The biggest transaction was Mengniu Dairy Company’s acquisition of Bellamy’s Australia Limited for A$1.5 billion, a deal which accounted for 43.7 percent of total Chinese investment, and made food and agribusiness the largest sector recipient with 44 percent of the annual total. As a result of this one deal, Tasmania received the largest percentage of Chinese investment across all regions for the first time.

The commercial real estate sector was the second largest recipient of Chinese investment in 2019, despite an annual decline of 51 percent (in A$ terms). Other active sectors included services and mining. No investment was registered in the healthcare sector, marking a major change from recent years. Private investment continued to dominate ownership in 2019, accounting for 84 percent of the total value and 76 percent of the number of deals. This ratio is in line with previous years.

These are among the key findings of the Demystifying Chinese Investment in Australia (June 2020) report released today by KPMG and The University of Sydney. The report analyses Chinese Overseas Direct Investment (ODI) into Australia in calendar year 2019.

Doug Ferguson, report co-author, and Head of Asia & International Markets 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 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, negative Chinese perceptions on stricter investment regulations by the Australian government and worsening media narratives in both countries have all contributed to the lower levels of investment.”

“Chinese companies have invested over USD 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.

Fellow author, Professor Hans Hendrischke, Professor of Chinese Business & Management at the University of Sydney Business School further explained: “The decline of Chinese Overseas Direct Investment (ODI) in Australia reflects the impact of Chinese ODI regulations driving a shift towards less risky and higher quality investments. Australia’s decline mirrors that of a number of Western countries including USA, Canada and members of the EU, which are implementing tighter FDI screening measures, and strategic risk perceptions of Chinese investors of overseas markets.”

“It is worth noting that Chinese ODI into Australia has fallen at a faster rate in 2019 than Chinese investment into other western countries including the US. However, Australia still recorded just below half the US$5 billion of Chinese investment received by the United States in 2019, and far more than the US$1 billion received by Canada,” he said.

The biggest transaction was Mengniu Dairy Company’s acquisition of Bellamy’s Australia Limited for A$1.5 billion, a deal which accounted for 43.7 percent of total Chinese investment, and made food and agribusiness the largest sector recipient with 44 percent of the annual total. As a result of this one deal, Tasmania received the largest percentage of Chinese investment across all regions for the first time.

The commercial real estate sector was the second largest recipient of Chinese investment in 2019, despite an annual decline of 51 percent (in A$ terms). Other active sectors included services and mining. No investment was registered in the healthcare sector, marking a major change from recent years. Private investment continued to dominate ownership in 2019, accounting for 84 percent of the total value and 76 percent of the number of deals. This ratio is in line with previous years.

These are among the key findings of the Demystifying Chinese Investment in Australia (June 2020) report released today by KPMG and The University of Sydney. The report analyses Chinese Overseas Direct Investment (ODI) into Australia in calendar year 2019.

Doug Ferguson, report co-author, and Head of Asia & International Markets 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 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, negative Chinese perceptions on stricter investment regulations by the Australian government and worsening media narratives in both countries have all contributed to the lower levels of investment.”

“Chinese companies have invested over USD 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.

Fellow author, Professor Hans Hendrischke, Professor of Chinese Business & Management at the University of Sydney Business School further explained: “The decline of Chinese Overseas Direct Investment (ODI) in Australia reflects the impact of Chinese ODI regulations driving a shift towards less risky and higher quality investments. Australia’s decline mirrors that of a number of Western countries including USA, Canada and members of the EU, which are implementing tighter FDI screening measures, and strategic risk perceptions of Chinese investors of overseas markets.”

“It is worth noting that Chinese ODI into Australia has fallen at a faster rate in 2019 than Chinese investment into other western countries including the US. However, Australia still recorded just below half the US$5 billion of Chinese investment received by the United States in 2019, and far more than the US$1 billion received by Canada,” he said.

Investment by Industry

The Food & Agribusiness sector accounted for the largest proportion of Chinese-investment in 2019 with 44.5 percent of the total investment, or A$1.529 billion. This was up from A$100 million in 2018, and was largely driven by the acquisition of Bellamy’s Australia Limited by China Mengniu Dairy Company Limited.

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 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 .

Chinese investments into the Australian services sector in 2019 totalled A$195.2 million, representing 5.7 percent of the total. This included two educational businesses, one in financial services and one in hotel management services.

The mining sector in 2019 accounted for 6 percent of total Chinese investment, with six deals totalling A$207.73 million, a decrease of 55 percent from 2018.

Renewable energy investments accounted for 1 percent of total Chinese ODI in 2019, at A$23 million, representing mostly small, greenfield investments.

There were no recorded investment in Energy (Oil & Gas), Infrastructure or Healthcare in 2019.

Investment by Geography

Tasmania received the largest proportion of Chinese investment, 44 percent in 2019, compared to 4 percent in 2018, due to the acquisition of Bellamy’s Australia Limited by Mengniu. NSW remained a top destination in 2019, with the state accounting for a third (33 percent) of all investment at A$1.07 billion, compared to 53 percent in 2018. Victoria saw A$420 million of investment, and dropped from 28 percent of total investment in 2018 to 12 percent in 2019. Queensland investment fell to A$197 million from A$396 million last year, whilst increasing its proportion of total investment from 5 percent to 6 percent. Western Australia saw inflows of A$208 million, or 6 percent of investment in 2019. South Australia accounted for 1 percent, at A$38 million.

Investment by Ownership
Private investors accounted for 84 percent of the Chinese deal volume and 76 percent of deal value in 2019, down from 92 percent in number and 97 percent in volume in 2018. Mengniu’s acquisition of Bellamy’s has been treated as a private investment because Mengniu is not included in the Chinese official SOE register, making Mengniu a mixed ownership company. If Mengniu had been classified as state-owned, it would reduce total private investment in 2019 from 84 to 40 percent.

Investment by Deal Size
The trend toward smaller deals has continued in 2019, with the average deal size down from A$111 million in 2018 to A$81.75 million. The large majority of deals, 89 percent, were below A$100 million as more transactions are being done in mid-sized Australian markets.

Ashford Pritchard
apritchard2@kpmg.com.au
0411 020 680

Katie Booth
katie.booth@sydney.edu.au
0419 278 715