Chinese investment in Australia falls in 2019 despite record bilateral trading year
Despite record bi-lateral trade between China and Australia, which was up 21 percent to A$235 billion in the 2018-2019 financial year, our latest analysis of Chinese Overseas Direct Investment (ODI) in Australia shows investment in Australia fell 58.4 percent from A$8.2 billion in 2018 to A$3.4 billion in 2019 – the lowest since 2007. The number of deals was down 43 percent, from 74 in 2018 to 42 in 2019.
The reasons for the decline are many and no one country or issue is responsible. The decline reflects the impact of Chinese ODI regulations driving a shift towards less risky and higher quality investments.
Australia’s decline mirrors that of a number of western countries including the USA, Canada and members of the EU, which are implementing tighter FDI screening measures. It is worth noting that Chinese ODI into Australia has fallen at a faster rate in 2019 than Chinese investment into other western countries, including the US. However, Australia still recorded just below half the US$5 billion of Chinese investment received by the United States in 2019, and far more than the US$1 billion received by Canada.
SOEs investment is moving away from developed markets and towards the Belt and Road (BRI) projects and Latin America, and negative Chinese perceptions on stricter investment regulations by the Australian Government have all contributed to the lower levels of investment.
Chinese companies have invested over US$107 billion into Australia since 2008 and this capital has been a really important contributor to economic growth locally, but new investment is slowing. While deal activity will still continue because of the genuine complementarity between both nations and the large number of Chinese companies now established in Australia, we don’t expect to see a continuation of large-scale investment by new Chinese entrants in the short-to-medium term.
In a first for Chinese inbound investment in Australia, Tasmania received the largest percentage of investment with the Mengniu Dairy Company’s acquisition of Bellamy’s Australia Limited for A$1.5 billion. This single deal, which accounted for 43.7 percent of total Chinese investment, made food and agribusiness the largest sector with 44 percent of the annual total. Overall, the food & agribusiness sector received the highest proportion of investment with Commercial Real Estate close behind with 43 percent or A$1.479 billion of investment of total Chinese ODI Investment, down from A$3 billion in 2018.
Chinese investment in commercial real estate* was mainly directed towards smaller acquisitions in 2019. Just under 70 percent of the total number of transactions involved deal sizes of A$50 million or less. The prevalence of activity in smaller deal brackets partly reflects the ongoing impact of measures to limit capital outflows from China. The decline in capital inflows from Mainland China can also be attributed to investors directing capital through non-Mainland Chinese companies and funds.
Investments into the Australian services sector totalled A$195.2 million, representing 5.7 percent of the total. This included two educational businesses, one in financial services and one in hotel management services.
The mining sector accounted for 6 percent of total Chinese investment, with six deals totalling A$207.73 million, a decrease of 55 percent from 2018.
Renewable energy investments accounted for 1 percent of total Chinese ODI in 2019, at A$23 million, representing mostly small greenfield investments.
There were no recorded investment in Energy (Oil & Gas), Infrastructure or Healthcare in 2019.
Smaller deal sizes continued in 2019 with the large majority of deals, 89 percent, below A$100 million with more transactions in mid-sized Australian markets.
A large number of Chinese companies are already established and operating in Australia and we expect they will continue to invest or divest and drive local deal activity and bilateral trade. The private sector will continue to be most active, deal sizes will be smaller, and most states and territories will continue to be active, with NSW and Victoria the largest and most attractive.
Looking forward we expect overall Chinese ODI in Australia to remain subdued in the coming year. The impact of COVID-19 will no doubt have an ongoing influence as governments move to protect critical infrastructure and tech, and try to prevent opportunistic acquisitions of companies at undervalued prices. Restrictions on travel have practically disabled new deal-making and due diligence activity.
*Knight Frank contributed data and analysis on commercial real estate transactions