China losing interest in large projects, finds new report
Chinese investment in Australia fell by 36.3 percent or $8.2 billion in 2018, according to a new report by KPMG and the University of Sydney Business School.
The jointly produced Demystifying Chinese Investment in Australiareport says that while Chinese businesses still see Australia as a “relatively attractive country in which to invest”, they are finding it harder to move money out of China.
The Business School’s Professor Hans Hendrischke, who co-authored the report, sees global insecurity about Chinese investment as the main reason for the decline, but says that recent political tensions between Canberra and Beijing may also have had an impact on investment levels.
Describing the investment decline as a “significant withdrawal”, particularly by Chinese State Owned Enterprises (SOEs), Professor Hendrischke said it had been influenced by Chinese capital controls, diplomatic relations and security concerns about Chinese investments in Australia.
Professor Hendrischke went on to says that the “strong dominance of private investors reflects a desire amongst Chinese ODI to invest in high value-added sectors able to ‘bring back’ expertise and high-quality brands and products that can support China’s industrial upgrading and meet the evolving demands of Chinese middle class consumers”.
“As part of this trend, large strategic investments in resources, energy and infrastructure have given way to smaller investments and in projects that are tactical and directly linked to Chinese consumer market demand,” Professor Hendrischke said. “This is particularly evident in the targeting of the Australian healthcare sector by Chinese investors.”
Private Chinese companies dominated the investment landscape in 2018, accounting for 87 percent of deal value and over 92 percent of deal volume, with an overall trend towards smaller sized deals.
Healthcare was the most popular sector for Chinese investors, with commercial real estate falling to second position.
“Despite Chinese global outbound direct investment actually growing by 4.2 percent in 2018, Australia has felt the pinch of a significant reduction, reflecting the impact of policy changes in China,” said the reports co-author and Head of Asia & International Markets for KPMG Australia, Doug Ferguson.
“Our rate of decline has been accelerating and is now closer to the trend observed in the United States and Canada, where Chinese Overseas Direct Investment (ODI) dropped by 83 percent and 47 percent respectively in 2018.”
“While this annual result brings Chinese ODI in Australia back to the second lowest level since the mining and gas driven investment peak year of 2008, there is no reason why Australia can’t return to higher levels of Chinese capital inflow seen historically.”
“2018 need not define a trend of lower Chinese investment in Australia into the future but it is a moment to reflect upon,” Mr Ferguson concluded.
“There are a great many opportunities for Chinese companies to contribute towards the development and internationalisation of Australian industries in the coming years.”