SA Mines and Energy Journal : June - July 2013
JUNE/JULY 2013 SA MINES & ENERGY JOURNAL 37 BUSINESS The latest research into Chinese direct investment reveals some new and potentially significant changes to the pattern of Chinese outbound direct investment (ODI) in Australia in 2012 compared to previous years. Conducted by KPMG and the University of Sydney China Studies Centre, 'Demystifying Chinese Investment in Australia: Update March 2013' shows changes across industry sector, geography and investor type. These changes are relevant for South Australia because the shift has been away from the traditional mining sector to other sectors, including property, minerals exploration, renewable energy, infrastructure and agriculture. An important change was Australia's increasing competition from other countries for Chinese investment dollars. Australia maintained its top ranking as the most significant recipient of Chinese ODI over the past 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 USA and Canada are catching up with Australia. 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 aggressively competing for Chinese capital. By the end of 2012, total accumulated investment reached US$51 billion in Australia, followed by US$50.7 billion in the USA and US$36.7 billion in Canada. Although short of the historic peak of US$16.2 billion in 2008, Chinese direct investment inflows into Australia in 2012 increased 21 percent from 2011 to reach US$11.4 billion (AU$11 billion) across 27 transactions, up from US$9.4 billion in 2011 and US$3.7 billion in 2010. These numbers confirm that Australia is still a priority destination due to the vast supply of high quality natural resources, stable and reliable institutional systems and clean, green and fresh image for lifestyle. One development in 2012 saw South Australia achieve a breakthrough by attracting investment in the State's electricity grid, potentially opening the Australian electricity market to a new type of technology-related investment. Another development included private investors looking into the market, building multi-purpose complexes and buying South Australian wine and seafood to satisfy China's growing premium appetite. This saw the proportion of investments by privately owned Chinese companies rise during 2012, while the share of capital invested by Chinese State-Owned Enterprises (SOEs) declined across the year. The next wave of Chinese investment in Australia is coming from privately owned companies and this trend will continue under the new investment visa program which opens the door for high net wealth Chinese investors. However, in view of the large size of deals in Australia, the dominance of SOEs is likely to continue as these companies dominate the energy, mining and infrastructure sectors in China and have strong central government support to invest abroad. 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 USA and Canada. Australia's future advantages will rely on innovative commercial engagement and deeper ser vice integration with Chinese investors. The large number of family-owned businesses could match the growing private investment from China and South Australian businesses could leverage their innovation and R&D to demonstrate a focus on the premium sectors. South Australian businesses should look for opportunities to co-operate with Chinese corporates and financial ser vices 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 recognise 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. Diversity poses risk Australia remains a favoured destination for Chinese investment but faces growing competition, as Mathew Herring reports. Mathew Herring, KPMG China's rapid growth has invited strong competition.
April - May 2013
August - September 2013