Chinese investment declined by 11% in 2017 finds KPMG Australia

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.

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’. 

“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.

“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.”