Chinese investment in Australia declining: new report

Chinese investment in Australia dropped to USD$10.3 billion (AUD$13.3 billion) in 2017 – down 11 percent (in USD terms) from 2016 - despite renewed investment in mining, continued investment in commercial real estate and a surge in healthcare investment. Changing regulatory, political and economic landscapes impacted on new investment flows from China to the world during the year, with global Chinese overseas direct investment falling by 29 percent.

The volume of Australian deals was on par with the previous year, but average deal sizes fell, with 76 percent below AUD$100 million. While investment by private Chinese companies grew, the total volume of State Owned Enterprise (SOE) investment dropped for the first time since 2014. NSW continued to attract the most investment (42 percent), followed by Victoria (36 percent) and WA (14 percent).

These are among the key findings of the latest Demystifying Chinese Investment in Australia (June 2018) report by KPMG and The University of Sydney Business School, analysing Chinese outbound direct investment into Australia in calendar year 2017. JLL contributed data and analysis on commercial real estate development transactions. The report also incorporates the bi-annual Chinese Investors in Australia Survey – providing insights into the perceptions of the Australian investment climate by Chinese investors.

“2017 was an important and testing year in many ways for Chinese direct investment in Australia. Chinese government regulations which were implemented to address concerns about speculative, irrational global investments and massive capital outflows have impacted the Australia result, as have recent changes to Australia’s foreign investment regulations for strategic infrastructure assets. The numbers don’t lie: Chinese ODI in Australia has fallen,” said report co-author, Doug Ferguson, Head of Asia & International Markets for KPMG Australia.

“Australia remains globally competitive for attracting Chinese investment, retaining its position as the second largest recipient of accumulated Chinese investment - only behind the United States - with just under USD$100 billion since 2008. However the gap is growing. Chinese executives tell us that Australia remains a relatively safer and more attractive country to invest than many others but only 35 percent of survey respondents feel welcome to invest here, which is down from 52 percent in 2014.”

Chinese investors continue to be drawn to projects in Australia that relate to growing Chinese consumer demand and Chinese government priority initiatives - health and wellbeing, tourism and lifestyle, real estate, technology, services and a continuing demand for mining commodity resources, all areas where Australia is internationally competitive and has potential to grow.

Key findings

Investment by industry

Mining was the most significant sector for Chinese investment in 2017 with 35 percent of total ODI, followed by real estate (33 percent), healthcare (12 percent), food and agribusiness (8 percent) and infrastructure (4 percent).

The mining sector saw twelve deals announced in 2017 totalling AUD$4.6 billion, a rise of 448 percent from 2016. This large increase was mostly driven by the AUD$3.4 billion acquisition of Rio Tinto’s thermal coal assets by Yancoal. There was however a continuing investment focus on lithium, gold and non-ferrous metals.

Commercial real estate remained a leading sector for Chinese investment in 2017, accounting for AUD$4.4 billion of investment, with Australia attracting 11.5 percent of China’s total global overseas real estate investment. Residential development project transactions accounted for around 44 percent of the total value, followed by office (30 percent) and mixed-use (9 percent).

There was a surge in healthcare investment by Chinese companies in Australia in the past few years.  AUD$1.6 billion was invested in 2017 compared AUD$1.4 billion in 2016.The food and agribusiness sector recorded eight deals in 2017 with a total value of AUD$1.1 billion. This represents an 8 percent decline from 2016.

Infrastructure investment fell to AUD$485 million, just 4 percent of total investment in 2017. Renewable energy investment of AUD$124 million was recorded in 2017, representing a 64 percent annual decline and mostly driven by one large transaction - Goldwind’s acquisition of Origin’s Stockyard Hill wind farm for AUD$110 million.

Investment by geography

Chinese capital was again focused in NSW in 2017 with AUD$5.6 billion or 42 percent of total investment value. Victoria experienced an uplift from 25 percent of total investment in 2016 to 36 percent in 2017.

Western Australia received AUD$1.9 billion in Chinese investment or 14 percent of total inflows, up from AUD$1.1 billion in 2016.

Queensland attracted AUD$667 million of investment, 57 percent of which was healthcare related. While South Australia attracted AUD$455 million or 3 percent of investment, into infrastructure, energy and food & agribusiness deals

Chinese investors in Australia survey

The Chinese Investors in Australia Survey involved surveys and interviews with senior executives from 45 Chinese-invested companies located in Australia on their perceptions of the Australian investment climate and key challenges they face in Australia. The research was undertaken in April 2018.

“The last three years have been a good period financially for Chinese investors in Australia - with 65 percent of respondents reporting revenue growth, and 45 percent profitability growth," said report co-author Professor Hans Hendrischke, Professor of Chinese Business & Management at the University of Sydney Business School.

"2017 was a year of consolidation, marked by a reassessment of the role of Chinese investment in our country, as well as changes to ODI regulations in China.

“Our local survey has revealed sentiment has currently shifted, with a higher level of apprehension by Chinese investors towards investing in Australia. Seventy percent of respondents stated that the political debate had made Chinese companies more cautious about investing in Australia. And 67 percent see the Federal Government as less supportive than previously. The Australian media was cited as the group least supportive of their investment; with Australian business leaders the most supportive.

“Our survey and interviews with Chinese investors indicate a level of concern, however, there is a growing familiarity and confidence in the Australian market.

"While most Chinese investors retained a level of optimism about their Australian investments some investors, especially SOEs, are apprehensive due to diplomatic tensions and the sense of feeling unwelcome. Only 35 percent of surveyed companies felt welcome to invest in Australia – a notable decline from 52 percent in 2014."