Chinese investment in Australia dropped by $2.1 billion in 2017 with Chinese investors deterred in part by tense political relations as well as tightened Chinese regulation, according to a new report.
According to the latest joint report by KPMG and the University of Sydney titled Demystifying Chinese Investment in Australia, domestic investment from Chinese investors fell by 16 per cent from $15.4 billion in 2016 to $13.3 billion in 2017.
Last year was characterised by “significant volatility, marked by political debate in Australia about the role of Chinese investment in Australia”, the report said.
On 5 December last year, Prime Minister Malcolm Turnbull introduced new legislation that banned foreign political donations and called for greater transparency around those trying to influence Australian politics, expressing concerns about China in particular.
In response, Chinese foreign ministry spokesperson Geng Shuang said China was “astounded” by Mr Turnbull’s remarks, which “simply cater to the irresponsible reports by some Australian media that are without principle and full of bias against China”.
The joint report stated that these “allegations” of Chinese influence had led Chinese investors to feel less welcome to invest in Australia.
“Only 35 percent of the surveyed Chinese companies felt welcome to invest in Australia, a decline from 52 percent in 2014,” the report said.
Results from the biennial survey Chinese Investors in Australia, included in the report, also revealed that 67 per cent of 48 surveyed Chinese investors in Australia said the federal government was less supportive of Chinese investment than before.
The drop in investment can also be attributed in part to new regulations introduced by the Chinese government which have made Chinese investment in Australia more difficult.
“Since November 2016, the Chinese government has increased its scrutiny of capital outflows and now categorises outbound investment into encouraged, restricted, and prohibited transactions,” the report said.
“Over three quarters (77 percent) of respondents stated that Chinese government regulatory change [has] made it more difficult to invest in Australia.”
Most of the $2.1 billion drop came from an 89 per cent reduction in infrastructure investment, which fell from $4.3 billion in 2016 to $485 million in 2017.
Investment in oil and gas also fell 84 per cent; renewable energy was down 64 per cent; commercial real estate dropped 22 per cent and food and agribusiness investments fell 8 per cent.
However, Chinese investment in the Australian mining sector last year increased almost five-fold since 2016, with a large focus on lithium-related projects.
In broader terms, Australia remains the second-largest recipient of Chinese investment, second only to the US.
“Australia’s relationship with China, while experiencing a period of heightened tension, is mature and deeply established in trade and investment and increasingly in society and culture through education, tourism and migration,” the report said.
“Australia’s long-term economic interests remain linked to China, a market that cannot be underestimated in terms of opportunity or opportunity cost.
“Australia stands to make sustained economic, social and diplomatic gains by nurturing long-term partnerships between Australian companies and Chinese investors.”