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Chinese investment in Australia falls in 2019 despite record bilateral trading year.

Despite record bi-lateral trade between China and Australia, which was up 21 percent to AUD 235 billion in the 2018-2019 financial year, Chinese investment in Australia fell 58.4 percent from AUD 8.2 billion in 2018 to AUD 3.4 billion in 2019. The number of deals was down 43 percent, from 74 in 2018 to 42 in 2019.

The biggest transaction was Mengniu Dairy Company’s acquisition of Bellamy’s Australia Limited for AUD 1.5 billion, a deal which accounted for 43.7 percent of total Chinese investment, and made food and agribusiness the largest sector recipient with 44 percent of the annual total. As a result of this one deal, for the first time Tasmania received the largest percentage of Chinese investment across all regions.

The commercial real estate sector was the second largest recipient of Chinese investment in 2019, despite an annual decline of 51 percent (in AUD terms). Other active sectors included services and mining. No investment was registered in the healthcare sector, marking a major change from recent years. Private investment continued to dominate ownership in 2019, accounting for 84 percent of the total value and 76 percent of the number of deals. This ratio is in line with previous years.

This June 2020 report is the latest in a series of 'Demystifying Chinese Investment in Australia' reports, by KPMG and The University of Sydney. The report analyses Chinese Overseas Direct Investment (ODI) into Australia in calendar year 2019.

New Chinese investment into Australia has been falling quite significantly for the past two years. The reasons for the decline are many and no one country or issue is responsible. Tightening Chinese ODI regulations, SOEs investment moving away from developed markets and towards the BRI projects and Latin America, and negative Chinese perceptions on stricter investment regulations by the Australian government have all contributed to the lower levels of investment.

Doug Ferguson
Partner in Charge, Asia & International Markets

Report highlights

  1. In 2019 Chinese investment in Australia fell by 58.4 percent, from AUD 8.2 billion in 2018 to AUD 3.4 billion, in US dollar terms the decline was 62.2 percent, from USD 6.2 billion to USD 2.4 billion.
  2. The number of completed deals fell 43 percent, from 74 in 2018 to 42 in 2019.
  3. While Chinese inbound investment fell to its lowest result for a decade, bilateral trade grew 21 percent to a record AUD 235 billion in 2018/19.
  4. Australia received just below half the investment received by the United States (USD 5 billion) whose portion halved in 2019, but more than Canada (USD 1 billion). Chinese ODI into Australia has fallen at a faster rate in 2019 than Chinese investment into other western countries including the United States.
  5. The decline of Chinese ODI into a number of western countries reflects the impact of Chinese ODI regulations driving a shift towards less risky and higher quality investments, tighter FDI screening measures in recipient countries, and strategic risk perceptions.
  6. China’s biggest investment in Australia in 2019 was Mengniu Dairy Company’s acquisition of Bellamy’s Australia Limited for AUD 1.5 billion. This accounted for 43.7 percent of China’s total investment in Australia that year, and made food and agribusiness the largest sector recipient with 44 percent of the annual total. As a result of this one deal, Tasmania received the largest percentage of Chinese investment across all regions for the first time.
  7. The commercial real estate sector was the second largest recipient of Chinese investment in 2019, despite an annual decline of 51 percent. Other active sectors included services and mining. No investment was registered in the healthcare sector, marking a major change from recent years.
  8. Private / non-SOE investment continued to dominate ownership in 2019, accounting for 84 percent of the total value and 76 percent of the number of deals. This ratio is in line with previous years.

Snapshot of key findings

Key findings

Future outlook for Chinese investment in Australia

New Chinese investment into Australia has been falling quite significantly for the past two years, and in 2019 a sharp decline in both value and number of transactions is clear evidence that the most recent investment boom cycle is over – in Australia and globally.

There is no expectation of a continuation of large-scale investment by new Chinese entrants in the short-medium term. The domestic health and economic effects of COVID-19 are all consuming for both Chinese and Australian governments and companies. Recent public diplomatic tensions have the potential to negatively impact Chinese investment perceptions, although deal activity should continue because there is genuine complementarity between both nations.

COVID-19 has driven China and Australia’s borders to be closed for the medium-term, with flights between Australia and China restricted to transporting Chinese and Australian citizens back to their homes and limited dedicated air freight for perishable or urgent product supplies which will impact trade exports in the short-medium term. This is operationally disabling new investment deal making and due diligence activity.

However, there are now a large number of Chinese companies established and operating in Australia that we expect will continue to invest or divest and drive local deal activity and bilateral trade. The private sector will likely continue to be most active, deal sizes will be smaller, and most states and territories will continue to see activity with NSW and Victoria the largest and most attractive investment destinations.