Chinese investment in Australia fell in value and number for the calendar year 2020 from the previous year. Investment value was down 26.8 percent to AU$2.5 billion from AU$3.4 billion in 2019, the lowest level since 2007. The number of deals was also down – by over 50 percent, from 42 in 2019 to 20 in 2020.

The fall in investment came against the backdrop of the COVID-19 pandemic resulting in a 35 percent reduction in Foreign Direct Investment (FDI) inflows globally, deteriorating bilateral diplomatic relations between Australia and China, and increased government intervention in foreign investment in both Australia and China. Despite this decline, Chinese investment in Australia remains on par with Chinese investment in other developed economies such as Canada and Germany.

The biggest transaction of 2020 by Chinese investors in Australia was the purchase of a commercial real estate asset in Sydney – 45 Clarence Street – by Peakstone for AU$530 million, followed by Shangdong Gold’s acquisition of Cardinal Resources for AU$395 million. 

Mining was the largest sector recipient with 37.6 percent of total Chinese investment, followed closely by commercial real estate, which accounted for 36.1 percent of investment. The services sector accounted for 21 percent of investment, with food & agribusiness (4 percent) and healthcare (1.3 percent) also represented. There was no investment recorded in renewable energy, energy (oil and gas), or infrastructure. 

New South Wales continued to attract the lion’s share of Chinese investment, with just under half (49 percent) at AU$1.246 billion of total investment. Reflecting continuing investment in the mining sector, Western Australia received the second highest proportion of Chinese investment, at 26 percent, followed by Victoria with 24 percent. The only other state to receive investment was Queensland, with 1 percent. 

Privately owned enterprises accounted for 62 percent of investment value and 85 percent of deal numbers, out-weighing state-owned investment. 

These are among the key findings of the Demystifying Chinese Investment in Australia (July 2021) report released today by KPMG and The University of Sydney. The report analyses Chinese Overseas Direct Investment (ODI) into Australia for the calendar year January to December 2020.

Doug Ferguson, report co-author and Head of Asia & International Markets for KPMG Australia commented: “Chinese investment in Australia fell to AU$2.5 billion in 2020 compared to a peak of over AU$17.5 billion in 2008 and has fallen steadily each year from AU$15 billion in 2016. This appears to be a trend with no obvious change in sight. The decline in Australian investment reflects a number of factors, including a shift in priorities for Chinese global SOE investment (and Chinese regulators) away from OECD countries, the obvious impacts of COVID-19 travel restrictions and much tighter regulatory scrutiny in Australia reflecting political and public sensitivity. We are now seeing mostly private sector investment consolidating towards smaller deal sizes in less sensitive sectors and projects targeting domestic demand.”

Co-author, Professor Hans Hendrischke, Professor of Chinese Business & Management at the University of Sydney Business School explained: “New powers under the national security test appear to signal increased government intervention in foreign investment, and substantial increases to Foreign Investment Review Board (FIRB) application fees and penalties for non-compliance suggest a change in philosophy with FIRB taking on a greater watchdog role. Several investment projects were rejected under the new legislation.

“However, Chinese investors continue to view Australia as a safe economic environment and the majority of the executives we surveyed said that their headquarters in China remained supportive towards their Australian operations. Chinese executives are aware of the need for long-term strategic efforts in building policy and stakeholder support for Chinese investment in Australia, and foreign investment in general.” 

Outlook

“The outlook for Chinese Investement in Australia is mixed and uncertain, and we anticipate any future growth to remain muted compared to previous years. While existing Chinese investors continue to see Australia as a country with solid market opportunities, there are several pull and push factors affecting investment decisions,” said Mr Ferguson. 

“Through our annual survey of 75 Chinese executives completed in 2021, we noted a negative shift in sentiment in attitudes compared to the bolder ambitions expressed in previous years. COVID-19 and the new realities involved with the bilateral diplomatic relations, coupled with more restrictive regulatory frameworks in both countries, have disrupted the heady expectations of the past for investment by Chinese companies into Australia. Instead private Chinese investors are turning towards smaller, lower risk sector investment opportunities in the Australian market. There are many Chinese companies now operating in Australia and they will continue to selectively reinvest for growth,” he concluded.

Report at a glance

Investment by Industry

Mining was the top sector for Chinese investment in Australia in 2020, primarily due to the AU$395 million Shangdong Gold/Cardinal Resources deal. A total of AU$945 investment over four deals was recorded across the sector, representing 355 percent growth. The transactions comprised projects in gold, lithium, copper and mineral sands.

Chinese investment in Australian Commercial Real Estate  (including residential development sites) totalled AU$906.8 million in 2020, down 38.7 percent compared to the previous year. This excludes CIC’s planned acquisition of a 50 percent stake in Grosvenor Place in the Sydney CBD for AU$925 million, which was announced in November 2020 but was yet to receive approval from the Foreign Investment Review Board as of December 2020. Partly reflecting the uncertainty associated with the COVID-19 pandemic, the number of real estate deals involving Chinese capital fell sharply.

By sector, office property accounted for the overwhelming share of investment (91.4 percent), driven by the purchase of 45 Clarence Street by Peakstone, and Poly’s acquisition of Sydney Plaza for AU$270 million. Investment in development sites totalled AU$77.8 million, including Mariners Cove on the Gold Coast and The Lennox in Sydney.

Chinese investment into the Australian Services sector in 2020 totalled AU$527.5 million. Representing one fifth or 21 percent of the overall volume across three deals in technical services, and one deal in consumer services.

Three deals were completed in the Food and Agribusiness sector in 2020 totalling AU$101 million. Agricultural investment shows a continuity of small deals, including two rural agricultural estates in Victoria.

There was total of AU$33 million of investment in the Healthcare sector, representing 1 percent of the overall investment. 

There was no recorded investment in Renewable energy, Energy (Oil & Gas), Infrastructure sectors in 2020.

Investment by Geography

NSW received the largest amount of Chinese investment in 2020 with AU$1.3 billion or 49 percent of the total, followed by WA with 26 percent (AU$645 million) and Victoria with 24 percent (AU$595 million). In New South Wales, Chinese investment was concentrated in commercial real estate and mining. In Victoria, services were dominant, and in Western Australia mining remained the focus of interest.

Investment by Ownership

Private investors accounted for 62 percent of the Chinese deal volume and 85 percent of deal value in 2020, compared to 84 percent in volume and 76 percent in value in 2019. This is consistent with the previous years where State-Owned Enterprises tend to make larger deals than private firms based on their larger financial resources and capabilities.

Investment by Deal size

Overall, there were no very large deals in 2020 and only one deal in the AU$500 million range. While the number of investment deals halved in 2020, the size of deals in the AUD$100 million range has increased, with average deal size up from AUD$83.3 million in 2019 to AUD$126 million in 2020.

Chinese Investors in Australia Survey

In addition to the investment analysis, surveys and in-depth interviews were conducted with senior executives from 75 Chinese companies who have investments in Australia on their perceptions of the Australian investment climate and key challenges they face in Australia. The research was undertaken in January and February 2021. 

Commenting on The Chinese Investors in Australia Survey, Professor Hendrischke said: “Chinese investors are more concerned about the political environment than in previous years. 75 percent of surveyed executives stated that the political environment in 2020 has made Chinese companies more cautious to invest in Australia. This is up from the 59 percent who expressed concerns in 2018 and 70 percent in 2017.”

“Increasing geostrategic tensions have also been felt by Chinese investors. Nearly half (45 percent) of the surveyed executives claimed they had suffered negative consequences from the worsening relations between Australia and China, while one-third (35 percent) of respondents felt negatively impacted by the geopolitical situation between the United States and China,” he added.

For further information

Ashford Pritchard
apritchard2@kpmg.com.au                                                      
0411 020 680                                                                               

Katie Booth
katie.booth@sydney.edu.au
0419 278 715