Our China status under threat
China's demand for iron ore and coal gave Australia its top ranking as the largest cumulative recipient of Chinese outbound investment since 2006, but a joint report by KPMG and the University of Sydney found China was increasingly looking elsewhere to invest, despite the much-vaunted launch of the Asian Century white paper by Prime Minister Julia Gillard last year.
"The USA and Canada in particular are catching up with Australia," said Professor Hans Hendrischke, of the University of Sydney China Studies Centre.
"While Australia's accumulated Chinese direct investment is still ahead of its main international competitors, there is no denying that the rest of the world is hot on our heels and aggressively competing for Chinese capital."
By the end of 2012, total accumulated investment reached $US51 billion in Australia, followed by $US50.7 billion in the US and $US36.7 billion in Canada.
According to KPMG, Chinese direct investment into Australia grew 21 per cent in the past year to $US11.4 billion, up from $US9.4 billion.
The head of KPMG's China practice in Australia, Doug Ferguson, said while mining and resources still dominated Chinese investment in Australia, there were signs of greater diversification towards natural gas, agriculture and property. He said a notable development was the increased proportion of investments by privately owned Chinese companies last year.
Private Chinese investors completed 26 per cent of all deals by number, and 13 per cent by deal value. State-owned enterprises have historically accounted for about 94 per cent of deals by value.
"We are starting to see the next wave of Chinese investment in Australia being made by privately owned companies and this trend will continue under the new investment visa program which opens the door for high-net-wealth Chinese investors," Mr Ferguson said.
The report said Australia continued to be an attractive destination for Chinese investment because of its high-quality natural resources and a reliable regulatory environment - but this counted for less when competing with the US and Canada. Australia's future advantages would additionally rely on innovative commercial engagement and deeper service integration with Chinese investors.
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A joint KPMG and University of Sydney report warns that Australia’s status as a favoured destination for Chinese direct investment is being eroded. Although Chinese investment into Australia grew 21% in the past year to US$11.4 billion, the US and Canada are catching up and aggressively competing for Chinese capital.
By the end of 2012 total accumulated Chinese outbound investment in Australia reached US$51 billion. For comparison, the US had US$50.7 billion and Canada had US$36.7 billion in accumulated Chinese investment at the same point.
Mining and resources still dominate Chinese investment in Australia, driven historically by demand for iron ore and coal. However, KPMG notes signs of diversification into natural gas, agriculture and property.
Private Chinese investors are becoming more prominent. Last year private firms completed 26% of deals by number and 13% by deal value. Historically state-owned enterprises have accounted for about 94% of deals by value, so the report highlights a shift toward more private investment.
For everyday investors it means Australia may face tougher competition for future Chinese capital. Although Australia remains the largest cumulative recipient, the report suggests investors watch how international competition could affect deal flow, sector interest and long-term foreign investor relationships.
The report says the new investment visa program opens the door for high-net-wealth Chinese investors and is likely to support the growing wave of investment by privately owned Chinese companies, potentially increasing private capital flows into Australia.
Australia remains attractive because of high-quality natural resources and a reliable regulatory environment. But when competing with the US and Canada those strengths count for less; the report says future advantage will also depend on innovative commercial engagement and deeper service integration with Chinese investors.
The findings are drawn from a joint report by KPMG and the University of Sydney, with commentary from the University of Sydney China Studies Centre and KPMG’s China practice in Australia.
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