Last year, China`s crackdown on capital outflows led to a sharp reduction in investment in Australia, which could be even worse if Beijing`s political intervention accusations continue to undermine business confidence.
Direct investment by Chinese and state-owned enterprises fell 11 percent to 10.3 billion yuan from a year earlier, according to a study by the University of Sydney and KPMG (KPMG), a global audit firm.
Co-author (Doug Ferguson) said 2017 was "an important test year for Chinese direct investment in Australia". Figson, head of Asia and international markets at KPMG, Australia, added: "We believe the current downward trend could continue into 2018."
The biggest declines were in infrastructure (- 89 percent), oil and gas (- 84 percent), renewable energy (- 64 percent) and commercial real estate (- 22 percent). As a result of one-off deals, mining and other forms of energy grew 448 percent, services and manufacturing rose 38 percent, and health care grew 20 percent.
Since 2016, Beijing has been curtailing so-called overseas speculative investment in an effort to protect foreign exchange reserves and curb foreign debt. In 2017, China`s outbound investment to all countries fell by 29 percent. Some of the major markets were underperforming: investment in the United States fell 35 percent and against the European Union 17 percent, despite unusually high levels in 2016.
The largest investor in Asia
China`s cumulative investment in Australia is still as high as 48 billion yuan, making it the world`s ninth-largest investor. However, this is insignificant compared to the United States ($662 billion) and the United Kingdom ($355.3 billion). Australia`s biggest Asian investors are Japan ($161.8 billion), Hong Kong ($86 billion) and Singapore ($60.5 billion).
One of Australia`s concerns is that it has not benefited from higher investment in infrastructure, services and agriculture, all of which are competitive industries.
By 2017, investment in these sectors may have halved because state-owned enterprises are usually the main source of investment, but state-owned enterprises have become targets for Beijing to curb capital outflows.
China`s private sector is now in the lead, but their smaller investments are closely linked to China`s domestic demand, which has entered a plateau. Key projects in China include health benefits, tourism and lifestyle, real estate, technology, services and mining commodity resources, the University of Sydney / KPMG report said.
Australia has been the second-largest beneficiary of China`s cumulative investment since 2008, attracting nearly 100 billion yuan, but there are signs that investors are uneasy about the government, universities and other public sector accusations of Beijing`s intervention.
Canberra is expected to pass legislation immediately to impose strict restrictions on foreign parties and to demand approval from all lobbyists. Australia insists the law does not target China, but most media coverage focuses on the activities of Chinese citizens.
The University of Sydney / KPMG study found that investor confidence was affected. "Chinese executives tell us that Australia remains a relatively safe and more attractive investor, but only 35 percent of respondents feel welcome to invest here, down from 52 percent in 2014." Figson says.
Unsafe atmosphere
The Conversation, an independent public affairs website, conducted a separate survey of 50 Chinese executives this year and found investors "worried." And unwilling to get caught up in the climate of insecurity created by the current debate about China`s role in Australia. "
More than half of respondents now agree (48 percent) or strongly agree (4 percent) that their popularity in Australia has declined, compared with just over 1/3 (35 percent) in 2014.
The survey showed that 2/3 (67 percent) of respondents strongly agreed (17 percent) or (50 percent) that Australian government support for Chinese investment was not as strong as it had been before.
To Canberra`s worries, 70 percent said the political debate about China had made their companies more cautious about investing in Australia.
But 52 percent of respondents said Australia was a safer place to invest than any other country, although that proportion has fallen from 63 percent in 2014. Business operations for Chinese investors were also generally positive, with 65 percent of respondents reporting higher turnover and 45 percent of profits in the past; 64 percent predicting an increase in turnover this year and 42 percent predicting a profit increase.
While 49 percent of respondents were optimistic about the business outlook for 2018, the survey noted investors`"no sense of security and worries" and said it highlighted the difficulty of separating government and business in investment relations with China.
