Australia braces for further decline in Chinese investment
Beijing has been curtailing speculative investments abroad in an effort to conserve international reserves and contain foreign liabilities, but investor confidence has been hit by accusations of meddling by Beijing in govt, universities and elsewhere
China’s crackdown on capital outflows sharply reduced its investment in Australia last year, and there could be worse to come if accusations of political meddling by Beijing continue to undermine business confidence.
Direct investment by Chinese firms and state-owned enterprises declined by 11% to US$10.3 billion in 2017 from the previous year, according to a study by the University of Sydney and global auditing company KPMG.
Co-author Doug Ferguson said 2017 “was an important and testing year in many ways for Chinese direct investment in Australia.” Ferguson, head of Asia and international markets for KPMG Australia, added: “We believe there is likely to be a continuation of the current downward trend in 2018.”
The biggest falls were in infrastructure (down 89%), oil and gas (down 84%), renewable energy (down 64%) and commercial real estate (down 22%). Mining and other forms of energy grew by 448% because of one-off deals; services and manufacturing rose by 38% and healthcare by 20%.
Beijing has been curtailing so-called speculative investments abroad since 2016 in an effort to conserve international reserves and contain foreign liabilities. Outbound investment in all countries dropped by 29% in 2017, some major markets faring badly: Outflows to the US fell by 35% and to the European Union by 17%, though the 2016 levels were unusually high.
Biggest Asian investors
Cumulative investment in Australia by China still amounts to a hefty US$48 billion, making it the ninth-biggest investor overall. However, this is dwarfed by inflows from the US ($662 billion) and the UK ($355.3 billion). The biggest Asian investors in Australia are Japan (US$161.8 billion), Hong Kong (US$86 billion) and Singapore (US$60.5 billion).
One concern for Australia is that it didn’t benefit from higher investment in infrastructure, services and agriculture, industries where Australians are competitive and that are still promoted by China for outbound flows.
Investment in these sectors halved in 2017, possibly because state-owned enterprises, usually a big source of inflows, have been targeted by Beijing.
Private Chinese companies are now taking the lead, but their investments tend to be smaller and are closely linked to domestic demand in China, which has been leveling off. The University of Sydney/KPMG report said priority projects for China included health and well-being, tourism and lifestyle, real estate, technology, services and mining commodity resources.
Australia has been the second-biggest recipient of accumulated Chinese investment since 2008, attracting almost US$100 billion, but there are signs that investors are getting jittery over accusations of meddling by Beijing in Australian government, universities and other public sectors.
Canberra is expected to approve legislation soon that will impose tough restrictions on foreign donations to political parties and require that all lobbyists be accredited. Australia insists the laws are not aimed at China, but most media reports have focused on activities by Chinese nationals.
The USyd/KPMG study found that investor confidence had been affected.
“Chinese executives tell us that Australia remains a relatively safer and more attractive country to invest than many others but only 35% of survey respondents feel welcome to invest here, which is down from 52% in 2014,” Ferguson said.
‘Climate of insecurity’
A separate survey of 50 Chinese business executives this year by The Conversation, an independent public affairs website, revealed investors were “feeling apprehensive and reluctant to engage in a climate of insecurity created by current debate about China’s role in Australia.”
More than half of respondents either agreed (48%) or strongly agreed (4%) that they felt less welcome in Australia, compared with just over one-third (35%) of respondents in 2014. The media received the lowest rating when they were asked about support from major stakeholders.
The Conversation’s survey reported that two-thirds (67%) of respondents strongly agreed (17%) or agreed (50%) that the Australian government was less supportive of Chinese investment than it had been previously.
Worryingly for Canberra, 70% said the political debate about China had made their company more cautious about investing in the country.
Yet 52% still felt that Australia was a safer place to invest than many other countries, though this proportion had fallen from 63% in 2014. Business operations by Chinese investors are also generally positive, with 65% of respondents reporting higher turnover in the past year and 45% increased profits; 64% expect turnover to rise this year and 42% see higher profits.
While 49% of respondents were optimistic about business prospects in 2018, The Conversation noted “feelings of insecurity and apprehension” among investors and said this highlighted the difficulties of trying to separate business from politics in the investment relationship with China.
“Business cooperation between Australia and China is strategic rather than purely transactional. This means bilateral diplomatic relations have an important signaling function for long-term and large-scale investments,” the website said.
“In the absence of positive signals from the federal government, larger investments by state-owned enterprises – in infrastructure building, for example – are unlikely to go ahead.”