Chinese investment falls despite bilateral trade agreement

Doug Ferguson, report co-author and head of Asia and international markets for KPMG Australia, commented: “In 2019, new Chinese investment into Australia has fallen significantly, from A$10.3 billion in 2017 to A$3.4 billion – the lowest since 2007.” 

The researcher highlighted the many headwinds for Chinese investors into the Australian market.

“The reasons for the decline are many, and no one country or issue is responsible.”

“Tightening Chinese ODI regulations, SOEs investment moving away from developed markets and towards the BRI projects and Latin America, and negative Chinese perceptions on stricter investment regulations by the Australian government have all contributed to the lower levels of investment,” Mr Ferguson said.

However, despite falling investments, Mr Ferguson explains the benefits of Chinese investment into Australia.

“Chinese companies have invested over US$107 billion into Australia since 2008, and this capital has been a really important contributor to economic growth locally, but new investment is slowing.”

“While deal activity will still continue because of the genuine complementarity between both nations and the large number of Chinese companies now established in Australia, we don’t expect to see a continuation of large-scale investment by new Chinese entrants in the short-to-medium term,” he added.

Commercial real estate remained a leading sector for Chinese investment in 2019, accounting for A$1.479 billion of investment (down from A$3 billion in 2018), and representing 43 percent of total Chinese ODI in Australia. 

Residential development accounted for just over two-fifths of deal volume, while industrial property made up 20 percent of transaction volume boosted by China Merchants Group’s majority acquisition of the Propertylink Australian Logistics Trust II.

Office property accounted for 15 percent of investment, boosted by the purchase of 107 Mount Street in North Sydney by an undisclosed Chinese buyer. Retail and hotel assets made up 14 percent and 10 percent of transaction volume, respectively.   

Chinese investment in commercial real estate was mainly directed towards smaller acquisitions in 2019.

Just under 70 percent of the total number of transactions involved deal sizes of A$50 million or less. 

The prevalence of activity in smaller deal brackets partly reflects the ongoing impact of measures to limit capital outflows from China. The decline in capital inflows from mainland China can also be attributed to investors directing capital through non-mainland Chinese companies and funds.