Chinese investment in Australia turns a corner

A new report from professional services giant KPMG has revealed a subtle but important evolution in the nature of Chinese outbound direct investment (ODI) with profound implications for Australia, until now the main beneficiary of Chinese capital.

The report, released Friday in Sydney, represents the latest research into Chinese direct investment by KPMG and the University of Sydney China Studies Centre -- identifies significant changes to the pattern of Chinese outbound direct investment in Australia in 2012 compared to previous years.

For Australia's patchwork economy, held as it has been in the thrall of a mining investment boom, these changes stretch across industry, sector, geography and investor type.

Demystifying Chinese Investment in Australia: Update March 2013 also delivers a sobering assessment for Australian business leaders, with evidence that the resource-rich nation is now facing increasing international competition for Chinese investment dollars.

Australia maintained its top ranking as the most significant recipient of Chinese ODI over the last eight years since large- scale investment of this kind began in earnest in 2005, but it is losing its dominant status.

"Chinese investment is geographically diversifying, and the United States and Canada in particular are catching up with Australia," said Professor Hans Hendrischke of The University of Sydney China Studies Centre.

"While Australia's accumulated Chinese direct investment is still ahead of its main international competitors, there is no denying that the rest of the world is hot on our heels and aggressively competing for Chinese capital."

Canada achieved top position for Chinese investment for the 2012 calendar year, due to the completion of one enormous transaction -- the 15.1 billion U.S. dollars CNOOC-Nexen oil and gas company deal.

By the end of 2012, total accumulated investment reached 51 billion U.S. dollars in Australia, followed by 50.7 billion U.S. dollars in the United States and 36.7 billion U.S. dollars in Canada. Other major recipients included Brazil and Russia. The largest investment destinations in Europe and Africa are the United Kingdom and Nigeria respectively.

Although short of the historic peak of 16.2 billion U.S. dollars in 2008, Chinese direct investment inflows into Australia in 2012 increased 21 percent from 2011 to reach 11.4 billion U.S. dollars across 27 transactions, up from 9.4 billion U.S. dollars in 2011 and 3.7 billion U.S. dollars in 2010.

"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.