Chinese take-away foreign investment

Despite government policy moves aimed at tightening access for Chinese foreign investment, the latest reports show Chinese investors are already shunning Australia

9 June 2020 | Marcus Reubenstein

It’s been less than a week since Australia’s Prime Minister and Treasurer jointly announced a new national security test for foreign investors.

Said Treasurer Josh Frydenberg, “Foreign investors, not just foreign government investors, should be subject, and will be subject, to the Foreign Investment Review Board review when they are investing in what is termed a ‘sensitive national security business’”.

There was little doubt in business and investment circles that with those new measures the government had China in its sights. However, latest figures show China is taking away foreign investment dollars from Australia not pumping money in.

Despite record bi-lateral trade between China and Australia, which was up 21 percent to a record A$235 billion in the 2018-2019 financial year, Chinese investment in Australia fell 58.4 percent from A$8.2 billion in 2018 to A$3.4 billion in 2019.

The number of transactions 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 for A$1.4 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.

When eliminating the impact of just one transaction, the sale of Bellamy’s, total Chinese foreign investment in Australia was down by a whopping 77%.

As a result of this one deal, Tasmania received the largest percentage of Chinese investment across all regions for the first time.

Even before COVID-19 Australia had lost its gloss

The latest figures are published by KPMG and Sydney University in a report entitled Demystifying Chinese Investment in Australia.

Says report co-author, Professor Hans Hendrischke, Professor of Chinese Business & Management at the University of Sydney Business School, “Australia’s decline mirrors that of a number of Western countries including USA, Canada and members of the EU, which are implementing tighter FDI screening measures, and strategic risk perceptions of Chinese investors of overseas markets.”

“It is worth noting that Chinese ODI into Australia has fallen at a faster rate in 2019 than Chinese investment into other western countries including the US. However, Australia still recorded just below half the US$5 billion of Chinese investment received by the United States in 2019, and far more than the US$1 billion received by Canada.”

Despite media and political rumblings that COVDI-19 will open up the flood gates to opportunistic Chinese foreign investors, the report suggests that remains a very unlikely scenario.

Says Doug Ferguson, report co-author, and Head of Asia & International Markets KPMG Australia, “Chinese companies have invested over USD 107 billion into Australia since 2008 and this capital has been a really important contributor to economic growth locally but new investment is slowing.

“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.”

Investment still fuelling tit-for-tat diplomacy

Following the Prime Minister’s decision to take the lead on a thinly veiled foreign investment change aimed at China, the Chinese government returned fire.

China’s Ministry of Foreign Affairs issued a warning to its citizens about travel to Australia given the rise in racist attacks against Chinese-Australians and Australians other of Asian origin during the COVID-19 crisis.

Despite multiple reports of racist attacks against Chinese Australians, Trade Minister Simon Birmingham had stated racism against Chinese Australians is not a significant problem.

This is at complete odds with his own prime minister’s comments made in early February when he called racist attacks on Chinese-Australian’s “reprehensible.” Today’s investment report coincides with the release of a decade long study by the Australian National University which found that three-quarters of 11,000 survey participants held negative views of indigenous Australians.