Chinese investment into Australia slumped 40 per cent last year, twice the drop worldwide, according to new figures, which highlight the impact of Beijing’s crackdown on trophy acquisitions and Canberra’s tougher stance on sensitive infrastructure and property.
A new public database to be released on Monday by the Australian National University, supported by Treasury and with input from the Reserve Bank of Australia, shows Chinese commercial investment peaked in 2016 at $14.9 billion, before falling to $8.9 billion last year.
“This is an unusual drop in Chinese investment into Australia,” said the project’s leader Peter Drysdale, who heads the Asian Bureau of Economic Research at ANU. He noted the decrease was significantly larger than the 19.3 per cent fall in China’s worldwide foreign direct investment.
The sharp decline in Chinese investment comes amid Canberra’s reluctance to sign up to President Xi Jinping’s signature foreign policy initiative, the Belt and Road infrastructure program.The government has also taken a tougher line on foreign investment in Australian infrastructure assets, setting up the Critical Infrastructure Centre within the Home Affairs Department to assess potential acquisitions.
“In Australia, we have to be clear-eyed what it is we’re trying to protect,” said Professor Drysdale.
“Rather than close off Chinese investment in infrastructure, both countries need to frankly sit down and talk about how to manage the risks. There is a strong appetite for infrastructure investment funds and it can’t all be sourced domestically. China is the largest source of new capital in international markets by a significant margin.”
The database shows $40.4 billion of Chinese money made its way into Australia over the past four years, via 262 transactions. Last year, the mining sector still accounted for the biggest proportion, making up just over half of the total value of transactions. However, its share has fallen since 2014 as other sectors such as health care and financial technology are starting to attract interest from Chinese buyers.
“There has been a significant diversification of Chinese investment in Australia,” said Professor Drysdale.
Over the four years – 2014 to 2017 – Chinese state-owned enterprises were involved in less than 20 per cent of transactions, although these tended to be larger in size. By value, SOEs accounted for 47 per cent of investment.
Last year’s decline in Chinese investment into Australia comes amid heightened national security concerns as China seeks to expand its influence across the region. Australia was sharply criticised by the US government after the Port of Darwin was sold to a Chinese buyer in 2015. The following year, then Treasurer Scott Morrison blocked the NSW government’s planned sale of electricity distributor Ausgrid to Chinese bidders. More recently, the government has effectively banned Chinese telecommunications company Huawei from participation in the country’s 5G rollout.
A key test of Australia’s openness to foreign investment in infrastructure will be whether new Treasurer Josh Frydenberg allows the $13 billion takeover of gas distributor APA by Hong Kong’s CK Group to go ahead.
Meanwhile, China has been cracking down on big overseas deals in recent years following its scare in 2016 when record capital outflows eroded its foreign exchange reserves. Beijing responded by strengthening its oversight of foreign transactions and putting a stop to flashy acquisitions of luxury real estate, sports teams and entertainment assets. It also curbed the activities of China’s most acquisitive companies such as Dalian Wanda Group, Anbang Insurance and HNA.
“China has been very worried about uncontrolled investment,” said Professor Drysdale. “Issues were raised about the way in which people were parking funds offshore and more controls were put in place.”
The ANU’s Chinese Investment in Australia database tracks realised investments whereas the Foreign Investment Review Board’s figures are based on approvals for proposed investments, which can exaggerate the scale. And unlike the Australian Bureau of Statistics, the new ANU database counts not only investments from the mainland but those that have been channelled through Hong Kong and other global financial centres.
The project was developed in consultation with PwC, Corrs, MMG, Macquarie Group, the Future Fund, the Australian Bureau of Statistics and the Reserve Bank.
Professor Drysdale said China’s introduction of capital controls contributed to the drop in investment. However, he noted the fall in Australia was significantly larger than in other countries.
Total overseas direct investment from China fell just over 19 per cent to $US158 billion last year, the first fall since 2003 but still the second highest in history, according to the China Annual Statistics. Over the past two years, Chinese overseas direct investment accounts for more than 10 per cent of the global flows, behind only the US and Japan.
Professor Drysdale said while big transactions made up the bulk of Chinese investment in Australia over the period, increasingly there were deals valued at less than $100 million. He also said there were more private sector transactions.
He said China was facing push-back against its investments in many countries, not just Australia.
by Lisa Murray