Thursday, 12 January 2017

Chinese investment in Australia

Australia stands second only to the United States as the preferred country for Chinese investors.

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In 2015 Chinese investment into Australia grew 60 per cent to $15 billion, reaching its highest levels since 2008, largely assisted by a lower Australian dollar.

China's shift away from an export-driven, to an innovation-driven economy are also shifting its investments away from commodities and resources.

According to the KPMG and Sydney University report Demystifying Chinese Investment in Australia, investment in real estate now accounts for $6.85 billion - or 45 per cent of total Chinese investment in Australia. Meanwhile, 20 per cent of Chinese investment is in renewable energy, 17 per cent in healthcare and 9 per cent in mining. Gas and oil, agribusiness and also infrastructure all account for 3 per cent each.

“Chinese investment in Australia now reflects the new normal: China's focus on middle-class consumption - premium-quality health, lifestyle and services,” says the report.

“We get daily calls from our Chinese client base looking to deploy capital into Australia - that's across all sectors and investment types” says Scott Couzner, head of mergers and acquisitions at HSBC in Australia. “It's impacting how our Australian clients think about selling their business and also how we think about funding our significant client base in Asia and Australia. It's just going to be continued growth.”

Crucial is the wealth of capital in China. “Australia represents a very attractive home for that capital, with stable returns in a regulatory and legal environment where the investments are comparably safe,” notes Couzner.

Stuart Larkin, group manager - strategy and international new business at John Holland, which was purchased by China Communications Construction Company International Holding Limited (CCCI) in 2015, agrees: “They just want us to keep finding opportunities - when we say this is what we're thinking about, they say you're not thinking big enough.”

The drop in Chinese investments in mining, commodities, oil and gas “has been filled by investment into renewable energy, infrastructure and also more recently the consumer goods, healthcare and services. Significant amounts of capital is coming into those sectors where Chinese corporates can really benefit from Australian products and know-how” says Couzner.

According to Couzner, three changes have enabled the change: “First is that in 2014 the Chinese regulators made it significantly easier for Chinese companies to deploy capital outside of China - prior to that there were often lengthy approval processes which meant some Chinese investors were often uncompetitive when participating in sale processes or looking to invest in Australian companies. The second is you've seen a significant increase in the willingness, appetite and competitiveness of Chinese banks to lend to their Chinese clients and support foreign investment. Third, the growing middle class in China and their increasing desire for quality products and services. Chinese investors have a ready-made market where they can significantly drive earnings and growth for Australian companies.”

Opportunities include the Belt and Road initiative, also known as the Silk Road Economic Belt and the 21st-century Maritime Silk Road. “You're connecting more than 60 countries through a global trade and investment group - about 60 per cent of the world's population,” says Larkin. “For us the opportunities are endless. [There are] enormous supply chains and economies of scale that we've got access to now.”

When doing business, however, “cultural understanding and experience [are] invaluable,” says Luke Austin, chief financial officer of telco Huawei Australia.

The phone company expanded into Australia in 2004. Australia was attractive for myriad reasons, says Austin: “First of all it's a western, mature, well controlled economy. Geographically it gave us access to Australia, New Zealand, and the Pacific islands.”

The panelists concurred that a key challenge of doing business in China is dealing with regulatory processes, which are not always clearly spelt out. Companies have to manage due diligence closely and pay attention to provincial, as well as national, leadership.

Nonetheless, investment only looks set to grow. “Chinese companies are now as competitive as anyone globally when looking to deploy capital,” says Couzner. “Over the last decade they have become much better at the softer aspects of doing deals, aided by the addition of sophisticated strategy teams to look at investment opportunities globally. They are looking at virtually everything in the market.”

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