 billion and a drop in Chinese student numbers doesn’t look like it could pose an existential threat to the institution as a whole.

And the policy seems unlikely to provide cover in the event that, say, the university president or a group of his/her senior academics were at some point to make a strong stand against the actions and policies of the People’s Republic of China.  That is something in the hands of the university and therefore almost certainly uninsurable.  If anything, one could imagine the insurance policy constraining their perceived freedom of action/speech.

But it also got me thinking about the compromised position of New Zealand universities.  Perhaps none of them is dependent on the China market for quite 15 per cent of their total revenue, although there will be individual departments and perhaps even faculties that will be at least that dependent.   In a new post, on why people on the left have been reluctant to support Anne-Marie Brady, I noticed this line from Paul Buchanan

The first, prevalent amongst academics, is concern about losing funding or research opportunities for publicly siding with her. The concern is obvious and acute in departments and institutes that receive PRC funding directly

Do we really have components of our public universities receiving direct funding from the PRC (Confucius Institutes aside, which are peripheral to the universities themselves)?  If so, surely such funding should be given more prominence, given the nature of the regime (scarcely benevolent and welcoming of scrutiny and criticism).

But even just in respect of student enrolments, the PRC market is clearly of considerable importance to the universities (and slightly far-fetched claims of increased penetration of the international student market are used to support Victoria University Vice-Chancellor – and China Council member – Grant Guilford’s bid to change the name of his institution).   Our universities are keen on lots of foreign undergraduate students for various reasons.  High numbers apparently help them in some of the mechanical international ranking schemes.   But the key driver is almost certainly the money.  Overseas students –  especially from non English-speaking backgrounds –  are quite expensive to support, but they can be charged full fees.  By contrast, the government caps both domestic student fees themselves, and limit the amount of direct support to universities in respect of those students (while, with gay abandon, offering interest-free student loans and fee-free entry to students themselves).  In a hugely distorted “market”, successive governments have set up the incentives that drove the universities further into exposure to the political whims of the PRC authorities.  Universities, in turn, were aided and abetted by the immigration policy provisions, that bundled-up work rights and qualification for post-study visas and residence points with study at a New Zealand institution.   In most fields, in most institutions, our universities simply aren’t so good (highly ranked) they’d attract large numbers on their own merits at full fees (although being a low wage Anglo country, presumably our fees are lower than those in some other countries).

The corruption of the system is double-edged.  There is the political dimension –  we are never likely to see a clarion call from our Vice-Chancellors opposing the repressive nature of the PRC regime, including the repression of academic freedom – such as it was – in China.  It seems unlikely they’d even speak up for, say, Anne-Marie Brady here –  certainly none have.  Once upon a time one might have looked to university vice-chancellors as among the eminent figures guarding and championing our traditions (for all the talk about academics as “critic and conscience”, a huge part of what they do is pass down the accumulated knowledge and wisdom, so that we don’t start anew each generation).  But not these days.  There are deals to be done –  connections with the PRC itself, even degree-granting programmes there –  and enrolment numbers to keep up.  Vice-Chancellors seem more like hawkers, than guardians and champions of our values.

But the other side of the corruption of the system relates to the pressure to pass people.  Those of us outside universities don’t see much of this directly, although occasional reports seep out.    But there was a Twitter thread the other day from an Australian economist, who teaches at the University of Queensland

One hears similar stories from time to time here (not necessarily specific to PRC students), and one can only assume they aren’t uncommon, (and that New Zealand universities are no purer, or their academics more resistant to pressure, than their Australian counterparts).

It is a very sad way to run a university system – at least if society expects anything more of universities than being degree-factories.   Rather than “critic and conscience” it has the feel of something more like corrupted exemplars of how off course our society has gone.

And thus there seems almost no chance that our universities –  or the Australian ones – will heed Peter Varghese’s advice (will his own even do so?).  Governments would have to take the issue seriously first, and that seems unlikely.    Putting aside some of the short-term profits as protection against a “rainy day” –  if the thugs in Beijing took a dislike to you – would probably immediately expose the problems in the financial standing of the universities and of our tertiary education system as a whole.  Better just to go along, get along, get the Vice-Chancellor on one or other of the pro-PRC propaganda bodies, pass the students, keep the contracts (with Beijing or Wellington), and keep supporting succesive governments in doing everything possible to avoid upsetting Beijing, to sacrifice the values of our society on the pyre of deals and donations.

But I was left wondering whether our own Export Credit Office –  a small intervention I’m deeply sceptical of –  would offer our universities the sort of insurance the University of Illinois was taking out.    They tout themselves as offering these services

NZEC can assist exporters to mitigate the effects of a buyer cancelling a contract or defaulting on its payments, as a consequence of commercial or political events beyond an exporter’s control.

And would we be better off if they did, or would the insurer just be even more keen on keeping the insured (the universities) in line?

In her writings, Anne-Marie Brady quite often introduces lines from Lenin, which appear to help shed some light on how the PRC operates.  As one reflects on our universities –  in particular – I’m reminded of the line that the capitalists would sell the communists the rope with which they’d later be hanged.   Perhaps one expects little of our “capitalists” –  businesses can prosper under any political regime (see Google worming its way back into China) – but universities were supposed to be better than that.  Governments share the blame, of course, but leaders of universities are moral agents, and should have their own responsibilities beyond just the income statement.

The China Council plumbing the depths

Michael Reddell China, NZ politics

Last night I went to a function organised by the Wellington branch of the Fabian Society, to hear Tony Browne speak on “China’s place in the world and New Zealand’s relationship with it”.   Browne, as readers may be aware, was New Zealand’s Ambassador to the People’s Republic of China some years ago (2004 to 2009), when the regime was a bit less awful than usual.

Browne chose to make his speech off-the-record, so I can’t tell you what he said.  That is a shame, and not because I would otherwise choose to make any “gotcha” points from what he said.  It was an interesting address, and perhaps 100 people heard it, but for such a timely and important issue his perspective is probably one that more people should hear.  There was nuance to some of his views and arguments –  and perhaps more sign of perspective and some decency than, say, one gets from the New Zealand China Council (or our politicians).

Browne is no longer a public servant, and in that sense is free to keep his views private.  But he is hardly just a retired public servant doing his garden in Waikanae.  Since leaving MFAT he has taken on several roles that keep him close to the centre of things, even if just outside the official boundaries.  On the PRC side, he is the chair of the PRC-funded Confucius Institute at Victoria University and (rather more grandly) sits on the international advisory body to the PRC authorities on the worldwide Confucius Institute progamme.  Closer to home, he is Executive Chair of the Contemporary China Research Centre –  the multi-university body, itself closely tied in to MFAT/NZTE interests, based at Victoria and which shares offices and support staff with the Confucius Institute.  He’s also a member of the Council of the (largely) government-funded propaganda and advocacy body, the New Zealand China Council.   And he is joint programme director for the ANZSOG training programme in New Zealand and Australia for rising Chinese Communist Party officials, itself organised in a contractural arrangement with the Chinese Communist Party.  ANZSOG itself, as I’ve noted here previously, isn’t just some obscure academic body –  this trans-Tasman arrangement is chaired by our own State Services Commissioner Peter Hughes.

I suppose that had Browne been speaking on-the-record he’d have spoken less openly.  Which, in itself, tells us something, when it comes to issues like the PRC relationship, and interests.

You’ll have noted that the local Confucius Institutes – in addition to channelling Chinese foreign aid into the schools of an advanced country –  run seminars to champion the perspectives of the PRC, in conjunction with various other PRC front bodies.  No one, of course, supposes that the PRC runs the programmes out of the goodness of its heart.

And that the Contemporary China Research Centre –  chair, board members, and director and deputy directors –  have been totally silent on, for example, issues such as those raised by Anne-Marie Brady and more recently when various other academics stood up and called on the government to take more seriously the apparent efforts to intimidate Professor Brady.    Go to the CCRC website and you’ll see prominently displayed next week’s conference on the (jointly promoted by NZ and the PRC) Year of the Chinese Tourist.  Couldn’t queer that pitch I suppose.  More generally, there is nothing there this year that might be seen to represent a serious contribution to the emerging debate around the PRC, its activities in New Zealand, and New Zealand’s relationship with that evil regime.  And, of course, the CCRC is a content-provider to MFAT  –  an arrangement they wouldn’t want to jeopardise –  no doubt training new generations of public servants to minimise the evil and maximise the deference.

And ANZSOG –  seemingly more interested in the mechanism of government than the purposes (moral or otherwise) of such activity –  no doubt wouldn’t like any flies in the ointment of its special relationship with the Organisation Department of the Communist Party.   Perhaps the frameworks of the State Sector Act or the Public Finance Act come in handy in managing the abuses –  in Xinjiang, Tibet, or China more generally?

But if we can’t talk specifically about Tony Browne’s views, as distinct from his interests, we can talk about one of his bodies, the New Zealand China Council.   Recall that this body is largely taxpayer-funded, has the heads of MFAT and NZTE on the Board ex officio, as well as various other “worthies” mostly, it appears, with business interests in China.  They also have an Advisory Council, with people like Jian Yang, Raymond Huo, the head of (Beijing-front) New Zealand China Friendship Society (and others).  They are funded to promote the relationship with the PRC, which seems to involve (a) never ever saying anything critical (unlike the way real mutual relationships work), (b) trying to keep the populace quiet and on-board with the government and business project (“deals and donations; never mind the nature of the regime at home or abroad”).   There never seems to be much rigour or analytical depth to their material –  but perhaps one doesn’t expect that from propagandists.

Anyway, it appears that the China Council held its annual meeting last week.   We are told that they “raised the bar” at the AGM, although it isn’t clear what that means, assuming it isn’t just a reference to the drinks afterwards.   We are also told that the Chairman’s report was approved unanimously –  which seems an odd thing to emphasise in a press release, at least outside places like the PRC.  And what was in Don McKinnon’s report?  We are told about their work championing (New Zealand’s involvement in) Belt and Road.  We are told about how much propaganda is still needed (emphasis added)

The Council’s survey, undertaken in February 2018 and released later in the year, is the first to benchmark New Zealanders’ attitudes towards the relationship with China specifically, including the relationship as a whole, trade, investment and culture. The survey revealed a pleasing level of support for the relationship but showed there is more work for the Council to do to ensure it is understood properly

The way these taxpayer-funded “worthies” see it presumably?

But probably the key, and most telling, paragraph was this one

An, at times, unedifying debate about the extent of foreign influence in New Zealand risks unfairly targeting New Zealanders of Chinese descent but has not detracted from the value which the relationship with China delivers in terms of cultural diversity, wealth creation and jobs.

Feel the lofty condescension.  Perish the thought that academics, commentators, citizens, residents –  native and ethnic Chinese –  might actually want to debate the relationship, and challenge the deferential narrative that Sir Don and his “worthies” want to reinforce.  No specifics, no evidence, no reference to (for example) the many ethnic Chinese here who want nothing to do with the regime or what it represents, some of whom are courageous enough to speak out.  No sense that there are any issues, choices, or tradeoffs, just the great unwashed getting in the way of making money and collecting party donations.    Perhaps it isn’t really surprising, but you’d sort of hope that such an eminent Board  –  top tier public servants, senior academics, senior business people etc – would pride itself on being able to tackle substantive isses substantively.  But clearly not this lot.

The Council plumbed new depths of obsequiousness (to Beijing that is) this morning, when they released a statement on the Spark/Huawei 5G situation.  The words are those of Executive Director –  former MFAT official –  Stephen Jacobi, but it appears to speak for the Council, so we must assume that the chief executives of MFAT and NZTE are party to this position.  The statement opens

The New Zealand China Council is disappointed to learn plans for Huawei’s involvement in the development of Spark’s 5G network have been put on hold.

Not, note, disappointed to learn from the New Zealand government’s own GCSB that their assessment is that Huawei 5G equipment raises national security issues/threats. It is as if they are spokespeople for Huawei and for the PRC.

Executive Director Stephen Jacobi says the Council would not wish to see the decision complicate efforts to expand the trade and investment relationship with China.

One would like to think that observation was directed at the PRC.  After all, they (PRC) assure people that Huawei operates quite separately from the Party/state –  despite those new laws, and the presence of CCP cells in all significant PRC companies.  But it doesn’t seem likely that was the intended emphasis.

“We are not privy to the GCSB report and therefore cannot comment on its substance.  We note the Government’s reassurance that this decision is about the security of a certain technology rather than about China.  Even so, we are concerned that the decision may have repercussions.

Pretty clearly aimed at our government and the GCSB, despite –  as they concede –  having no information on the substance of the security issues.

They go on

“We hope the relationship is resilient enough to withstand occasional differences of view.  We understand Huawei is committed to finding a way forward, and we hope a resolution can be reached that is acceptable to all parties.

Wouldn’t you hope that, first and foremost, any issues are resolved in ways the safeguard New Zealand’s national security, present and future?  Most people would, but I guess not those committed to deference to Beijing.

They conclude

“Meantime, we need to continue to focus on building a relationship with China which reflects our respective values and interests and delivers value to both parties,” Mr Jacobi says.

Power, aggression, and self-assertion regardless of borders and citizenship on the one hand, and deference –  to the point of kowtow – on the other.

Reasonable people might take different views on the Huawei provisional decision.  Few if any of us have any basis for reaching a technical view. But this statement –  including from two of our most senior public servants –  seems aimed at deliberately undercutting the GCSB stance (a New Zealand government agency), queering the pitch for ministers, and seems concerned more about the interests and attitudes of Beijing –  and the ongoing sales (and party donations) of its members –  than it is about the national interests, national security, and values of ordinary New Zealanders.    But then they have Jian Yang and Raymond Huo inside their tent, so why should we be surprised.

 

Inflation-indexed bonds: are they telling us anything?

Michael Reddell indexed bonds, inflation

Data from New Zealand’s inflation-indexed bond market has been a bit of a mystery for some time.

If one looks at US data, the gap between conventional and indexed government bond yields –  the “breakeven” or implied inflation expectation – makes sense.  Here is the data for the last five years or so.

US IIBs

The US inflation target is around 2 per cent and for the last couple of years the breakevens have been pretty close to that.  There was a period of real weakness in 2015/16 but it didn’t last that long, and even then the breakevens were only averaging around 1.5 per cent.   If you were inclined to focus on the severe limitations US monetary policy will face in the next serious recession, you might even think 2 per cent breakevens for the average of the next 10 years is a bit high –  after all, the Fed has struggled to get inflation to average 2 per cent in the last decade –  but that would be a non-consensus perspective, and I’ll leave it to one side for now.

The New Zealand indexed bond market was, for a long time, rather patchy to say the least.  Indexed bonds were tried for a while in the 1980s, and then one more-modern-style long-term indexed bond was issued in the mid-late 1990s (about the time I and a colleague wrote this article).  But The Treasury was never very keen, and there was a diminishing volume of public debt anyway.     If there is any upside to the higher volume of public debt this decade (in general I’m not convinced) it is the advent of a range of government inflation-indexed bonds.  There are four on issue now, with maturity dates out to 2040.

Unlike the situation in the US, no one makes readily available here constant-maturity data for either indexed or conventional bond yields.  When the “10 year bond yield” is quoted here, it is rarely actually 10 years.  But the Reserve Bank does publish a yield series for each of the indexed bonds.  If one time-weights the (September) 2025 and 2030 indexed bond yields, one gets this approximation to a 10 year indexed yield since September 2015. (I’ve also show the yield for the 2025 bond from the end of 2013 to September 2016, when it was at least moderately close to 10 years).

indexed bond yield NZ

The fall in long-term real interest rates is certainly striking –  consistent with the fact that five years ago the Reserve Bank and most of the market thought short-term interest rates would be more like 4 or 5 per cent looking ahead. In fact, of course, the OCR has been 1.75 per cent for the last couple of years, and is currently expected to remain low pretty indefinitely.

And what if we then take the Reserve Bank’s “10 year bond yield” series for conventional bonds, and subtract the indicative indexed bond series in the previous chart?

NZ IIBs

This is the chart that parallels the US one at the start of the post.  As you can see, the two charts (one daily, one monthly) look quite similar at the start.  Breakevens here were also around 2 per cent, the target set for the Reserve Bank.  But then they diverge –  the short term cycles are similar, but the levels are very different.  On this measure, it has been three years since the New Zealand breakeven rate got even to 1.5 per cent.  As of yesterday’s data, the gap was 1.34 per cent.

Meanwhile, of course, at every opportunity the Reserve Bank assures us that inflation expectations –  survey measures, which involve respondents staking no money, and rarely any reputation (since responses are published mostly in aggregated form) –  are “securely anchored” at 2 per cent.   And, rather than address the indicators from the indexed bond market, the Bank simply passes by in silence.

Over the years, there have been various stories put forward for why information from the indexed bond market should be discounted.  For a long time, there was only one maturity, and there really wasn’t all that much of that bond on issue (just over $1 billion).   Then there were stories about illiquidity –  not much trading in indexed bonds and few or no price-makers.   Glancing through the historical data for turnover in the Feb 2016 bond, there were lots of weeks when the outright trades totalled less than $5 million, and quite a few when there were no trades at all.

But these days there are four bonds on issue, totalling about $16 billion.  Talking to a funds manager recently, I learned that another bank has just become a pricemaker in indexed bonds, such that there are now three local and three offshore institutions offering two-way prices in these instruments.  And the Reserve Bank turnover data suggests that if these markets aren’t exactly awash with trade, there is now a respectable volume of secondary market turnover in at least the 2025 and 2030 maturities (and there isn’t much turnover in conventional bonds beyond 2030 either).

I queried the fund manager as to his view on why the New Zealand breakevens are so low.  He argued that it wasn’t now a market liquidity issue (although you have to think that if you wanted to dump a $200 million position it would still be a great deal easier in the conventional market than the indexed market).   His argument was the market was still new and that there limited interest still from the buy side, including the offshore market in particular.    I was a bit surprised by that, as I recalled (long ago) when the indexed bonds were being issued in the 1990s that a lot of demand initially came from offshore (it surprised us at the time, and New Zealand inflation indexation seemed like something more naturally appealing to local pension funds than to offshore funds).   But I looked up the data, and this is what I found.

Per cent of bonds in market held by non-residents, Oct 2018
Conventional
Apr-23 67.7
Apr-25 52.2
Apr-27 67.1
Apr-29 75
Apr-33 46
Indexed
Sep-25 50.7
Sep-30 37.6
Sep-35 21.3

And, sure enough, a materially smaller proportion of the indexed bonds is owned offshore than of the conventional bonds.   The offshore proportion isn’t trivial by any means, but it is smaller (and, if anything, looks to have been shrinking a bit over the last few years).

I don’t have a good story for why that might be.  After all, New Zealand indexed bonds offer some of the highest yields in the advanced world (our longest maturity yields 50 basis points more than the US 20 year indexed bond, and the US is now a high yielding advanced economy), and much of the story of the last few years has been of a search for yield.  Search for yields often involves sacrificing liquidity.  And (critical as I am of New Zealand economic performance) the creditworthiness of our bonds, indexed and nominal, looks better than ever in relative terms, as being among the handful of advanced countries with budget surpluses and low debt.

I did hear a story a while ago suggesting that the government has simply glutted the market by issuing too many inflation indexed bonds too quickly.  At one level it is an argument that looks a bit hard to refute (the resulting yields are high relative to equivalent maturity and credit risk conventional bonds), but standing back a bit I’m not sure how persuasive a story it is.  The world markets are big, New Zealand is small (and fairly sound), and the appetite for yield has been strong.

Which is partly why I don’t think it is safe for the Reserve Bank to simply ignore that New Zealand inflation breakevens.  They may well be telling us something about medium-term expectations of inflation (implicit expectations as much as explicit ones).  After all, core inflation this decade has averaged around 1.5 per cent, the Bank has (twice) proved too quick to tighten, and if inflation has picked up a little recently, it would be reasonable to think that there will be a downturn along again before too long.

sec factor model nov 2018

Perhaps there is a more compelling story that “exonerates” the Reserve Bank.  But it would be good to see them make it, and to be able to test the quality of their analysis and research.  Simply ignoring a pattern that has now persisted for three years –  breakevens averaging less than 1.5 per cent when the inflation target as 2 per cent –  seems not particularly responsible, not particularly transparent, not particularly accountable.

 

Economic failure CCP-style

Michael Reddell China, Uncategorized

I’ve touched on this point in earlier posts, but since at present there are lots of new readers, it is worth revisiting, and re-illustrating, the point: the People’s Republic of China (and more specifically, the Chinese Communist Party, that our leaders are so keen to cosy up to) has overseen a really poor economic performance.  It is, more or less, what one might have expected knowing that the rule of law would be absent, markets wouldn’t be allowed to function effectively, state subsidies (of all sorts) would be rampant, and so on.  It could have been worse, of course –  there was the utter chaos, misery, and (for a time) mass starvation from the late 1950s to the mid 1970s.  The handful of other remaining Communist-ruled countries are worse.   But even having stopped doing so much active destruction, the PRC results are unimpressive.    Any other conclusion surely invites that American line about the soft bigotry of low expectations.

Of course, it isn’t the line the PRC would have one believe.  And it suits too many politicians in the West to talk up China as a stunning economic success story.  But it isn’t.  Development economists, left and right, will talk up the hundreds of millions of people who’ve moved above the poverty line.  And that is great, except that (a) it was the CCP that did its utmost (perhaps unintentionally) to put them back below the poverty line in the first place, and (b) getting above the poverty line is a pretty feeble standard against which to judge the economic performance of a country that for centuries matched or exceeded the best material living standards anywhere.

Angus Maddison’s great collection of historical GDP per capita estimates is a typical starting point for such comparisons.    He reports estimates for some countries every few hundred years from year 1 AD, and then more frequent (increasingly annual) estimates for more countries in more recent centuries.  In 1 AD the estimates he reports had Italy with the highest material living standards, followed by Greece.  China was about the level –  or a bit ahead –  of most other places in Europe.   In 1000 AD, China was top of the rankings –  not by much, but it was number 1.  That shouldn’t be any great surprise to anyone who recalls the various Chinese inventions ahead of the discoveries of such things (printing presses, paper money, even very big ships) in the West.   By 1500, China was a bit behind Italy and Belgium, but not much different to most of the rest of western Europe (all well ahead of what is now the United States).

Scholars spill a lot of ink debating why China went into such severe relative decline (Japan also fell well behind and I presume –  though Maddison doesn’t have estimates –  other east Asian places did too).    Whatever the precise mix of explanatory factors that slippage happened.   In 1850, Maddison’s estimates have Chinese GDP per capita at about a quarter of that in the UK and the Netherlands, and less than 40 per cent of his “Western European 12 countries” average.  By 1900, estimated per capita GDP was only about 15 per cent of that in the highest income countries.

But perhaps as importantly, in 1900 China’s GDP per capita is estimated to have been about half that in Japan, and just a bit behind that in Taiwan (by then a Japanese possession).   As late as 1870, China had been not far from the GDP per capita in a range of Asian countries/territories for which Maddison now has estimates –  about on par with Korea, Taiwan, and Thailand, and a bit behind Japan, Hong Kong and Singapore.

And this is what they’d been further reduced to by 1976, the year Mao died.  I’m using the Conference Board’s PPP estimates, and have shown a mix of countries –  mostly east Asian and European, but with a few other interesting cases (eg Israel –  brand new in 1948) thrown in.

china 1

Such utter self-destruction and failure.  It wasn’t done by outsiders.  It wasn’t as if the PRC had faced uniquely bad external threats.  It was like economic suttee, with the depraved indifference of mass starvation thrown into the mix.

And how does the picture look today, with the Conference Board’s 2017 estimates.

china 2

The PRC has rocketed past the Philippines and Sri Lanka, and still trails the rest of this pack rather badly.   And this isn’t Tanzania or Rwanda, but a country that was once –  for centuries –  among the highest living standards anywhere in the world.  A country in a region where South Korea, Japan, Taiwan, and Singapore now manage advanced country living standards –  one of those a country that struggles to get international recognition and under constant threat from the PRC.

From the Maddison estimates, in 1980 the Soviet Union –  a region never at the forefront of material living standards –  had GDP per capita about the same ratio to that in the western European countries that China has today.  In fact, about where China was –  in relative terms –  in 1850 (see above).  It is a simply dismal economic failure in a country –  by a Party –  that would have so much potential were its people ever to be free, to ever be properly governed with the rule of law rather than the rule of Xi.

For the same countries, here are the real GDP per hour worked estimates.

china 3

It really is an astonishingly poor performance.  Or at least it would be unless you’d been told in advance that Japan, Singapore, Taiwan, and South Korea would establish market economies with the rule of law, sound governance etc etc (and none of it perfect) and that the PRC would remain a land where the (Communist) Party actively rules.  Then, the outcomes are probably much as one might expect –  China lags very badly behind, to the disadvantage of its people, even if to the enrichment (power, money) of its rulers.

On the IMF’s full list of countries, the PRC now ranks 79th (out of 187) in the GDP per capita (PPP) stakes.  Average real GDP per capita is a touch behind that in Iraq (yes, I was surprised) and the Dominican Republic, and a little ahead of Brazil and Macedonia.  Perhaps China’s growth rates are faster than those places, at least if one (a) believes the official data for the Xi period, and (b) discounts the massive distortions and misallocations associated with one of the largest credit booms in history.      But there is no sign of Chinese per capita incomes catching those of the leading countries any decade soon (if things unwind nastily, the gaps would even widen a bit for some years).

Taiwan, Korea, Japan, and Singapore are genuine economic success stories –  catch-up and convergence more or less as the textbooks suggested was possible.  Cause for celebration in fact.   The PRC?  Anything but.  Being big doesn’t change that –  even if it gives geopolitical clout to a lagging middle income country –  it just means more people are failed by their rulers (and by those in countries such as ours who give the rulers aid and comfort, pander to them, or simply cower in a corner).

Known by the company they keep

Michael Reddell China, NZ politics, Uncategorized

Where might one turn if writing today about the New Zealand/ People’s Republic of China issues?

One could start with yesterday’s extraordinary interview our Foreign Minister gave yesterday on Radio Live where, on the one hand, he laid into Jian Yang, and on the other seemed to suggest that anyone who questioned the activities of the PRC here or abroad was somehow motivated by racism.    Quite extraordinary.  And while we are on the subject of Jian Yang, perhaps Mr Peters could have a chat to the Prime Minister (who seems totally unbothered by Jian Yang), or to the MP from his own party who is Minister of Internal Affairs, responsible for citizenship law (Jian Yang having acknowledged a year ago that he misrepresented his past to get into the country in the first place, apparently under “guidance” fron Beijing).

And the Herald this morning was awash with material.  There was a rather wishy-washy editorial, which ended with the suggestion that if the delay in the Prime Minister’s visit to Beijing was “a rebuke it is not warranted”.   Well, of course not, both the Prime Minister and (successive) leaders of the National Party do their utmost to cover for Beijing, and never ever give offence.

There was the flippant cartoon, suggesting that all the PRC would be interested in here was the recipe for slow-cooked lamb, which one might just pass over without note if the issues weren’t so serious, the abuses undertaken by the regime –  at home and abroad – so grave.

There was another article in which the Prime Minister and Simon Bridges seemed to compete for who could grovel before the PRC regime –  tossing overboard any sense of decency or right – the most.    You’ll recall that Simon Bridges had a head-start, having been the minister responsible last year for signing New Zealand up to the rather warped aspiration of a “fusion of civilisations” –  with the PRC of all people.   According to Bridges

He said New Zealand’s default position should not be to question the legitimacy of China’s actions in the Pacific and around the world.

But, being independent and all that, and with the PRC’s track record, it actually doesn’t seem a bad starting point.  Perhaps his predecessors suggested our default shouldn’t be to question the legitimacy of Germany actions in the Europe in the 1930s, ….but I doubt it.  It is hard to see that Bridges is guided by anything resembling the word “principle”.

As for PM,

Ardern would offer no definite view when asked which country, United States or China, was more important to New Zealand.

“Some of the discussion around choosing lanes in which we swim does not fit with our independent foreign policy,” she told reporters.

“New Zealand has a range of important relationships, some for different reasons, some with different histories. But for me, the most important thing is maintaining the independence of that foreign policy basing it around New Zealand values, upholding those values and continuing to strengthen them when it is in New Zealand’s interests.”

No sign of anything resembling “principle” there either.  For her, it seems, “independence” is the primary virtue, not standing up for what is right, and standing up for the freedoms and interests of New Zealanders, including those in the ethnic Chinese community.   From both her and Bridges, it seems that visceral anti-Trumpism is being allowed to provide cover for simply sacrificing the integrity of our domestic political system, and a climate in which New Zealanders can go about their business in New Zealand –  including call out the abuses by the PRC –  free of fear.

And then there was the frankly pretty scurrilous column by Fran O’Sullivan, “Academic draws a long bow on China”.  I thought it was pretty bad on two counts.  First, she accused Anne-Marie Brady of “China derangement syndrome”, and yet when one gets to the end of the column all O’Sullivan has to say in disagreement with Brady’s paper –  which, as published was only in working paper form –  was that it included Ruth Richardson among the former politicians now involved in the boards of Chinese (PRC controlled) companies.  Whatever the ins and outs of the Synlait situation, former Minister of Finance, Ruth Richardson sits on the board of one Chinese bank here, Don Brash chairs another, Jenny Shipley is on one of the boards, and former National minister Chris Tremain is on another.   In all cases, with the possible exception of Don Brash, no one supposes these appointments were about banking expertise.  It is about connections, and such appointments also have the side benefit of putting such senior former politicians in a position where they can’t really criticise anything the PRC does.   But, in a way, the second count bothers me more.  O’Sullivan is the “Head of Business, NZME”, but she is also co-chair of the China Business Summit, and sits on the Advisory Board of the taxpayer-funded advocacy and propaganda outfit, the New Zealand China Council.  Neither of those involvements was noted in the article.  General readers can’t just be assumed to know such things, and should be able to assume that staff writers and columnists have no personal interests in the causes they are championing.

(Oh, and there was also the de haut en bas tone –  O’Sullivan being a favourite of the establishment these day –  of  this comment on Brady’s paper

It highlights issues that the higher echelons of the NZ Government are currently grappling with: whether foreign-sourced political donations carry a tag; an alleged Mainland influence on Chinese nationals and local ethnic media and unanswered questions that remain over National MP Jian Yang.

Except that there is no sign of the Prime Minister or the Leader of the Opposition taking a stand on either issue.  Perhaps some officials are indeed troubled, but politicians call the shots.  We know there are problems – answered questions in the case of Jian Yang.  Bridges and Ardern simply refuse to face what they – and their predecessors –  have reduced our politicaL system to.)

But actually what I really wanted to write about today was an article not in the New Zealand media at all, but in the Chinese media (a Xinhua story to be exact –  thanks to a reader for sending through the link).

Both main party presidents –  Peter Goodfellow for National and Nigel Haworth for Labour –  have form when it comes to gushing over the PRC regime and its leader, Xi Jinping.  It keeps the donations flowing I suppose, and Goodfellow was the source of reported line that Chinese donors were less trouble than others.  Goodfellow is also reported as having business links with Jian Yang, including in the promotion of the Belt and Road Initiative, and –  as reported only relatively recently –  is closely involved in one of PRC-favourite Yikun Zhang’s promotional activities in New Zealand.

This story is about Goodfellow, who was apparently up in China last week, one of the

….attendees of a meeting held in Hangzhou, east China’s Zhejiang Province, on Friday.  The meeting to showcase Zhejiang’s achievements in high-quality development invited leaders and representatives of more than 80 political parties from over 30 countries.

The Chinese Communist Party was singing its own praises

Che Jun, secretary of Zhejiang Provincial Committee of the Communist Party of China (CPC), introduced the coastal province’s experiences in improving governance capacity to better serve economic growth, promoting innovation-driven development, nurturing new growth drivers while upgrading old ones, and building an ecological civilization.

and so was Peter Goodfellow

Noting China’s national rejuvenation is a good thing rather than a threat for the world, President of the National Party of New Zealand Peter Goodfellow expressed his willingness to strengthen friendly exchanges with the CPC and to actively participate in construction under the Belt and Road Initiative.

I’m sure we can all welcome China’s economic development, even as we note how badly the PRC lags behind Taiwan, Hong Kong, Singapore, as well as Japan and South Korea.  But there was a time, not that many decades ago, when hobnobbing with the Chinese Communist Party was looked on rather suspiciously in New Zealand (I’ve just been reading James Bertram’s  slightly sickening account of his party’s trip to China in the mid-1950s, meeting with Mao and Chou En Lai just before the dreadful Great Leap Forward ), but now the president of our largest political party is wanting to work together with Communist Party, source of so much evil for the PRC citizens in the subsequent decades.  And no serious observer any longer pretends that the Belt and Road Initiative is anything much other than a geopolitical play.  Peter Goodfellow seems keen on pretending otherwise.

Probably from his perspective, so far so routine.  He – and his Labour peers –  probably do this sort of stuff all the time, long since detached from the sort of values their respective parties were founded on.  But it shouldn’t be normalised. It should be about as shocking as their counterparts in the late 1930s praising the Nazi Party and pledging to work together in its geopolitical initiatives.  Bad as the appeasers were, that would have been unthinkable then.  It should be again today.

But in a way what really struck me was the company Peter Goodfellow was keeping in this article.    There was Arshad Dad, Secretary-General of  (ruling) Pakistan Tehreek-e-Insaf party.  There was Alsayed Mahmoud Al-Sharif, the first deputy speaker of Egypt’s House of Representatives, who was clearly very taken with the regime

….[he] said the experience of the CPC is worthy of deeper exploration.

“China, represented by Zhejiang, pays attention to the quality behind the speed in its development, continuously enhances its innovation and competitiveness, accelerates industrial transformation and upgrading, and opens up a unique, high-quality development path,” said Al-Sharif.

And Pavle Budakov, a Bureau member of the Socialist Party of Serbia.

But here’s the thing.  Pakistan is widely-recognised as something close to a Chinese client state, now deeply indebted to Beijing.    Egypt seems to be heading in somewhat the same direction, sucking in PRC money and labour (and “craving allies at a time when much of the world has recoiled from its brutal crackdown on dissent”) to build a new capital, and as for Serbia…..well, for a start the Socialist Party of Serbia was formerly the party of Slobodan Milosevic, and in an ongoing New York Times series on China (from whence the Egypt quote is taken), the Prime Minister of Serbia outdoes even Li Keqiang

Mr Li seeks to allay European worries that China poses a challenge to its rules. He promises that Chinese-financed projects will be awarded on the basis of competitive bidding.   “There needs to be open and transparent tendering”, the Chinese premier declares.

But the Serbia prime minister, Ana Brnabic, has just undercut that aseertion.  Asked moments earlier about the [highly-contetious, almost certainly uneconomic] high-speed rail from Belgrade to Budapest, she says Chinese companies have been promised construction work.  “China is a strategic partner”, she says.  “We are not putting out tenders”

Not even the deference that vice pays to virtue in pretending to a proper process.

Whether it is Beijing and the CCP, or these other regimes, our politics –  our political parties –  really should be better than that.  We had a long and honourable tradition, which our political parties seem only interested in trashing, along with the sort of values that underpinned this democracy, this society.

In closing, just two brief things.  The first is to encourage readers to view this short clip, sent to me by a reader.  It is the story of a (now) New Zealand Chinese family –  father and daughter.  The mother died in a PRC political detention facility, three months pregnant.  The regime wanted the father and daughter back (they’d got to Bangkok) but fortunately the then New Zealand government offered them refuge here.  They are still harassed by Beijing and its agents, formal or informal here, and threats made about family back in China.  Bravely, they are still willing to speak up and speak out, about their own awful experience.   I commented to the person who sent me the link

Powerful, sad, and yet a little hopeful too – that people aren’t willing to just give up and be quiet

Perhaps Todd McClay –  who repeats PRC propaganda about the Xinjiang internment –  could watch it, or Simon Bridges, or Jacinda Ardern.  These are New Zealanders.  And that is the regime to which you –  who purport to be “leaders” – give cover.  Surely they can’t really believe the regime is morally worthy at all, but perhaps it might be less shameful if that were their excuse, rather than “another deal, another donation”.  As Scott Morrison put it recently, in an Australian context, we have to be more than the sum of our deals.

Anastasia Lim isn’t a New Zealander. She is a Chinese-born Canadian actress who a few years ago won the Canadian competition to qualify for the Miss World finals.  She hasn’t been afraid to speak out about China’s human rights abuses –  including the forced organ transplants – and was thus banned from China (and thus the competition finals) in 2015.  If the PRC hoped to silence here, the ban only seemed to draw attention to her and her cause.  She pays a price –  her family back in China is scared to talk to her – but seems undeterred.  She is visiting New Zealand briefly next week.  Auckland readers might be interested in this  Monday evening screening of an award-winning film based around real-life PRC events,  at which she will host a question and answer session.  Perhaps Winston Peters could drop in, and listen to another courageous ethnic Chinese voice speak up about the regime in Beijing.

 

Implicit admissions and bids for resources

Michael Reddell Financial stabilty, Uncategorized

The Reserve Bank’s Financial Stability Report was released earlier this morning.  The headline, of course, was the easing in the loan to value restrictions on mortgage lending, although perhaps what should get more attention was the Governor’s suggestion that the avowedly “temporary” restrictions” will be in place for at least “the next few years”.     There was no good case for them –  putting a bureaucrat between willing borrowers and willing lenders – in the first place, and there is no good case for having them in place now.  Other than, of course, the interest that isn’t the public interest at all –  more discretionary power for an unelected unaccountable public official.

(Given the Bank’s repeated unease about dairy debt, it has also never been clear to me why LVR limits were appropriate for people buying houses but not for people buying farms. I used to raise the point while I was still at the Bank, and have never heard a satisfactory or persuasive response.)

Two other small things in the press release warrant just brief mention for now:

The first was this

Our preliminary view is that higher capital requirements are necessary, so that the banking system can be sufficiently resilient whilst remaining efficient. We will release a final consultation paper on bank capital requirements in December.

Time will tell how persuasive their case is, but given the robustness of the banking system in the face of previous demanding stress tests, the marginal benefits (in terms of crisis probability reduction) for an additional dollar of required capital must now be pretty small.

And the second was this

Aside from CBL, the insurance sector as a whole is meeting its minimum capital requirements. However, capital strength has declined and a number of insurers are operating with small buffers. The insurance industry must ensure it has sufficient capital to maintain solvency in all business conditions.

That is quite a shot across the bows of the sector, but it is worth remembering that when the solvency standards were set up the Reserve Bank consciously chose not to require insurers to hold sufficient capital to remain solvent in all circumstances. I vividly recall the day I asked, at the internal Financial System Oversight Committee, whether the solvency standards were demanding enough that they would have prevented the AMI collapse, and was told no.

But two other things caught my eye in the full document.

The first was that the Bank no longer seems to be claiming that LVR controls –  coming between borrowers and lenders for five years now –  have done anything to improve the soundness of the financial system (while they have inevitably impaired the efficiency of the system).  Those are the statutory goals the Bank is required to use its powers towards, and yet in the document today we find this (in the cartoon summary at the front):

The restrictions have reduced the number of borrowers who would be forced to sell their houses or significantly reduce spending if they ran into financial problems.

But, even if true, that is not the same –  at all – as improving the soundness of the financial system. It is about “nanny knows best” customer protection, which is no part of the Bank’s mandate.   You can’t be forced to sell your house if the Bank’s action prevented you from getting into one in the first place.

And here is the claim from the body of the document

The Reserve Bank’s LVR restrictions have leaned against the build-up in risks from high household debt by increasing the amount of equity borrowers have in their homes. The restrictions have seen the proportion of outstanding mortgage debt to households with loans larger than 80 percent of the value of their houses fall from over 20 percent in 2013 to under 7 percent. This extra equity provides households with more room to avoid cutting consumption or defaulting on their loans if economic conditions deteriorate or if interest rates rise.

Nannying again, not (apparently) focused on the soundness of the financial system.  As a reminder, the two diverge because (a) even if LVR controls modestly reduced housing lending risks, we never get a good sense of what other risks banks have taken on to maintain profits, and (b) because less risky lending means banks need to hold less capital.  Capital relative to (properly assessed) risk-weighted assets is the key issue when it comes to solvency.

From the text there is no way of telling whether the Bank’s focus has really changed or just the marketing. But marketing –  from a powerful public agency – should be aligned with, and disciplined by, mandate.

And then there is climate change.  In the Governor’s press release there was this

In the medium-term, an industry response to a variety of climate change-related challenges appears likely, requiring investment.

Which is pretty cryptic, perhaps even empty.

But in the full document there is a two page spread on “The impact of climate change on New Zealand’s financial system”.   There is lots of text, and very little substance.  It smacks of the Governor bidding for relevance – signalling to his buddies on the (political and business) left –  and involvement in the wider whole of government programme, and perhaps worse, it looks like a bid for more budgetary resources (a case we know the Bank has been making) or amended legislation to do things like

The Reserve Bank is developing its own climate change strategy. The strategy focuses on ensuring that climate risks are appropriately incorporated within the Reserve Bank’s mandate. The Reserve Bank also stands ready to collaborate with industry and government to help position New Zealand for the challenges ahead.

This for a body with two city offices, and a balance sheet full mostly of exposures to New Zealand government debt and overseas government debt.

The text burbles on about possible risks, but it all adds up to very little.     There are numerous risks banks and borrowers face every decade, every century.  Relative prices change, trade protection changes, external markets change, exchange rates change, technology changes, economies cycle, land use law changes.  Oh, and the climate changes.

If one looks at the structure of New Zealand bank (or insurer balance sheets) it just isn’t credible that climate change poses a significant risk to the soundness of the New Zealand financial system (that pesky law again).   Some individuals are likely to face losses from actual and prospective sea-level rises, but banks (and insurers) typically have diversified national portfolios.   People can’t have mortgage debt without insurance, and so the insurers are likely to be constraining people first.   Much the same surely goes for the rural sector?   Sure, adding agriculture into the ETS at the sort of carbon price some zealots have called for would be pretty detrimental to the economics of a dairy debt portfolio, but then freeing up the urban land market probably wouldn’t be great for residential mortgage portfolios, and we don’t see double-page spreads from the Reserve Bank on that issue, or the Governor trying to play himself into some more central role in that area.     It smacks of politics –  signalling the Governor’s green credentials –  more than anything legitimately tied to financial system soundness.

But then we probably should not be surprised. The Governor sells himself as head of a tree god (fortunately there was none of that stuff in today’s document), and gives speeches on climate change, but eight months into his term still hasn’t managed to give a speech on either of his main areas of statutory responsibility (monetary policy or financial supervision/regulation/stability).