Chinese investment in Australia consolidates to pre-mining boom levels as priorities shift

The outlook for Chinese Investment in Australia is mixed and uncertain, and we anticipate any future growth to remain muted compared to previous years.

In 2020 Chinese investment in Australia fell in value and number from the previous year. Investment value was down 26.8 percent to AU$2.5 billion from AU$3.4 billion in 2019, the lowest level since 2007. The number of deals was also down – by over 50 percent, 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.

Our survey of 75 Chinese executives, completed in 2021, noted a negative shift in sentiment compared to the bolder ambitions expressed in previous years. COVID-19 and the new realities involved with the bilateral diplomatic relations, coupled with more restrictive regulatory frameworks in both countries, have disrupted the heady expectations of the past for investment by Chinese companies into Australia.

Instead private Chinese investors are turning towards smaller, lower risk sector investment opportunities in the Australian market. There are many Chinese companies now operating in Australia and they will continue to selectively reinvest for growth.

Mining was the top sector primarily due to the AU$395 million Shangdong Gold/Cardinal Resources deal.  A total of AU$945 investment over four deals was recorded, representing 355 percent growth. The transactions comprised projects in gold, lithium, copper and mineral sands.

Chinese investment in Commercial Real Estate (including residential development sites) totalled AU$906.8 million in 2020, down 38.7 percent compared to the previous year. Investment in the services sector totalled AU$527.5 million. Representing 21 percent of the overall volume across three deals in technical services, and one deal in consumer services.

Investment in Healthcare represented only 1 percent of the overall investment.  Finally, investment in food and agriculture totalled AU$101 million. Agricultural investment shows a continuity of small deals, including two rural agricultural estates in Victoria.

Overall, there were no very large deals in 2020 and only one deal in the AU$500 million range. While the number of investment deals halved in 2020, the size of deals in the AUD$100 million range has increased, with average deal size up from AUD$83.3 million in 2019 to AUD$126 million in 2020.

Chinese investors are more concerned about the political environment than in previous years. Seventy five percent of surveyed executives stated the political environment 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.

There is a shift in sentiment among Chinese investors towards more pragmatic business attitudes compared to the loftier bilateral ambitions expressed in previous years. COVID-19 and the new political realities in bilateral diplomatic relations, coupled with a new and much more restrictive regulatory framework that applies to China, as well as other foreign investors, have all disrupted the inflated expectations of geo-strategic cooperation, regional infrastructure and hi-tech integration between Australia and China. Instead, Chinese investors are turning towards lower risk market opportunities with shorter term return on investment.

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