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.”

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Oceania set for lowest real wage growth globally in 2019

25 February 2019 Consultancy.com.au

A forecast by human capital consultancy firm Korn Ferry predicts stormy seas for professionals in Oceania, with the region expected to experience a paltry 0.3% increase in real wages in 2019. The number is the lowest globally, and lower than the region’s 1.2% increase in 2018.

The decrease is a result of higher inflation than previous years, according to the report, and is a sign that economic growth is being passed down less strongly than before in salaries. Despite high inflation, Asia and Eastern Europe will experience the highest real wage increases – 2.6% in Asia and in 2.0% for Eastern Europe.

"But the year-on-year increase is also decreasing in Asia: in 2016 and 2017 the growth in real wages was more than 4% per year”, Rob Westrek, a senior partner at Korn Ferry, said. 

Wage growth in Oceania – nominal and real terms

In regions where economic growth is levelling off, real wage rises are considerably lower. For the Americas and Canada, Korn Ferry predicts an increase of 0.6%. For Latin America, the number is marginally higher, at 0.7%. The Middle East comes in just above Oceania, with a projected 0.4% real wage increase. In Africa, where inflation is highest, at 6.8%, a real wage increase of 0.9% is expected. 

Nominal wages for each region are considerably higher, but nominal wages are tied to the amount of money a person earns per hour. A real wage is a nominal wage adjusted for inflation.

It’s not all bad news for the Oceania, however. According to Credit Suisse’s “Global Wealth Report 2018," Australia last year surpassed Switzerland as the country with the highest-paid median wealth per adult. The number of "super rich," also known as ultra-high-net-worth individuals, grew to 42, up from 34 the previous year. 

From a national perspective, employees in Ukraine, Turkey and India set to receive the largest real rise in pay. In Argentina, Uzbekistan, Argentina, and Lebanon, however, real wage growth is forecast to be below 2%. Papua New Guinea, in the southwestern Pacific and part of Oceania, is expected to see a rather high 5% increase in nominal wage growth, yet with inflation close to 6%, real wage growth will drop to -1%.

Changes in wages - top and bottom countries

Money isn't happiness

Alongside a need for employers to pass on revenue increases to their employees, shifting to a more productive and innovative economy would drive real wage growth. Sectors demonstrating above-average growth include the creative sector and digital platforms, set to reshape the country’s residential tradie economy, which last year accounted for nearly 6% of the national GDP. The creative sector's development spurred PwC’s chief creative officer, Russel Howcroft, to call for “creativity” to become central to the nation’s agenda.

“Employment in the creative sector is growing almost twice the rate of employment across all sectors. Other sectors are increasingly relying on workers with creative skills for their own growth and innovation. Creative jobs are jobs of the future,” Howcroft said.

Financial factors are however just part of quality of life, pointed out a recent report from global HR consulting firm Mercer. While cities such as Sydney, Melbourne, and Perth are all on the list of the world's most expensive cities to in which to live, Australia nevertheless ranks relatively high in terms of overall quality of life. Adelaide is Oceania's top city in this regard, ranking seventh globally, trailing Auckland and Wellington, in New Zealand, which respectively take the fifth and sixth spots.

Related: Malcolm Turnbull is best paid global leader according to IG consultancy.