Chinese investment in Australia drops 36% to second-lowest level since 2006

Chinese investment in Australia plummeted to $1.34 billion in 2023 according to a new report released today by KPMG Australia and The University of Sydney, marking a 36% decline from the previous year and the second-lowest annual figure since 2006.

The Demystifying Chinese Investment in Australia report reveals that only 11 investment transactions were recorded across the entire year, tying 2021 for the lowest number of deals.

While global foreign direct investment rebounded by 3% in 2023 after the previous year’s 12% drop, China’s overseas direct investment (ODI) has shifted priorities.

For the first time, more than 20% of China’s global outbound investment was directed towards Belt and Road Initiative countries.

“Chinese investment in Australia has remained subdued in 2023, falling to the second lowest level since 2006,” said Helen Zhi Dent, partner at KPMG Australia and co-author of the report.

“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.”

Healthcare overtakes mining

In a reversal from previous years, healthcare accounted for the largest share (42%) of Chinese investment in Australia during 2023 through two deals totalling $562 million. Food and agribusiness represented 21% of the total at $283m.

In contrast, Chinese mining investment dwindled from AU$1.8b in 2022 to just $34m last year amid uncertainty in the sector.

“The 2023 results […] clearly represent a trend of sustained contraction in Chinese direct investment in Australia since 2017,” KPMG Australia’s NSW Chair Doug Ferguson said.

“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.”

New South Wales attracted the lion’s share at 82% or $1.01b of the total Chinese investment, followed by Victoria at 16% ($211m) and Western Australia at 2% ($28m).

Privately-owned enterprises experienced a slight uptick in 2023, increasing investment from $641m in 2022 to $878m.

Longer-term prospects

The report authors remain optimistic about potential for collaboration between the two nations in areas like resources, renewable energy, food and agriculture, citing Australia’s resource endowments, innovation capabilities and strategic location.

“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 (EV), solar panels and batteries and industrial machinery sectors,” noted Professor Hans Hendrischke from The University of Sydney.

“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 EVs, solar and wind renewables and other industrial and consumer driven sectors,” Mr Ferguson added.