Chinese investors turn away from Australia after Canberra crackdown

The value of Chinese investments in Australia collapsed last year amid a tougher scrutiny of Canberra, a severance of bilateral ties and a global slowdown in foreign investment due to the pandemic.

The dramatic drop in Chinese investment came as other members of the Five Eyes intelligence network, including the United States and the United Kingdom, rushed to tighten oversight of foreign investments for reasons of national security.

New data shows Chinese investment fell 61% to A $ 1 billion (US $ 780 million) in 2020, from A $ 2.6 billion a year earlier and a high of A $ 16.5 billion. Australian dollars in 2016. The year 2016 was a highlight of Sino-Australian relations which coincided with a free trade agreement. In contrast, only 20 transactions were recorded last year.

Chinese investments in 2020 were limited to just three sectors – real estate, mining and manufacturing – a big change from previous years when activity covered all industries, according to a managed Chinese investment tracking database by Australian National University.

Shiro Armstrong, director of the Bureau of Economic Research for East Asia at ANU, said the collapse in investments mainly reflected the impact of Covid-19 and closer scrutiny of foreign funding by Canberra, especially those from China.

Global foreign direct investment fell 42% during the pandemic, while foreign investment in Australia fell 46%, according to UN data, he added.

“It’s a pretty remarkable story when you consider that Australia was the largest Chinese investment destination in the world during the height of the commodities boom. We have received much more investment than United States, and it just collapsed, ”Armstrong told the Financial Times.

Australia-China relations have fallen to their lowest level in a generation, following Canberra’s call for an international investigation into the origins of Covid-19 and its introduction of tough foreign interference laws and a stricter scrutiny of foreign investment .

Canberra introduced temporary changes to its investment framework in March last year, which subjected all foreign investments to scrutiny by its Foreign Investment Review Board. This has resulted in long delays, especially for Chinese investors, according to bankers involved in the transactions.

The government also forced the abandonment two large-scale deals – the A $ 600 million offer from China Mengniu on Japan-owned Lion Dairy and A $ 300 million from China State Construction Engineering Corp. bid on Probuild, a South African construction company – by expressing its disapproval in private.

“The government’s message is that Chinese investment is unwelcome. It couldn’t be louder or clearer, ”said Geoff Raby, Chinese business advisor and former Australian ambassador to China.

“The most glaring case was the blocking of the lion diary sale, which had no strategic or national security justification for it. Firb approved this but the treasurer blocked the investment. ”

In January, Canberra tightened its foreign investment framework, introducing additional national security tests and a “power of last resort” to unwind deals, even after they are approved. This move could lead to controversial acquisitions, including Chinese company Landsbridge purchase of the port of Darwin, under review by the government.

Beijing accused Australia of “militarizing” the concept of national security to block Chinese investment, an allegation that Canberra denied. Beijing’s imposition of capital controls in 2017 also reduced foreign investment flows out of China.

Josh Frydenberg, Treasurer of Australia, said the rules “strike a balance between maintaining Australia as an attractive destination for foreign investment, maintaining public confidence in the integrity of our environment. ‘investment and protection of the national interest and national security of Australia’.

The collapse in investment has yet to be reflected in Sino-Australian trade, which continues to grow due to soaring iron ore prices despite Beijing imposing tariffs and other trade barriers. on some products.

However, analysts said the deteriorating investment climate would eventually spill over to trade.

“Over time, lower investment will also mean lower two-way trade, an outcome Beijing is actively seeking to punish Australia for its perceived political transgressions,” said Richard McGregor, senior researcher at the Lowy Institute.

In November, Great Britain announced the biggest upheaval in foreign investment rules in two decades to prevent foreign companies from buying sensitive assets, amid concerns about China’s influence. A month later, Congress passed a law requiring Chinese companies to withdraw from U.S. stock exchanges unless they comply with national accounting rules.

Additional reporting by Sun Yu in Beijing

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