This is why Chinese investors are feeling apprehensive about investing in Australia

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  • Chinese investors are starting to feel apprehensive about investing in Australia.
  • They say diplomatic tensions have brought a sense of feeling unwelcome.
  • A survey of investors by KPMG and the University of Sydney found 70% stated that the political debate had made Chinese companies more cautious about investing in Australia.

The political debate about Chinese investment, and reports of increasing Chinese influence in politics, has lifted apprehension among investors from China about Australia.

Chinese investment in Australia dropped 11% to $US10.3 billion ($13.3 billion) in 2017 as China applied the brakes to foreign investing, according to analysis by KPMG and the University of Sydney.

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 $100 million.

The annual Chinese Investors in Australia Survey, done in parallel with the Demystifying Chinese Investment in Australia report, interviewed and surveyed senior executives from 45 Chinese-invested companies in Australia on their perceptions of the investment climate and key challenges they face. The research was undertaken in April 2018.

Two thirds (67%) stated that they see the Federal Government as less supportive than previously. And 70% say the political debate in 2017 has made Chinese companies more cautious about investing in Australia.

The last three years have been a good financially for Chinese investors in Australia with 65% of respondents reporting revenue growth and 45% profitability growth.

But 2017 was a year of consolidation, marked by a reassessment of the role of Chinese investment in Australia, as well a crackdown in China on the flow of capital from the country.

Professor Hans Hendrischke, report co-author and Professor of Chinese Business & Management at the University of Sydney Business School, says sentiment has currently shifted with a higher level of apprehension by Chinese investors towards investing in Australia.

“Our survey and interviews with Chinese investors indicate a level of concern, however, there is a growing familiarity and confidence in the Australian market,” says Hendrischke.

“While most Chinese investors retained a level of optimism about their Australian investments some investors, especially SOEs (state-owned enterprises), are apprehensive due to diplomatic tensions and the sense of feeling unwelcome.”

Only 35% of surveyed companies felt welcome to invest in Australia, a fall from 52% in 2014.

Source: KPMG

However, Doug Ferguson, report co-author and head of Asia & International Markets for KPMG Australia, says Australia’s relationship with China, while experiencing a period of heightened tension, is mature and deeply established in trade and investment.

“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.”

Mining was the most significant sector for Chinese investment in 2017 with 35% of total, followed by real estate (33%), healthcare (12%), food and agribusiness (8%) and infrastructure (4%).

The mining sector saw 12 deals announced in 2017 totalling $4.6 billion, a rise of 448% from 2016.

This large increase was mostly driven by the $3.4 billion acquisition of Rio Tinto’s thermal coal assets by Yancoal.

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