Chinese investment in Australia dropped by more than 36 per cent in 2018, to its second lowest level since the global financial crisis of 2008.
The latest report from KPMG and the University of Sydney Business School found that Chinese firms invested a total of $8.2 billion in Australia last year, down from $13 billion the year before.
That was despite Chinese foreign investment globally increasing by 4.2 per cent last year.
Mining led the decline, with a 90 per cent slump in investment to $464 million — a similar level to 2016, after the 2017 result was boosted by Yancoal’s $3.4 billion acquisition of Rio Tinto’s thermal coal assets.
Commercial real estate also posted a decline, with data compiled with the assistance of real estate firm Knight Frank showing Chinese investment fell from $4.4 billion in 2017 to $3 billion last year.
This segment includes office buildings and other commercial property, but includes apartment development sites.
KPMG Australia’s head of Asia and international markets Doug Ferguson said there were a couple of factors behind the decline in this sector.
“It’s definitely related to what’s happening in the Australian general property scene, but it’s also related to the difficulties of Chinese residential investors in getting their money out to settle on transactions or to buy new apartments,” he told RN Breakfast.
The fall in Chinese commercial real estate investment was not specific to Australia, which retains an 11 per cent share of China’s foreign investment in this sector.
Instead it reflected a general decline in Chinese offshore investment in this area, as China’s Government limited both developers and individuals from getting money out of the country for this purpose.
Healthy investment in biotech and consumer goods
While these two traditionally strong areas of Chinese investment in Australia waned last year, there was a strong flow of money into healthcare.
The study showed three “mega deals” of more than $500 million saw Chinese investment in this sector more than double to $3.4 billion, accounting for nearly 42 per cent of China’s total investment into Australia last year.
“Australia is regarded very highly by the Chinese for its science and technology and the quality of its branded products,” Mr Ferguson explained.
The report shows that the overwhelming majority of Chinese corporate investment into Australia came from privately owned firms, which accounted for 92 per cent of the deals and 87 per cent of the funds invested.
The majority of investment was directed to New South Wales (53 per cent), while Victoria attracted more than a third, South Australia 8 per cent, Queensland less than $400 million and Tasmania $342 million (about 4 per cent). Reflecting the drop in mining investment, Western Australia only attracted $263 million worth of Chinese investment last year.
China tightens its belt
The study shows that, despite the fall in investment, Chinese attitudes towards Australia remained positive and perceptions around the political environment actually improved slightly, despite tensions over the Australian Government’s ban on Huawei participating in the 5G mobile rollout and other recent investment rejections.
Mr Ferguson said the fall in investment, which was much larger in the US and Canada, instead highlighted the difficulty most Chinese firms had in getting money out of the country — 80 per cent of private companies surveyed reported problems in this area.
He added that it also reflects China’s pivot to its “belt and road” development and trade initiative to reopen the old silk road trading route to Europe.
“Chinese investment is definitely now flowing globally to Central Asia and Eastern Europe in accordance with the belt and road initiative,” he explained.
Mr Ferguson pointed to the strength in health investment as indicative of the future of Chinese investment in Australia.
“There’s no reason to think that 2018 signals any long-term end of Chinese investment,” he said.
“There are lots of opportunities that lie ahead tied to China’s middle-class consumer demand.”