Chinese investment in Australia turns a corner

"These numbers confirm that Australia is still a priority destination due to our vast supply of high quality natural resources, stable and reliable institutional systems and clean, green and fresh image for lifestyle. While mining and resources still dominate investments, we're seeing greater diversification towards LNG, agribusiness, renewable wind energy and real estate," Doug Ferguson, Head of KPMG's China Practice in Australia told Xinhua.

Mr Ferguson expects to see continued growth in areas recognized as world's best practice including engineering and architecture, renewable energy, specialist environmental services and food safety and processing.

Geographically, Western Australia and Queensland continued to grow as top destinations for investment, highly concentrated on mining and resources. Encouragingly, the report found NSW and Victoria's engagement with Chinese companies was increasingly diversifying across various sectors.

Notably, the proportion of investments by privately owned Chinese companies rose during 2012, while the share of capital invested by Chinese State-Owned Enterprises declined across the year. Chinese non-state (i.e. private) investors completed 26 percent of all deals by number, and 13 percent by deal value. These results again differ from historical trends which indicate SOEs accounted for 94 percent by value and 80 percent by number of deals between September 2006 and December 2012.

"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," said Ferguson.

Chinese investors prefer a passive minority interest at the corporate level to a stake at the assets level or a controlling stake at the corporate level.

In recent years there has been considerable public debate about the extent of Chinese interest in, and ownership of, Australian energy and resources. According to research also released this week by firm Clayton Utz, the greatest majority of Chinese Investment between 2005 and 2013 has been to secure supply rather than gain a financial return.

According to Jonathon Li at Clayton Utz a massive 78 percent of completed Chinese investments here, were "for the purposes of securing supply", indicative of the Chinese government's priority of providing social support and cohesion, over profit.

Ferguson, a China veteran with a track record in bridging Chinese investment with domestic expertise told Xinhua that the strength of SOE's will ensure they play a major role in Sino- Australian cooperation.

"(SOE's are) likely to continue as these companies dominate the energy, mining and infrastructure sectors at home in China and have strong central government support to invest abroad," he said.

The report flags that while Australia continues to be an attractive investment destination, as Chinese companies diversify global investments and international competition for Chinese capital increases, Australia's relative share of Chinese investment is decreasing.

Australia's traditional advantages in natural resource endowments, stable and reliable institutional and legal systems and low sovereign risk remain strong in competition with developing countries as suppliers of resources and energy, but count for less when competing with the United States and Canada. Australia's future advantages will additionally rely on innovative commercial engagement and deeper service integration with Chinese investors.

"We urgently need to develop new and creative competitive strategies to maintain our position as a preferred investment partner for China, for example building a China-capable workforce from board level through to university students. We must look for opportunities to co-operate with Chinese corporates and financial services companies to jointly compete for, win and successfully deliver major projects both in Australia and together in the region."

"Chinese investors are rapidly adapting to the Australian investment and regulatory environment, and recognize that they need to do more to communicate their strategic intentions and allay public concerns. Importantly, they want to see commitment, action and follow through from Australian governments and the corporate sector to successfully deliver existing Australian projects and new investments," Ferguson concluded.