Chinese investment in Australia fell in value and number for the calendar year 2020 from the previous year. Investment value was down 26.8 percent to $2.5 billion from $3.4 billion in 2019, the lowest level since 2007, according to a new report by the University of Sydney and KPMG.
The number of deals was also down – by more than half, from 42 in 2019 to 20 in 2020. The fall in investment came against the backdrop of the COVID-19 pandemic resulting in a 35 percent reduction in Foreign Direct Investment (FDI) inflows globally, deteriorating bilateral diplomatic relations between Australia and China, and increased government intervention in foreign investment in both Australia and China.
Despite this decline, Chinese investment in Australia remains on par with Chinese investment in other developed economies, such as Canada and Germany.
The biggest transaction of 2020 by Chinese investors in Australia was the purchase of a commercial real estate asset in Sydney – 45 Clarence Street – by Peakstone for $530 million, followed by Shangdong Gold’s acquisition of Cardinal Resources for $395 million, a gold exploration company.
Mining was the largest sector recipient with 37.6 percent of total Chinese investment, followed closely by commercial real estate, which accounted for 36.1 percent of investment. The services sector accounted for 21 percent of investment, with food & agribusiness (4 percent) and healthcare (1.3 percent) also represented. There was no investment recorded in renewable energy, energy (oil and gas), or infrastructure.
New South Wales continued to attract the lion’s share of Chinese investment, with just under half (49 percent) at $1.246 billion of total investment. Reflecting continuing investment in the mining sector, Western Australia received the second highest proportion of Chinese investment, at 26 percent, followed by Victoria with 24 percent. The only other state to receive investment was Queensland, with one percent.
Privately owned enterprises accounted for 62 percent of investment value and 85 percent of deal numbers, outweighing state-owned investment.
These are among the key findings of the Demystifying Chinese Investment in Australia (July 2021) report released today by KPMG and the University of Sydney. The report analyses Chinese Overseas Direct Investment (ODI) into Australia for the calendar year January to December 2020.
Doug Ferguson, report co-author and Head of Asia & International Markets for KPMG Australia, said: “Chinese investment in Australia fell to $2.5 billion in 2020 compared to a peak of over $17.5 billion in 2008 and has fallen steadily each year from $15 billion in 2016. This appears to be a trend with no obvious change in sight.
“The decline in Australian investment reflects a number of factors, including a shift in priorities for Chinese global SOE investment (and Chinese regulators) away from OECD countries; the obvious impacts of COVID-19 travel restrictions; and much tighter regulatory scrutiny in Australia reflecting political and public sensitivity. We are now seeing mostly private-sector investment consolidating towards smaller deal sizes in less sensitive sectors and projects targeting domestic demand.”
Co-author, Professor Hans Hendrischke, Professor of Chinese Business & Management at the University of Sydney Business School, said: “New powers under the national security test appear to signal increased government intervention in foreign investment and substantial increases to Foreign Investment Review Board (FIRB) application fees. Penalties for non-compliance suggest a change in philosophy with FIRB taking on a greater watchdog role. Several investment projects were rejected under the new legislation.
“However, Chinese investors continue to view Australia as a safe economic environment and the majority of the executives we surveyed said that their headquarters in China remained supportive towards their Australian operations. Chinese executives are aware of the need for long-term strategic efforts in building policy and stakeholder support for Chinese investment in Australia, and foreign investment in general.”
Chinese Investors in Australia Survey
In addition to the investment analysis, surveys and in-depth interviews were conducted with senior executives from 75 Chinese companies with investments in Australia on their perceptions of the Australian investment climate and key challenges they face in Australia. The research was undertaken in January and February 2021.
Commenting on The Chinese Investors in Australia Survey, Professor Hendrischke said: “Chinese investors are more concerned about the political environment than in previous years. 75 percent of surveyed executives stated that the political environment in 2020 has made Chinese companies more cautious to invest in Australia. This is up from the 59 percent who expressed concerns in 2018 and 70 percent in 2017.
“Increasing geostrategic tensions have also been felt by Chinese investors. Nearly half (45 percent) of the surveyed executives claimed they had suffered negative consequences from the worsening relations between Australia and China, while one third (35 percent) of respondents felt negatively impacted by the geopolitical situation between the United States and China,” he said.