Chinese Investment in Australia: The Facts

 

 

The economic success that China has experienced over the past few decades has nothing less than astounding.

Over the past 30 years, China’s growth and entailed urbanization changed the face of the global economy. It’s even predicted that Chinese GDP could overtake the U.S within the next 15 years.

 

China's Economic Rise

Disposable income per capita.

 

But it isn’t just living standards and public infrastructure that has increased in China, so too has Chinese foreign investment.

Since 2011, the Chinese Government has been encouraging private and state owned enterprises to expand business overseas. By stepping up their outbound foreign direct investment (FDI) and developing new sales networks abroad, Chinese businesses hope to diversify and stabilize their portfolios after the rapid growth they have experienced over the past decade.

It’s basically taking your eggs and putting them in many baskets across the globe.

 

China has already become the world’s third-largest source of outward foreign investment behind the US and Japan, and during 2002-2012, China’s outward FDI flows grew at an astounding average annual rate of 41.6%.

 

Outward Foreign Direct Investment Flows

Outward foreign direct investment flows.

 

Though it seems that China is still has a long way until it buys the world. In perspective, China is still a relative newcomer when it comes to big direct investments, but the nation of 1.35 billion is divesting more than any other.

So far, China has focussed much of their investment into the mineral and resource industries, therefore, Australia has loomed as an attractive destination.

From 2007 to 2013, China has spent almost three quarters of their investments into mining, with real estate the next favoured industry. Over the past 6 years, government reports show at least $97 billion worth of investment projects.

 

Chinese Investment in Australia by Industry

Chinese investment in Australia by industry.

 

In minefields the Chinese may be more prevalent, but it is their real estate dealings that has attracted the most controversy in the media.

Yet when we look closer at the figures, the notion that Chinese investors are pushing out first-home buyers from the market doesn’t quite stack up.

It’s worth noting that in Australia, foreigners are not permitted to buy existing homes, only new dwellings, but first must seek approval from the Foreign Investment Review Board (FIRB).

Truth is, Chinese nationals do have a fair stake of the property market, with Chinese investment from 2009-2013 totalling $16.6 billion, shy of the USA’s $19.3 billion over the same period. But in the latest figures, China was the number one nation for real estate, with almost $6 billion worth of approvals granted in 2012/2013.

 

Foreign Investments in Australian Real Estate 2012/13

Foreign Investments in Australian Real Estate 2012/13

 

Though, this is where the numbers become a bit clouded. The FIRB figure of $6 billion is for approvals only, not purchases, and it includes commercial real estate which is significantly larger than residential, about one third.

That said, the $6 billion dollars that was approved would have minuscule to zero affect on any likely property prices. In the same year, Australia’s total value of residential housing finance commitments was $264 billion, making the tiny sum of $6 billion (or more likely $2 billion) 2.25% of all housing purchases, an amount too small to register any fluctuations.

Any suggestions that Chinese investors are penetrating the market so much that they are pushing first-home buyers out of the market are grossly misinformed.

 

Away from the cities, it seems Chinese investment in Australian farms has triggered a similar debate. Of the industries mentioned above, Chinese investment into agriculture is far less than what many had probably imagined. The reality is that Chinese investors probably own less than one percent of Australian farm businesses. For assets over $5 million, there have only been 10 significant investments completed.

The same FIRB reports point to the USA and Canada having far greater shares of Australian agribusiness in the past decade, with China owning just 3% of all the foreign investments.

 

Farms

Foreign investments in Australian agriculture by country

 

Further to this, the ABS reports that foreign ownership of Australian farms is still minimal. Of Australia’s 400 million hectares of agricultural land, just 50 million hectares contain some level of foreign ownership, 99% of Australian farm businesses are fully Australian-owned, and approximately 90% of farmland is Australian owned.

 

Foreign investments in Australian farmland

Foreign investments in Australian farmland

 

An inconsistency worth noting with this data is that many businesses, are managed by conglomerate companies and tracing the proper ownership of specific farms is difficult and beyond any data available. Regardless, the true figure could not be substantially far away from these indicators.

Once again, the perception of foreign invaders travelling to Australia and purchasing giant slabs of Aussie farms prove to be far from accurate.

 

In any circumstance Australia should welcome overseas investors. Our nation is well placed to meet the growing demand for the mining, agricultural and real estate industries. Perhaps securing a strong partnership with China, the fastest growing and boldest nation of the past decade, may well be in the best interests of the nation after all. Just don’t believe the media hype.

 

Cobba.

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