Overseas direct investment into Australia by Chinese companies saw a significant increase on 2014, reaching more than $11 billion. The majority of the investment was in real estate, followed by renewable energy projects. Investors are generally happy with the ease of doing business in the country.
The Chinese economy has seen significantly growth over the past two decades. While internal investment in the machinery sector for growth, much of it aimed at the export market, has been strong – Chinese companies have also sought to invest in overseas markets as a means of diversification. In 2015, a record $118 billion was invested by Chinese state owned enterprises (SOEs) and private businesses – up 14.7% on a year earlier. The Australian economy was the third largest recipient of investment, behind Luxemburg and the US. In total, Australia has seen $78 billion in overseas direct investment (ODI) from Australia since 2005.
In a new report by KPMG and The University of Sydney Business School, titled ‘Demystifying Chinese Investment in Australia’, considers Chinese ODI into the Australian market, including historic trends as well as future sentiment by a range of investors. The report is based on investments into Australia made by entities from the People’s Republic of China through M&A and joint venture.
Historical OBI trends
The overseas direct investment from China into the Australian economy has been relatively stable in recent years, at between $8 and $11 billion. Over the past 9 years, 2007 saw the lowest level of investment at around $1.5 billion, while 2008 saw investment jump to more than $16 billion. Last year, total investments stood at around $11 billion.
The relatively large jump between 2014 and 2015 was, the consultancy finds, due to a number of mega-sized deals from Chinese SOEs and private companies – with seven deals above $500 million – as well as an increase in the numbers of deals; mainly from private investors seeking to diversify their holdings within relatively stable markets. The depreciation of the Australian dollar made investment in the country more attractive for Chinese investors.
Chinese OBI into Australia
The report highlights that the largest singly chunk of investment went into real estate*, totalling 45% of all investments and a value of around AU$6.8 billion. Renewable energy investments totalled AU$3 billion, while healthcare saw 17 investments with a total combined value of AU2.5 billion.
The large, strategic, position taken by Chinese investors in the real estate market reflects the desire of investors to diversify their asset overseas, and gain better returns on their investments, on the back of long term population and economic growth in the market – the focus on investing in real estate assets are for a large part within the NSW and Victoria region. The creation of a relatively stable investment environment within Australia has increased the appetite of foreign investors to invest in the sector – including Chinese players.
“Following two years of moderately declining Chinese investment, the resurgence of interest and the diversification by Chinese companies in 2015 is a strong endorsement of the attractiveness of Australia’s economy. Alongside continued interest in the NSW and Victorian commercial real estate sectors, there has been activity and major deals in renewables, agribusiness, and for the first time, healthcare,” said report co-author, Doug Ferguson, Head of KPMG Australia’s Asia and International Markets. “Overall we are seeing a strong story of Chinese investment into Australia’s broader economy which is in line with premium products, services and lifestyle-oriented themes.”
The report also considers a range of factors related to the attractiveness of the Australian market to Chinese investors, as well as the future of investment in the region. Top of the list for Chinese investors into Australia is ‘making profits’, with a score of 7.93 on a scale of ten (ten = very important). This is followed by ‘securing resources’ with a score of 7.24. The ‘building up of an international brand’ comes in at number three with a score of 7.07, while ‘access to global markets’ has a score of 6.90. The area of least importance, with respect to the questions posed, were ‘stock market listing’, with a score of 3.92, and availability of finance, with a score of 5.15.
According to the analysis, the Australian market is relatively open to Chinese investors’. Chinese and Australian board members’ understanding each other was found to be difficult by 29% of respondents, although the majority were neutral and 18% agreed that it was easy to understand each other. The majority of respondents were neutral about the ease of doing business with trade unions, while 35% of respondents agreed that it is easy to work with Australian managers. The report also found that 47% responding Australian investors agree that working with Australian employees is easy, with 13% saying it is very easy.
The report also found that investors are generally positive about the prospect of investment in Australia over the coming years. 60% of respondents say that their business outlook is positive, while 31% say it is average – 5% say it is very positive. The buoyant business outlook appears to be correlated with interest in continuing to invest in the Australian market. 50% agree that they are planning to expand their investment in the market over the coming year, while 34% are neutral about the prospect – 5% strongly agree to the sentiment.
Professor Hans Hendrischke, Professor of Chinese Business & Management at the University of Sydney Business School comments: “Our research has also shown that, for Chinese companies looking to expand internationally, Australia is seen as a strong first port of call, allowing them to gain experience and management know-how before taking on other overseas markets. As China embarks upon its next Five Year Plan and continues to develop as a leading global economy, Australia is poised to profit as one of its major trading partners. All Chinese investors we interviewed held a highly positive medium-long term view of Australia and are looking to increase their investments in Australia.”
* “Real estate” referred to in this report does not include residential apartment and home sales.