The perception that investors from China will pay hefty premiums for assets just to get a foothold in the Australian market is wrong, according to analysis by KPMG and the University of Sydney.
Chinese investors in Australia apply a rigorous process to projects here before parting with their money. And they want a quick return when they do commit to an investment.
Australia is a popular destination for money from mainland China, second only to the US as a place of investment.
Chinese overseas direct investment in Australia in 2015 was up 32.9% in US dollar terms to $US11.1 billion ($A15.09 billion), the highest since the GFC. In Australian dollars, that was a hefty a 59.5% 12-month rise.
The growth of Chinese investment into Australia was more than twice the global trend. According to official Chinese figures, global overseas direct investment in 2015 reached a record $US118 billion, a 14.7% increase.
The Chinese don’t see investing in Australia as opportunistic even though a lower Australia dollar is working in their favour, according to analysis by KPMG and the the University of Sydney, which interviewed 11 key Chinese companies.
“Many of the businesses we interviewed completed detailed research before deciding to invest into Australia,” says the study, Demystifying Chinese Investment in Australia, the 11th report in a series.
One company examined more than 20 markets looking at the local economy, policies, migration data and more before choosing Australia for its first overseas investment.
An agribusiness firm looked at nearly 100 projects in Australia, but only a handful entered into feasibility and due diligence stages.
According to the latest Foreign Investment Review Board annual report, China is the largest source of proposed foreign investment in Australia, mainly driven by a large increase in residential real estate approvals.
And the bottom line rules for Chinese investors. The Chinese companies say return on investment is the most important criterion for projects.
The key reasons the companies gave for investing in Australia:
- Long-term stable economic returns
- Low sovereign risks
- A stable policy environment
- Mature financial markets
- Transparent legal system.
For five out of the 11 interviewed companies, Australia was the first overseas investment.
“Australia is seen as a learning ground for entering other developed markets,” says KPMG.
Also helping is the economic relationship with China as Australia’s biggest export market and that Australia is a preferred destination for Chinese students, tourists and migrants.
“Despite perceptions of Chinese bidders offering much higher premiums in order to secure investments and projects in Australia, most very carefully consider the medium and long term future returns,” KPMG says.
Some state-owned enterprises have recently withdrawn from projects that might have negative net profit regardless of other merits because it is increasingly difficult to obtain relevant
Chinese government approvals.
And private companies won’t consider projects which don’t bring adequate returns within three years.
Overall, real estate sought after by Chinese companies, with with 45% of the 2015 total investment.
One large renewable energy deal, the $3 billion purchase of Pacific Hydro, accounted for 20% of the total.
China’s focus is on middle class consumption, including premium quality health, lifestyle and services.
Here’s where the money is going: