Chinese investment in Australia has collapsed, falling 61% in 2020, according to new data from researchers at the Australian National University.
The university’s Chinese Investment in Australia database recorded just more than $1bn of investment in Australia in 2020, down from $2.6bn in 2019 and well short of the peak of $16.5bn in 2016. The drop follows a 47% decrease in 2019.
Australia has had strained economic relations with China since its call for the World Health Organisation to gain weapons inspector style powers in April 2020 was promptly followed by threats of a consumer boycott by China.
Australian exports including coal, wine and beef have since suffered, although declines in some sectors have been offset by booming iron ore prices and volumes.
But according to Dr Shiro Armstrong, the East Asian Bureau of Economic Research director, the decline in Chinese investment is most likely due to Australia’s changed foreign investment settings during the Covid-19 pandemic.
In March Australia lowered the threshold for foreign investment reviews to $0 – ensuring every deal would be checked to prevent a fire sale of distressed assets to foreign investors. A new national security test also allows the treasurer to retrospectively cancel deals.
“Foreign capital goes where returns are high,” Armstrong told Guardian Australia. “Part of that calculation is risk-adjusted returns, including what investors see as the best bet in terms of certainty.”
“The investment environment in Australia looks less certain given the extra scrutiny on foreign investment during Covid and the national security test.”
Armstrong said in a downturn countries usually open up to more foreign capital to help distressed assets refinance their debt, but Australia had gone in the opposite direction to prevent assets being snapped up.
“That may sound sensible – but it may not be if that means a lot of them will just go under instead.”
According to the database, just 20 new projects attracted Chinese investment, well down from a peak of 111 in 2016. In 2020 Chinese investment was limited to just three sectors: real estate ($461m), mining ($414m) and manufacturing ($153m).
In 2020, some 86% of Chinese investment in Australia originated from Chinese companies already established within Australia, meaning purchases were made via Australian subsidiaries rather than by foreign firms directly.
Armstrong said in 2020 foreign direct investment fell globally by 42%, according to the United Nations, meaning the fall in Chinese investment in Australia outstripped the global average.
“The UN reports that total foreign investment to Australia fell by 46%, whereas foreign investment to Japan, China, India and some developed countries such as Sweden and Spain rose. Investment to the United States and the United Kingdom plummeted.”
Chinese investment in Australia has been particularly sensitive since the Northern Territory government’s surprise decision to sell the Port of Darwin in 2016, which the federal Labor party has suggested using new deal cancellation powers to unwind.
Major Chinese deals that have been blocked by the federal government include the proposed sale of Australia’s largest landholder, S Kidman & Co, which comprises 1.3% of Australia’s total land mass; the proposed $600m takeover of Lion Dairy; and a $300m bid for a major Victorian construction contractor.