Chinese investment declined by 11% in 2017 finds KPMG Australia

13 June 2018 Consultancy.com.au

The annual rate of investment by Chinese investors in Australia dropped over the last year from $15.4 billion to $13.3 billion. Mining and real estate remained the two most popular sectors for investors attracting $4.6 billion and $4.4 billion respectively. The drop in outward investment represents a greater global trend of Chinese wariness and tighter domestic regulations but also highlights a higher level of apprehension from Chinese investing in Australia. 

A joint annual report by KPMG Australia and the University of Sydney, titled ‘Demystifying Chinese Investment in Australia’, identifies key demographics of Chinese investment and highlights Chinese investor sentiment about Australia. 

There has been a discernible downturn in Chinese investments in Australia in the past year which has been on par with a global trend. The Chinese Government has begun clamping down on wayward investments and ensuring that they support China’s development goals. The regulatory oversight ensures that investors are making the right decisions and are neither speculative nor overtly risky. 

Chinese outward direct investment (ODI) in Australia dropped by 11% on figures from 2017. This is comparable to the drop in Canada, which saw a 9% downturn, but both are out-shadowed by shrinking ODI in the US (-35%) and the EU (-17%). These numbers present a major decline in a few sectors including oil & gas and infrastructure, which fell by 84% and 89% respectively, but also see a rise in other areas including mining and healthcare.

Accumulated Chinese investment in Australia, US and EU 2014 – 2017

Whilst this year’s report paints a picture of red tape over Chinese investment, the report also suggests the situationpresents Australia with a unique opportunity to adapt and offer the Chinese incentives in line with the Belt and Road Initiative. Investors are likely to be looking for projects and services that “further the government's strategic objectives including consumer driven demand, clean energy and advanced technology,” states the report. 

In the context of the new Chinese development initiative and heightened government oversight, overseas investment by the Chinese is dropping globally. However, closer to home, the level of investor confidence in Australia’s political scene is also creating an atmosphere of uncertainty for the Chinese. 

The investment climate in 2017 wavered from Australia’s usual image of openness and growth towards one of wariness and apprehension. Included in this year’s report was a survey of 45 executives of Chinese investment firms in Australia operating in a broad range of areas. The results show that respondents view Australia as a ‘safe environment’ due to the country’s strong regulatory system and economic prosperity, but find Australians ‘less welcoming than before’. 

The political debate in Australia in 2017 has made my company more cautious to invest

“Sentiment has currently shifted, with a higher level of apprehension by Chinese investors towards investing in Australia. Seventy per cent of respondents stated that the political debate had made Chinese companies more cautious about investing in Australia,” said Hans Hendrischke, co-author from the University of Sydney. “Some investors, especially State-Owned Enterprises (SOEs), are apprehensive due to diplomatic tensions.”

The respondents identified a major trend in their attitude towards both the Australian political debate about investment as well as the Australian Government in general. The results of the survey reveal that 67% see the Federal Government as less supportive than previously, and 70% say that the political debate in 2017 has made Chinese companies more cautious about investing in Australia. On top of that, only a third of Chinese investors felt welcome to invest in Australia.

However, KPMG Australia’s Doug Ferguson, who also co-authored the report, suggests that whilst this shows a period of heightened turbulence between the two nations, the China-Australia relationship is solid.

Australia is a safer economic environment for Chinese direct investment than many other countries

“Chinese investors are increasingly conscious of the need to acquire assets, knowledge and technology and then leverage their links to the Chinese market for profitable growth, rather than base their investment on the expected growth of the domestic Australian economy alone,” he says. “They are investing with a long-term focus and this is positive for Australia.”

“It is important that the Australian Government and business community collaborate to encourage further investment in the right areas. Australia stands to make sustained economic, social and diplomatic gains by nurturing long-term partnerships between Australian companies and Chinese investors.

“In addition to the top end of town, we believe that medium sized Australian companies with high quality food and health products, leading technology, services and advanced manufacturing capabilities have an incredible opportunity to grow through trade and investment.”

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Chinese investment into Australia plunges to eight-year low

09 April 2019 Consultancy.com.au

Chinese investment into Australia plunged to US$6.2 billion last year according to the latest KPMG analysis, down by more than 35 percent to an eight-year low. 

A study from global professional services firm KPMG in conjunction with The University of Sydney has found that Chinese investment into Australia dropped by 36.3 percent in 2018, despite Chinese outbound direct investment growing by 4.2 percent globally to nearly US$130 billion. Taking in mergers and acquisitions, joint ventures, and green-field projects, Chinese investment into Australia totaled US$6.2 billion in 2018, down from US$10 billion the previous year.

As part of an ongoing collaboration between the Big Four firm and Sydney Uni, the latest release in the ‘Demystifying Chinese Investment in Australia’ report series (now into its fifteenth edition) points to Chinese domestic policy changes for the decline, with the local downward rate of investment now coming into line with trends seen in the US and Canada, which last year recorded respective Chinese inbound investment drops of 83 percent and 47 percent (in USD terms).Value of Chinese ODI into US, Europe and Australia 2012-2018

Designed to reduce its international exposure, the policy measures being implemented in China since early 2017 require overseas investments by Chinese firms to be non-speculative, only undertaken after fully considering major potential risks, and consistent with the company’s strategy and the country’s socio‑economic development goals – with certain categories of investment encouraged and others prohibited or restricted.

With 80 percent of Chinese executives stating that it was more difficult to get capital out of China in 2018 compared with 65 percent the year prior, the result is the second-lowest Chinese inbound investment in Australia since the mining & gas driven investment peak of 2008, with over US$16 billion coming into the country. Outside of the US$3.9 billion figure in 2010, the investment sum hasn’t dipped below US$8 billion in a decade.Chinese investment into Australia - 2007 to 2018

Yet, despite the domestic policy measures and downturn in inbound investment, Australia is still seen as a relatively safe investment destination according to a cross-sector survey of Chinese executives, with an improving political climate (those cautious due to the local political debate dropped from 70 percent in 2017 to 59 percent last year) and slight increase in the sense of being welcomed – up three points to 38 percent, although those feeling ‘unwelcome’ also rose by four points to 19 percent.

“Whilst Chinese investors confirm they remain positive about many aspects of the Australian market and its prospects compared with many other countries, there is an increasing concern around transparency of regulations, high costs and their continued perception of being unwelcome as reflected by negative Australian media coverage.” the report states.  “We need to be aware of the very real impact that poorly received, politically motivated public discourse and unbalanced media coverage can have on the future level of Chinese capital entering Australia.”2018 Chinese investment into Australia by sector

As an investment breakdown, private Chinese companies accounted for 87 percent of the deal value in 2018 and over 92 percent of deal volume, with state-owned entities contributing only 13 percent of value and 8 percent of the volume – which in total, dropped by 28 percent from 102 transactions in 2017 to 74 last year. As per those deals, over 40 percent of the investment total was made in the Australian healthcare sector, a more than 110 percent increase on the prior year.

According to the analysts, Chinese investors are primarily interested in scalable medical services and healthcare products which can be scaled in their home market, and the Australian healthcare sector has gained increased interest due in part to the ‘Australia package’ – ‘the combination of transferable management know‑how, high‑level care service experience, state of the art technology, the ‘clean, green and healthy’ image of Australian products.”

Meanwhile, new mining investment has dropped sharply – down 90 percent from a spike last year for just 5.6 percent of the total – opening the door for commercial real estate (predominantly mixed-use development and office stock according to figures provided by Knight Frank) to claim the second highest levels of Chinese investment at ~37 percent (albeit down 31 percent on 2017 levels). The remaining deal value was mostly in oil & gas (8.8 percent, up 295 percent) and renewable energy (4.8 percent, up 217 percent) sectors.2018 Chinese investment into Australia by geography

Perhaps of further note, at least in terms of demystifying Chinese-Australian investment, ‘Northern Australia’ attracted at most just 8 percent of total investment, with Queensland accounting for only 5 percent, Western Australia 3 percent, and zero deals made in the Northern Territory. Here, the bulk of the inbound investment was made in New South Wales (56 percent) and Victoria (27 percent) with South Australia (8 percent) claiming the majority of the remainder.

“While this annual result brings Chinese ODI in Australia back to the second lowest level since 2008, there is no reason why Australia can’t return to higher levels seen historically,” the report concludes. “2018 need not define a trend, but it is a period to reflect upon. There are a great many opportunities for Chinese companies to contribute towards the development and internationalisation of Australian industries and supply chains in the coming years and there is much that can be done to improve the perception of the Australian market to Chinese investors and vice versa.”