Beijing's crackdown on overseas investment has hit Australia hard

Employees of Pernod Ricard China at the Jacob’s Creek Steingarten Vineyard in South Australia. Greg Wood/AFP/Getty Images
  • Chinese investment in Australia is sliding, down 11% to $US10.3 billion ($A13.3 billion), the result of a crackdown in China on overseas investing.
  • The drop returns Chinese investment in Australia to 2015 and 2012 levels.
  • The big falls were in oil and gas (down 84%), renewable energy (down 64%), commercial real estate (down 22%), and food and agribusiness investments (down 8%).

Chinese investment in Australia dropped 11% to $US10.3 billion ($A13.3 billion) in 2017 as China applied the brakes to foreign investing, according to analysis by KPMG and the University of Sydney.

The slide was caused by regulatory changes in China to squeeze the flow of cash out of the country, with Chinese overseas direct investment falling globally by 29%.

This annual result returns investment to 2015 and 2012 levels in US terms which at the time were regarded as strong results but below the mining and gas driven investment peak of 2008.

The latest Demystifying Chinese Investment in Australia report by KPMG and the University of Sydney shows the volume of Australian deals (102) last year was on par with the previous 12 months but average deal sizes fell, with 76% below $A100 million.

Investment by private Chinese companies grew but the total volume of State Owned Enterprise (SOE) investment dropped for the first time since 2014.

In Australia, Chinese cash flowed to mining, commercial real estate and healthcare investment. But investment fell in oil & gas (down 84%), renewable energy (down 64%), commercial real estate (down 22%), and food and agribusiness investments (down 8%).

Sixty five deals were completed by repeat investors ($A10.2 billion) and 37 by first time Chinese investors ($A3.1 billion).

NSW continued to attract the most investment (42%), followed by Victoria (36%) and WA (14%).

Here’s how china investment has flowed into Australia by year:

“2017 was an important and testing year in many ways for Chinese direct investment in Australia,” says Doug Ferguson, report co-author and Head of Asia & International Markets for KPMG Australia.

“Chinese government regulations which were implemented to address concerns about speculative, irrational global investments and massive capital outflows have impacted the Australia result, as have recent changes to Australia’s foreign investment regulations for strategic infrastructure assets,” says report co-author, Doug Ferguson, Head of Asia & International Markets for KPMG Australia.

“Australia remains globally competitive for attracting Chinese investment, retaining its position as the second largest recipient of accumulated Chinese investment — only behind the US — with just under $US100 billion since 2008.

“However the gap is growing. Chinese executives tell us that Australia remains a relatively safer and more attractive country to invest than many others but only 35% of survey respondents feel welcome to invest here, which is down from 52% in 2014.”

Some of the major deals in 2017:

The fall from 2016 levels in Australia hasn’t been anywhere near as severe as the US where the rate of growth of new Chinese overseas direct investment is down 35%.

“However, we believe there is a likely to be a continuation of the current downward trend in 2018,” says Ferguson.

Chinese investors continue to be drawn to projects in Australia that relate to growing Chinese consumer demand and Chinese government priority initiatives, including health and well-being, tourism and lifestyle, real estate, technology, services and a continuing demand for mining commodity resources.

“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. They are investing with a long-term focus – and this is positive for Australia,” says Ferguson.

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