THE Chinese continue to pour money into Australian businesses, infrastructure, resources and real estate to the tune of $15.36 billion in 2016.
The figure is the highest it’s been since 2008 when Chinese direct investment reached its peak of $21.6 billion, according to a report from KPMG and the University of Sydney.
Commercial real estate was still the favourite place for the Chinese to invest, making up 36 per cent of direct investment in Australia.
While this includes mixed use developments, retail, office, industrial and hotels, it was residential development that attracted the most money.
It made up 51 per cent of Chinese commercial real estate projects. The year before it was attracting just 27 per cent of investment.
Major transactions include the $700 million W Hotel & Ribbon Residences in Sydney’s Darling Harbour and an estimated $353 million residential development in Melbourne at Hacketts Rd, Point Cook.
Professor Hans Hendrischke, a co-author of the report released today Demystifying Chinese Investment in Australia, said there appeared to be two key reasons why the Chinese were interested in commercial real estate in Australia.
Firstly, they see Australia as a growth market, and secondly, the large Chinese community in the country means they can sell properties to Chinese buyers, as well as Australians.
“The main point is they think they are safe in the Australian market,” Prof Hendrischke said.
But the Chinese are also looking to other areas, driving up funding in infrastructure and agriculture to record levels.
The Chinese spent $4.3 million, making up 28 per cent of their total investment spend on infrastructure, driven by multi-million dollar investments in port and rail operator Asciano and the Port of Melbourne lease.
This was followed by funding of healthcare, agribusiness, oil and gas, mining, transport and even $343,000 on renewable energy projects such as solar and wind.
But mining’s share of Chinese investment fell from 9 per cent in 2015 to 5 per cent last year, and for the first time it was outperformed by gas and oil at 8 per cent.
In dollar terms, investment fell in mining fell by 35 per cent compared to the year before.
But Prof Hendrischke said big projects impacted these figures and this sector was prone to fluctuations.
He said the investment in renewables was partly driven by China’s desire to build a globally leading position for their wind and solar technology.
“They are bringing in their own technology and they’re quite successful globally … because they are very competitive,” he said.
Overall 2016 was a breakthrough year for agribusiness, with Chinese interest shifting the sector from seventh to fourth place. It made up just 3 per cent of investment in 2015 but rose to 8 per cent in 2016.
Investment was concentrated in the dairy, meat, seafood and wine sectors including the joint venture to buy a long-term pastoral lease for beef producer S Kidman & Co.
“Consumers (in China) have concerns about food safety and Australia is one of the markets, along with New Zealand, that is recognised for having top quality, healthy, clean food,” Prof Hendrischke of the Chinese interest in the sector.
Australians have expressed concerns about Chinese investment in the country, which has seen deals such as the lease of electricity network Ausgrid blocked over national security and national interest concerns.
While Prof Hendrischke could not speak to security concerns, he said if you looked at what the Chinese were buying, it did make sense commercially.
“It doesn’t looking like grabbing for strategic reasons, it fits into their own demand and their own economy,” he said.
“Chinese investment is growing in an organic way.”
For example, Chinese investments in ports such as their share in the Port of Melbourne had been controversial because some were worried about Chinese wanting to control ports.
“But seen in a global context, the Chinese are global operators of ports and they want to integrate Australian into the whole South East Asia market,” Prof Hendrischke said.
“It’s part of globalisation, they want to be across the major markets and it’s also a learning experience for them in running global operations.”
While Australia remains the second largest recipient of Chinese direct investment globally since 2007, this is still second to US investment.
Last year the Chinese pumped $15.36 billion into Australia — much less than the $60 billion it directed to the US.
“The US has absorbed much more economic investment than we do,” Prof Hendrischke said.
The gap is also increasing and this is something Australia should watch.
Last year, Chinese investment in Australia grew by 11.7 per cent but in the US it tripled, and in the European Union it jumped by 77 per cent.
Prof Hendrischke said there was no specific area that drove the massive increase in the US and it was basically spread across sectors like entertainment, real estate, services and IT.