New Zealand’s Quiet China Shift

In February 2018, New Zealand Foreign Minister Winston Peters quipped to the New Zealand Parliament that “the art of diplomacy is to jump into troubled waters without making a splash.” Since 2017, the New Zealand government has attempted to make a calculated correction in its relationship with the People’s Republic of China (PRC), without any deterioration in New Zealand’s overall relationship with the great power.

In the last three years, New Zealand, once merely famous for its scenery, has become infamous as the Five Eyes nation with a particularly bad case of Chinese Communist Party (CCP) political interference activities. New Zealand is characterized as the “soft underbelly” of the Five Eyes or the weakest link. A January 2020 Financial Times article asserted that New Zealand is “on the edge of viability as a member” of its allied relationships, because of its “supine” attitude to China and its “compromised political system.” The New Zealand government has been accused of lacking the “political will” to tackle the CCP’s harmful activities in the country. New Zealand’s response to handling problems in the China relationship has also frequently been compared unfavorably to Australia’s. New Zealand has been criticized for a perceived reluctance to join with other states to speak up on matters of concern with China.

New Zealand is the canary in the coalmine for many other small states seeking to find a safe way to deal with China’s increased political interference activities and aggressive foreign policy. In some ways, the actions of the New Zealand Coalition government to deal with the China problem may have gone further than what most of their Five Eyes partners or indeed comparable small state democracies have yet achieved. They have not shouted about what they were doing and it did not happen overnight – and many areas of concern have still not been dealt with.

New Zealand is practicing deliberate ambiguity in its China policy, and so far, it seems to be getting away with it: diving into the water with no perceptible splash, as Peters would put it.

The New Zealand government has strenuously avoided confronting China directly. Instead, since coming to power in 2017, the Labor-New Zealand First-Greens Coalition government has carefully managed a case-by-case recalibration of the New Zealand-China relationship, all the while claiming any changes were “country agnostic.” Unlike the prime ministers of Australia and the U.K., New Zealand Prime Minister Jacinda Ardern avoided New Zealand’s China risk-mitigation policies being associated with herself, or any one minister. Each new policy initiative has been debated publicly and then, if approved, backed up with legislation. As with the previous National-led government, any policy decisions that affected China, such as the ban on further near-space launches “without permission” (in 2016 a PLA-associated company conducted a near-space launch from a New Zealand beef farm) or the ban on Huawei in 5G, were described as following a proper process, responding to legislative requirements. The COVID-19 pandemic has deepened this quiet recalibration, and affirmed the position of those within the New Zealand national security sector who had argued for it.

Yet New Zealand’s damaged political reputation persists, in part because neither the governing Labor party nor the main opposition party, National, has given a clear signal that they are serious about addressing China’s political interference activities within their own parties, let alone publicly naming the problem. The impact of Beijing’s political interference activities on New Zealand democracy has been profound: a curtailing of freedom of speech and association for New Zealand’s ethnic Chinese community; a corrupting influence on the political system; and the silencing of critical debates on China in academia – all exacerbated by a weak and under-resourced news media and a complacent political class.

New Zealand is of interest to China’s Party-State-Military-Market nexus as a member of the Five Eyes, the Five Power Defense Arrangement, as well as a NATO partner state. Extricating New Zealand from these military groupings and away from its traditional partners, or at least getting New Zealand to agree to stop spying on China for the Five Eyes, would be a major coup for the Xi government.

Although New Zealand has a small land mass, it has the fourth largest maritime territory in the world. The New Zealand government is responsible for the defense and foreign affairs of the Cook Islands, Niue, and Tokelau. New Zealand is also a claimant state in Antarctica and one of the closest access points there. China has a long-term strategic agenda in Antarctica that will require the cooperation of established Antarctic states such as New Zealand. New Zealand has cheap arable land and a sparse population. China is the biggest foreign investor in New Zealand’s dairy sector, and New Zealand supplies 24 percent of China's foreign milk. New Zealand also has unexplored oil and gas resources and is well known as a location for global money laundering. All of these factors are reasons why the CCP government is interested in New Zealand.

Conversely, China’s growing military interests in the South Pacific and Antarctica threaten New Zealand’s national interests. China’s debt diplomacy in the Pacific undermines New Zealand’s influence in the region. New Zealand security depends on Pacific neighbors being peaceful and independent. New Zealand also has a growing trade dependency on China, which increases the economic and political risks. New Zealand is an export-based economy and relies on air and shipping lines being kept open. The recent announcement that the Chinese military is planning an air defense identification zone (ADIZ) in the South China Sea, through which close to 70 percent of New Zealand trade transits, is extremely worrying.

On top of those concerns comes COVID-19. The pandemic is a global political crisis, as well as a global health crisis, and it has drastically changed New Zealand’s strategic environment. The COVID-19 outbreak has strengthened the power of China, and weakened the United States and EU. New Zealand, like other small and medium states, is now trying to survive a dire strategic environment.

The contrast between New Zealand and Australia’s approach to dealing with CCP political interference activities, CCP foreign policy, and the wider strategic concerns reflect differences in political culture between the two countries, as well as size. Australia’s response to the China challenge was a top-down process, starting with an investigation into CCP political interference activities in Australia launched by Malcom Turnbull’s government in 2016, which sparked an overhaul of Australia’s overall China’s strategy. In 2017, Turnbull announced that Australia was planning to introduce anti-foreign interference legislation and made it clear that the main country of concern was China. The Xi government pushed back hard, and Turnbull returned fire, saying Australia had “stood up.” In the three years since, China-Australian relations have become increasingly polarized and the Xi administration is now punishing Australia economically.

In New Zealand, the public conversation about the CCP’s political interference activities began in September 2017, when I released early findings from my academic research, which I believed to be in the public interest. My conference paper “Magic Weapons: China’s Political Influence Activities Under Xi Jinping” (part of an edited book that, due to the glacial pace of academic publishing, had still not appeared as of July 2020) provided a template for assessing CCP political interference activities, and used New Zealand as the case study. The paper had a huge impact in New Zealand and internationally; commentators described it as “devastating,” a “bombshell,” and a “Sputnik moment.”

In September 2017, New Zealand held national elections; a month later, the Labor-New Zealand First-Greens Coalition government was formed. The new government early on demonstrated it was aware of the China challenge. New Foreign Minister Winston Peters stated that, under the Coalition government, “New Zealand is no longer for sale.” In an unusual step, the new government’s national security briefings were released to the public. The section on espionage featured discussion about hacking attacks and “attempts to unduly influence expatriate communities” and advised the prime minister to “openly provide information about public security issues to the public.”

An intra-government debate on to how to deal with CCP political interference activities in New Zealand lasted for nearly six months from late 2017 to mid-2018. A core question of the analysis was: What are the costs of confronting China? Should New Zealand protect its national security or its economic security?

China is New Zealand's largest overall trading partner, being its largest market for milk products and second largest for tourism – until COVID-19, New Zealand's top two economic sectors. New Zealand is strategically dependent on China for imports of 513 categories of goods; 144 of them have applications in critical national infrastructures. New Zealand is the most dependent on China of all the Five Eyes states.

New Zealand signed a Comprehensive Cooperative Relationship Agreement with China in 2003, a Comprehensive Strategic Partnership Agreement in 2014, and a non-binding Memorandum of Arrangement on Strengthening Cooperation on the Belt and Road Initiative (BRI) in 2017. New Zealand has expanded relations with China beyond trade, to finance, telecommunications, forestry, food safety and security, education, science and technology, tourism, climate change and Antarctic cooperation, as well as military cooperation. The political risks of some of these relationships would steadily become clearer as the international conversation on CCP political interference activities grew. In order to deal with the issues, the Ardern government couldn’t just attack the policies of the previous government; it also had to clean its own house and deal with the involvement of some of its own politicians in United Front activities, the CCP’s effort to influence foreign elites.

Under the Ardern government, New Zealand’s approach to China has been one of passive defense: not acts of passive aggression, but rather very quiet acts to boost resilience and resistance. One of the earliest public signals of this was when New Zealand announced a major new foreign policy direction, the “Pacific Reset” in May 2018, focused on regaining New Zealand’s influence in the Southwest Pacific. When announcing the new policy, Peters said New Zealand was at an “inflection point.” Ardern’s foreign policy speeches highlighted New Zealand’s “independent foreign policy” with respect to the United States and China and emphasized that her government would promote a values-based approach to foreign policy.“Independent foreign policy” is a phrase that is invoked whenever New Zealand governments are in disagreement with a great power. The Coalition government also continually emphasized the importance of the international rules-based order, supporting regional architecture, and the need for trade diversification.

All of these points can be read as disguised cries for help. Yet in response, the United States and EU continued on in their trade protectionism, while the terrible three of Trump-Putin-Xi have continuously undermined the rules-based international order on which New Zealand’s security depends.

In August 2018, New Zealand joined with other Five Eyes in a communiqué on sharing information to combat foreign interference. Then in October 2018, New Zealand’s Minister of Justice Andrew Little asked Parliament to conduct an inquiry into foreign interference in the country. In December 2018, New Zealand’s main telecom company, Spark, revealed that Wellington’s Government Communications Security Bureau (GCSB) was blocking Huawei from being involved in New Zealand’s 5G set-up, citing national security concerns. Ardern and her ministers insisted that the decision was GCSB’s to make, working within the Telecommunications Interception Capability and Security Act (2013).

From 2018 to 2019, the New Zealand Parliament held an extraordinary, highly controversial inquiry into foreign interference. None of New Zealand’s Five Eyes partners have dared to conduct such a drawn-out, public investigation into the CCP’s foreign interference activities, not least the United States, which is the main target of CCP United Front work. Little defined foreign interference as “coercive, deceptive, and clandestine activities of foreign governments, actors, and their proxies, to sow discord, manipulate public discourse, bias the development of policy, or disrupt markets for the purpose of undermining our nation and our allies.” It was obvious that the focus of the parliamentary inquiry was China, though politicians and officials strenuously avoided mentioning this directly.

In an extraordinary move, New Zealand security agencies gave several detailed public as well as closed-door briefings to the inquiry, and publicly offered to help political parties vet their MPs for security concerns – though going by the 2020 election party lists, few took up the offer. In December 2019, the New Zealand Parliament passed, under urgency, new legislation to restrict foreign political donations, and immediately launched a second inquiry looking into foreign interference activities in local governments. Remarkably, the legislation was passed by 119 of the 120 MPs. The only dissenting voice was an independent MP, who said the legislation did not go far enough, as it had made an exception big enough to drive a bus through: Political donations via New Zealand-registered companies were exempted. When the Panama Papers were released in 2016, New Zealand was described as “at the heart” of global money laundering. The ease with which foreigners can set up a company in New Zealand is one of the reasons why money launderers have been attracted to doing business there.

In 2018, the New Zealand government also updated the Overseas Investment Act to prevent foreign buying of residential property in New Zealand. Then in February 2020, the government proposed introducing national security considerations into overseas investment assessments, including investments related to military and dual use technologies, critical direct suppliers to security and defense, sensitive data, and the media. Meanwhile the Pacific Reset policies were rolling out, bringing big boosts for New Zealand’s Pacific aid in successive budgets and increased funds for Pacific diplomacy.

In June 2018, the New Zealand government released the Strategic Defense Policy Statement, which outlined the new challenges in the security environment, highlighting the return of “spheres of influence” and increasing military use activities in Antarctica. No other government either before or since has publicly acknowledged the latter risk, though many of New Zealand’s partners are extremely concerned about it. New Zealand reached out for strategic discussions with small and medium states in Europe and joined with Pacific Island Forum states in passing the Boe Declaration on Regional Security in 2019, which redefined the concept of security in the region, identifying foreign interference as a particular concern. Yet at the same time, New Zealand continued endless talks with China on the BRI, without ever committing to any projects, just as one would placate a bully.

New Zealand was very avoidant of what some diplomats dismiss as “megaphone diplomacy.” In late 2018, the country demurred from joining with Five Eyes states in publicly condemning China’s arbitrary arrest of two Canadians as punishment for Canada’s detention of the CFO of Huawei, preferring behind the scenes diplomacy. Yet in June 2019, New Zealand joined with 22 nations in condemning China’s human rights abuses against Uyghurs. In the same month, China’s Auckland Consul interfered in student protests at Auckland University over the situation in Hong Kong. Minister of Education Chris Hipkins responded that “universities should be places of tolerance.” Peters said, “New Zealand values the right to peaceful protest and freedom of expression, and we fully support the exercise of those freedoms.” Ardern told reporters that New Zealand diplomats had informed China that “we will uphold and maintain our freedom of expression” on the Hong Kong protests. On the same day, she and the minister of forestry, Shane Jones, spoke to the media about plans to diversify New Zealand exports from the China market.

Throughout all these individual actions, New Zealand’s main opposition party, the National Party, attacked the Coalition government with claims that they had damaged relations with China. However, the CCP leadership themselves assured New Zealand politicians this was not the case. In 2019, then-opposition leader Simon Bridges visited China and met with Politburo member and head of the CCP intelligence and policing agencies, Guo Shengkun, who told him New Zealand-China relations were at their “historic best.” In December 2019, New Zealand’s China trade peaked at close to 30 percent of overall exports.

The New Zealand government would likely have carried on this piecemeal approach to addressing concerns in the China relationship, had it not been for the coronavirus pandemic. It soon become clear that the CCP government would require a high political cost for any COVID-19 assistance they provided to New Zealand. In March 2020, China denied New Zealand’s new Hong Kong Head of Mission’s right of accreditation, apparently as punishment for the government restricting travel to New Zealand from China. China’s ambassador to New Zealand threatened that the travel ban would affect New Zealand-China trade, tourism, and “people’s sentiments.” China also restricted New Zealand’s access to purchases of personal protective equipment (PPE). Health Minister Dr. David Clarke said New Zealand had a mere “several weeks’ worth” of supply at the time. As occurred in many other countries, New Zealand’s supplies of PPE had been exported in bulk to China in January and February by CCP proxy groups. The Chinese government, and Huawei, pointedly sent bulk supplies of PPE to countries that had not yet made a final decision on Huawei in their 5G system.

The COVID-19 crisis has hastened New Zealand’s re-adjustment in its China relations to a more fundamental shift – though as yet undeclared. New Zealand’s 2012 NZ Inc. China Strategy, which mapped the possibilities for the relationship over a 10 to 15 year period, remains on the website of the Ministry of Foreign Affairs and Trade, but its agenda to pull New Zealand ever closer, both politically and economically, to China, is thoroughly out of date.

On multiple levels, New Zealand is instead now pulling together with other small and medium states to provide economic, political, and strategic support, mitigating the China risk and the absence of U.S. global leadership. New Zealand has joined an informal group of “First Mover” nations, countries that have done well in suppressing COVID-19 and want to swap notes on re-opening. The group includes Israel, Austria, Denmark, the Czech Republic, and Greece. New Zealand was invited to join an agreement for essential cross-border travel between South Korea, Canada, Singapore, and Australia. It is close to successfully concluding an FTA with the European Union, and an FTA with the United Kingdom should soon follow. New Zealand’s diplomats are continuing to work on passing a meaningful New Zealand-United States FTA, though hopes for this are slim. And New Zealand is partnering with Australia to offer practical assistance to Pacific island neighboring states to help them deal effectively with COVID-19. The continued independence and resilience of the island nations of the Pacific is crucial for New Zealand’s own security.

COVID-19 has given New Zealand an opportunity to reset its foreign and trade policies. In June 2020, Trade Minister David Parker announced a post-COVID long-term trade recovery strategy, highlighting market opportunities in the EU, U.K., and South America. The Coalition government passed further changes to the Overseas Investment Act under urgency, requiring sales of any businesses with civil-military implications to be referred to the Overseas Investment Office, as well as sales of any businesses whose work has an impact on democracy, such as the media. The government provided a subsidy to Taiwan’s China Airlines to fly cargo twice a week between Auckland and Taipei, but did not offer subsidies to PRC airlines.

The Coalition government has put a lot of effort into trying to diversify its political and economic relationships and dilute the CCP’s political interference activities in New Zealand. The Ardern government’s approach to dealing with the China risk is not very pretty to watch, but this is not the time for a moral foreign policy. Unlike the 1987 anti-nuclear dispute with the United States, New Zealand is not dealing with a partner that understands, and however begrudgingly, accepts, the concept of “loyal opposition” and an independent foreign policy on matters to do with national security.

New Zealand’s main political parties have yet to cut the cord to their CCP-connected political representatives, demonstrating either naivité, greed, or complacency. The vested interests in wishing the problems in the China relationship would disappear still run very deep in New Zealand – as elsewhere.

When it comes to foreign policy, the Ardern government is using deliberately ambiguous tactics to deter an increasingly aggressive partner, at a time when the rules-based order is being eroded on a daily basis. So far, even in the COVID era, New Zealand has avoided being punished economically by China.

The challenge going forward is whether other like-minded states have the political will to make the same adjustments as New Zealand, and pull together in a united front against the United Front, particularly focusing on supporting each other economically. There is a real risk that many states will respond to the COVID-19 crisis with economic protectionism, meaning that New Zealand will have no choice but to accommodate and appease the CCP.