Australia has remained the second most favoured destination in the world for Chinese outbound direct investment (ODI), according to the latest data released by the American Enterprise Institute’s (AEI) the China Global Investment Tracker.
The AEI estimates that Chinese ODI in Australia was valued at US$12.2 billion for the year ending December 2015, a 21 per cent rise from US$10 billion for the year ending December 2014. Australia was only behind the US at US$22.4 billion, but remained well ahead of many other developed economies, including Italy (US$9.5bn), the UK (US$4.4bn), France (US$2.7bn), Canada (US$1.6bn) and Japan (US$1.5bn). Australia also received more Chinese ODI than many major Asian economies, including Indonesia (US$8bn), Malaysia (US$6.6bn), Singapore (US$4.9bn), South Korea (U$4.8bn) and India (US$4.6 billion).
The strong Chinese investment data suggests that Australia, as a competitive, innovative, flexible, deregulated and business-led economy, is well regarded by Chinese companies investing and operating here. PricewaterhouseCoopers in one of its research papers predicts that Australia will continue to attract large amounts of China’s expected outbound investment totalling up to US$500 billion2 between 2014 and 2018.
- The AEI figures3 show that for cumulative investment from 2005 to 2015, Australia ranks second with total value of US$84 billion, after the US with US$103 billion, but well ahead of Canada with US$44 billion and Brazil (US$39 billion). China’s ODI in Australia represented almost seven per cent of aggregated global Chinese investment (US$1,213bn) over the past decade.
- Following a 45 per cent surge in the value of Chinese investments in 2014, Australia continued to experience a strong growth rate of over 20 percent in 2015. The solid performance was largely driven by China’s robust direct investment in Australia’s services as well as real estate sectors.
- The AEI figures have also identified a transition in investment targets from mining to new industries, such as tourism, transport, finance, technology and real estate. Altogether the services sector (including real estate) attracted an aggregated value of about A$7 billion in 2015, a jump of over 40 per cent from the level in 2014. Services now account for 57 per cent for China’s total ODI, up from a tiny share of only four per cent in 2013. In contrast, Chinese investment in Australia’s resources sector (energy and metal) fell by 11 per cent to US$3.8 billion in 2015. The sector now represents less than one third of China’s ODI in Australia, down from the peak of over 90 per cent in 2008.
- In terms of deals, there were seven mega size transactions above A$600 million with a total value of A$8.9 billion in 2015 (around three quarters of Chinese ODI in Australia). More importantly, these deals were focused in more diversified areas, such as finance, transport, technology, agriculture, energy and real estate, which is an encouraging sign of maturing and globalising investment from China.
- In particular, interest from Chinese investors in Australia’s agriculture sector surged with total ODI value of nearly US$1.5 billion in 2015, sharply up from less than US$200 million in 2014. KPMG in a 2016 research report is predicting that activities from Chinese investors in Australian agribusiness will remain high and that Chinese agribusiness companies will see themselves benefitting from the signing of the China Australia FTA in the long term.
- Also, China’s investment in Australia’s real estate was active in 2015, with total value of US$3.3 billion, accounting for 27 per cent of the China’s ODI in Australia (see table below).
- Looking ahead, the increase in the foreign investment review threshold4 from A$252 million to A$1.094 billion (about US$180mn to US$781.3mn)5 will likely attract more investments from Chinese private entities in non-sensitive sectors (excluding agribusiness and farmland), according to a recent KPMG research paper, China Outlook 2016. In addition to consumer-related sectors, KPMG is expecting to see more Chinese firms investing in Australia’s property in order to benefit from high and steady returns.