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Trade war could rekindle China’s interest in Australian businesses

Chinese investment in Australia decreased by 36 percent in 2023, falling to AU$1.34 billion from AU$2.1 billion in 2022. Healthcare became the top industry, surpassing mining.

These findings come from a report released by KPMG Australia and The University of Sydney. The report looked at Chinese investment in Australia from January to December 2023.

Despite a small rise in global investment, Chinese investment in Australia stayed low. However, China’s investment in other countries increased, especially those involved in the Belt and Road Initiative.

These are among the key findings of the Demystifying Chinese Investment in Australia (April 2024) report released today by KPMG Australia and The University of Sydney. The report analyses Chinese Overseas Direct Investment (ODI) into Australia for the calendar year January to December 2023.

The fall in investment came despite a slight recovery in overall global Foreign Direct Investment, which increased by 3 percent in 2023 to US$1,365 billion, following a 12 percent decline in the previous year. China’s global non-financial ODI also returned to pre-pandemic investment levels in 2023, reaching US$130 billion.

For the first time, the share of China’s ODI going to Belt and Road Initiative countries surpassed 20 percent of its total global ODI, marking a milestone in China’s global investment strategy.

Helen Zhi Dent, Partner, Chinese Business Practice, KPMG Australia and co-author of the report commented: “Chinese investment in Australia has remained subdued in 2023, falling to the second lowest levels since 2006. This reflects the shift in priorities for Chinese ODI, which is increasingly flowing towards Belt and Road Initiative countries as well as towards mining and processing ventures in alternative markets, such as Southeast Asia.

“However, the improving cross-border trade environment as demonstrated by the recent removal of wine tariffs could help to kickstart increased Chinese investor interest in Australian businesses. This is particularly true in industries where Australian and Chinese businesses have a long history of mutual co-operation, such as resources, food and agribusiness, and renewables,” she added.

Investment by Sector

Healthcare accounted for 42 percent of the total Chinese investment inflows to Australia through two transactions totalling AU$562 million. Food and agribusiness represented 21 percent of the overall value through two deals totalling AU$283 million.

Chinese investment in mining saw a significant decrease from AU$1.8 billion in 2022 to AU$34 million in 2023, with Chinese investors noting increasing uncertainty regarding investments in the mining sector, especially in critical minerals.

New South Wales received the largest share of Chinese investment with AU$1.01 billion, accounting for 82 percent of total investment. This is followed by Victoria with 16 percent or AU$211 million, and Western Australia with 2 percent or AU$28 million. In 2023 investment from privately owned enterprise (POE) experienced a slight uptick, increasing from AU$641 million in 2022 to AU$878 million.  

Professor Hans Hendrischke, University of Sydney said: “The fluctuation in Chinese ODI in Australia can be attributed to a variety of factors. The emergence of Chinese-funded mining and processing ventures in alternative markets, such as Southeast Asia, intensifies these dynamics by creating competitive pressures and diverting attention from Australian opportunities.

While Chinese investor confidence towards mergers and acquisitions in the Australian market remains low, we are seeing increasing interest in greenfield investments, particularly in the electrical vehicle, solar panels and batteries, and industrial machinery sectors. This is driven by the perception that these investments offer lower upfront financial risks and the potential for higher long-term rewards.

“The evolving nature of Chinese investment offers avenues for renewal and growth in the bilateral investment relationship between Australia and China. There remain many opportunities for collaboration, in areas such as Australia’s resource endowments, commitment to Net Zero by 2050, premium food and agricultural produce, innovation capabilities, and strategic location,” he added.

Between 2006 and 2023, an accumulated total of US$113.5 billion was invested by Chinese companies in Australia. New South Wales, Victoria and Western Australia are the top three states in terms of total value of investment received from China between 2006 and 2023, accounting for 37 percent, 23 percent and 18 percent respectively. The history of Chinese investment in Australia can be divided into three periods: the resources boom period (2006–2012), the diversification period (2013–2016) and the contraction period (2017–2023).

Between 2006 and 2012, Australia was the leading recipient country of Chinese ODI globally. A total of 128 transactions were completed, amounting to US$50.8 billion. During this period, Chinese ODI in Australia was concentrated in the resource industry, with 73 percent in mining and 14 percent in oil and gas.

Between 2013 and 2016, 268 transactions were completed, amounting to a total of US$39.2 billion as Chinese ODI in Australia diversified into non-resources sectors including infrastructure, food and agribusiness, commercial real estate, renewable energy and healthcare.  

Since 2017, amid global uncertainty, Chinese investment in Australia has experienced a continuous decline. Between 2017 and 2023, a total of 271 transactions were completed amounting to a total of US$23.5 billion. In this contraction period, Chinese ODI has primarily been directed into mining, healthcare, food and agribusiness, renewable energy and commercial real estate.

Doug Ferguson, NSW Chairman and Head of International Markets, KPMG Australia, commented: “The 2023 results were the second lowest on record, and clearly represent a trend of sustained contraction in Chinese direct investment in Australia since 2017. Falls in SOE investment generally and mining specifically is interesting given all the noise about critical mineral security. “The Australian result should also be seen within the context of a 29% increase in Chinese global Overseas Direct Investment to other competing developed countries, including the US which attracted US$1.8 billion despite the geopolitical and trade tensions. It’s also interesting to note the increase and scale of Chinese investment into ASEAN / South East Asia in 2023 as it’s become a big focus area for Australia.

“It’s not easy to predict the future but we’d expect to see moderate Chinese private sector investment interest aligned to trade objectives for Electric Vehicles, solar and wind renewables and other industrial and consumer driven sectors,” he added.

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Yajush Gupta

Yajush Gupta

Yajush is a journalist at Dynamic Business. He previously worked with Reuters as a business correspondent and holds a postgrad degree in print journalism.

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