Chinese investment in Australia falls to second lowest level since 2006

Chinese investment in Australia fell 36 percent to AU$1.34 billion in 2023, compared to AU$2.1 billion in 2022, with healthcare overtaking mining as the key industry.

It was the second lowest year in investment value since 2006, and the joint-lowest year with 2021 in the number of investment transactions with just 11 recorded across the year.

These are among the key findings of the Demystifying Chinese Investment in Australia (April 2024) report released today by KPMG Australia and The University of Sydney Business School co-authors Professor Hans Hendrischke and Dr Wei Li. The report analyses Chinese Overseas Direct Investment (ODI) into Australia for the calendar year January to December 2023.

The dataset covers investments into Australia made by corporates (not individuals) with head offices based in the People’s Republic of China (excluding Hong Kong and Macau) through mergers and acquisitions. Completed deals valued below US$5 million are not included due to a lack detailed, reliable information.

The fall in investment came despite a slight recovery in overall Foreign Direct Investment globally, which increased by 3 percent in 2023 to US$1.36 trillion, following a 12 percent decline in the previous year. China’s global non-financial ODI also returned to pre-pandemic investment levels in 2023, reaching US$130 billion.

Professor Hans Hendrischke, University of Sydney Business School said the fluctuation in Chinese ODI in Australia can be attributed to a variety of factors.

“The emergence of Chinese-funded mining and processing ventures in alternative markets, such as Southeast Asia, intensifies these dynamics by creating competitive pressures and diverting attention from Australian opportunities.

“While Chinese investor confidence towards mergers and acquisitions in the Australian market remains low, we are seeing increasing interest in greenfield investments, particularly in the electrical vehicle, solar panels and batteries, and industrial machinery sectors. This is driven by the perception that these investments offer lower upfront financial risks and the potential for higher long-term rewards.

“The evolving nature of Chinese investment offers avenues for renewal and growth in the bilateral investment relationship between Australia and China.

For the first time, the share of China’s ODI going to Belt and Road Initiative countries surpassed 20 percent of its total global ODI, marking a milestone in China’s global investment strategy.

Co-author Helen Zhi Dent, Chinese Business Practice partner at KPMG Australia, said: “Chinese investment in Australia has remained subdued in 2023, falling to the second lowest levels since 2006. This reflects the shift in priorities for Chinese ODI, which is increasingly flowing towards Belt and Road Initiative countries as well as towards mining and processing ventures in alternative markets, such as Southeast Asia.

“However, the improving cross-border trade environment as demonstrated by the recent removal of wine tariffs could help to kickstart increased Chinese investor interest in Australian businesses. This is particularly true in industries where Australian and Chinese businesses have a long history of mutual co-operation, such as resources, food and agribusiness, and renewables,” she said.

Healthcare accounted for 42 percent of the total Chinese investment inflows to Australia through two transactions totalling AU$562 million. Food and agribusiness represented 21 percent of the overall value through two deals totalling AU$283 million.

Chinese investment in mining saw a significant decrease from AU$1.8 billion in 2022 to AU$34 million in 2023, with Chinese investors noting increasing uncertainty regarding investments in the mining sector, especially in critical minerals.

NSW received the largest share of Chinese investment with AU$1.01 billion, accounting for 82 percent of total investment. This is followed by Victoria with 16 percent or AU$211 million, and Western Australia with 2 percent or AU$28 million.

In 2023, investment from privately owned enterprise experienced a slight uptick, increasing from AU$641 million in 2022 to AU$878 million.   

Between 2006 and 2023, an accumulated total of US$113.5 billion was invested by Chinese companies in Australia.

NSW, Victoria and Western Australia are the top three states in terms of total value of investment received from China between 2006 and 2023, accounting for 37 percent, 23 percent and 18 percent respectively.

The history of Chinese investment in Australia can be divided into three periods: the resources boom period (2006–2012), the diversification period (2013–2016) and the contraction period (2017–2023).

Between 2006 and 2012, Australia was the leading recipient country of Chinese ODI globally. A total of 128 transactions were completed, amounting to US$50.8 billion. During this period, Chinese ODI in Australia was concentrated in the resource industry, with 73 percent in mining and 14 percent in oil and gas.

Between 2013 and 2016, 268 transactions were completed, amounting to a total of US$39.2 billion as Chinese ODI in Australia diversified into non-resources sectors including infrastructure, food and agribusiness, commercial real estate, renewable energy and healthcare.  

Since 2017, amid global uncertainty, Chinese investment in Australia has experienced a continuous decline. Between 2017 and 2023, a total of 271 transactions were completed amounting to a total of US$23.5 billion. In this contraction period, Chinese ODI has primarily been directed into mining, healthcare, food and agribusiness, renewable energy and commercial real estate.

Doug Ferguson, NSW Chairman and Head of International Markets, KPMG Australia, commented: “The 2023 results were the second lowest on record, and clearly represent a trend of sustained contraction in Chinese direct investment in Australia since 2017. Falls in SOE investment generally and mining specifically is interesting given all the noise about critical mineral security.

“The Australian result should also be seen within the context of a 29 percent increase in Chinese global ODI to other competing developed countries, including the US which attracted US$1.8 billion despite the geopolitical and trade tensions. It’s also interesting to note the increase and scale of Chinese investment into ASEAN / South East Asia in 2023 as it’s become a big focus area for Australia.

“It’s not easy to predict the future, but we’d expect to see moderate Chinese private sector investment interest aligned to trade objectives for electric vehicles, solar and wind renewables and other industrial and consumer driven sectors,” he added.