Australia loses shine for China as investment halves

For more than three decades, China was Australia's golden goose, with commodity demand from the Asian powerhouse helping fuel an economic boom.

But now, things may be changing as ties between Beijing and Canberra have soured, dealing another blow to Australia that is already reeling from an economic recession amid the global coronavirus pandemic.

The deterioration in relations was borne out in a new report by the Australian National University's Chinese Investment in Australia (CHIIA) database which revealed that Chinese investment in Australia sank by over 47 percent to A$2.5 billion ($1.8 billion) last year, from A$4.8 billion in 2018.

The university itself announced in a statement on Wednesday that it is losing 465 jobs, including 250 "voluntary separations" due to financial difficulties amid the pandemic.

The ANU's findings, which were released this week, were in line with trends outlined in a June report on "Demystifying Chinese Investment in Australia" from the University of Sydney and global consultants KPMG.

As per that report, Chinese investment in Australia fell 58 percent, dropping from A$8.2 billion in 2018 to A$3.5 billion last year.

The ANU says the level of Chinese investment in Australia has fallen for three consecutive years since it peaked at A$15.8 billion in 2016.

"The sharp fall in investment to Australia has to be related to the less certain regulatory and policy environment in Australia and the deterioration of the Australia-China political relationship," said professor Peter Drysdale.

The CHIIA database has tracked Chinese direct investment into Australia for the calendar years 2014 to 2019. The database shows a total of A$49.3 billion worth of investment was made by 361 Chinese investment projects in Australia over that time.

Over the six-year period, the real estate sector received the biggest proportion with 24 percent of Chinese investment, followed by the mining sector with 21 percent of the total value. There has been an increase in the share of private investments in total investment from China.

The 2019 decline in investment coincides with lower flows of Chinese investment abroad but the fall in flows to Australia was sharper.

A team at the ANU has been working with the Australian Treasury and other government departments to create the new Chinese investment data series that provides a level of detail by industrial sector and investor activity not previously available.

Project leader Drysdale said several factors were behind the sharp fall. "The drop in global Chinese investment by 9.8 percent was one element as well as the fall-off in the attractiveness of investment in the mining sector since its peak in 2016."

Widespread impact

In 2019, Chinese investment almost halved across all sectors, with major falls in mining, real estate and commercial property, manufacturing, and a collapse of investment in agriculture. There were some modest gains in construction, education, and finance, the ANU report noted.

Drysdale said another factor in the investment decline could be China's shift toward emerging markets and negative Chinese perceptions of the investment environment in Australia.

Report co-author, professor Hans Hendrischke from the University of Sydney Business School and China Studies Centre, said: "The decline of Chinese investment in Australia mirrors the situation for a number of Western countries including the United States, Canada and members of the European Union.

"These countries are all implementing tighter foreign direct investment screening measures, which goes some way to explaining the fall in Chinese investment in Australia over the last financial year."

Doug Ferguson, head of Asia and International Markets at KPMG Australia, and the June 2020 report co-author, noted that in 2019, "new Chinese investment into Australia has fallen significantly", from A$10.3 billion in 2017 to A$3.4 billion－the lowest since 2007.

The reasons for the decline are many and no one country or issue is responsible, he said.

"Chinese companies have invested over $107 billion in Australia since 2008 and this capital has been a really important contributor to economic growth locally but new investment is slowing," Ferguson said in the report.

"While deal activity will still continue because of the genuine complementarity between both nations and the large number of Chinese companies now established in Australia, we don't expect to see a continuation of large-scale investment by new Chinese entrants in the short-to-medium term."