Regulations, diplomatic tensions impact Chinese investment

Regulations, diplomatic tensions impact Chinese investment

Tue, 12/06/2018 - 10:01

Sydney-headquartered companies attracted the lion's share of Chinese outbound investment in 2017. Photo: Seb Zurcher

Australia weathered the storm of Chinese capital outflow restrictions better than most countries in 2017, with overall Chinese investment falling by 11 per cent, compared to a 29 per cent fall in global outbound Chinese investment.

KPMG and the University of Sydney’s annual Demystifying Chinese Investment in Australia report showed Chinese investment in Australia in 2017 totalled $13.3 billion, driven largely by investments in mining, commercial property and healthcare.

Australia’s 11 per cent rate of decline was in comparison to a 35 per cent fall in outbound Chinese investment in the United States, a 17 per cent decline in the European Union and was largely on par with a 9 per cent fall in Canada.

KPMG said tightened restrictions on Chinese capital outflows was indicated in the data, which also reflected the impact of diplomatic and trade tensions globally.

“Chinese investors confirmed that they consider whether their investment is in a sector that is encouraged or restricted by the Chinese government before pursuing and making investment decisions and applications,” the report said.

“The diplomatic relationship between China and Australia is also a factor.

“A number of Chinese investors highlighted that the state of diplomatic relations between governments is a regular topic of conversation among Chinese investors in Australia and with their respective head offices in China.

“At the same time, Chinese investors indicated there is growing familiarity with and confidence in the Australian market.”

The report said Australian businesses had collectively done well in 2017 by leveraging the strengthening of the Chinese economy by providing opportunities to invest in sectors that would complement that growth.

The mining industry attracted the biggest share of investment, at $4.6 billion, a five-fold increase on 2016.

Commercial property attracted $4.4 billion in Chinese funds, while $1.6 billion was spent on Australian healthcare assets.

“Investment in these sectors align with China’s new rules to encourage investments that further the government's strategic objectives including consumer driven demand, clean energy, advanced technology, services, and projects that align with the Belt and Road Initiative,” the report said.

Around 42 per cent of the total was invested in New South Wales, 36 per cent in Victoria and 14 per cent in Western Australia.

Unsurprisingly in the light of Beijing’s capital outflow restrictions, the total investment of state-owned-enterprises in Australia fell for the first time since 2014, while private companies accounted for 83 per cent of the deals made, and 60 per cent of total deal value in 2017.

However, KPMG’s investor survey, released as part of the report, showed ongoing political debate had resulted in growing apprehension from Chinese investors regarding Australian investment.

The survey showed only 35 percent of respondent companies felt welcome to invest in Australia – a notable decline from 52 percent in 2014.

“The resultant mood shift is clear, with our survey results revealing that confidence in the Australian market as a safe investment destination has declined between 2014 and 2018,” the report said.

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

Lack of trust in the Australian government and media remains a notable antagonism for Chinese investors, with the ‘acquisition’ of social licence appearing for the first time as a major challenge in 2017.