Chinese interest in Australian renewables remains strong

Outside renewables, Chinese investors acquired no Australian infrastructure in 2018, the only deal being a buyout of engineering firm RCR Tomlinson’s rail arm.

Chinese investment in Australia declined by 37.6 percent in 2018, according to a study published by KPMG and the University of Sydney.

The report, Demystifying Chinese Investment in Australia, showed healthcare to be the most popular sector for investors, accounting for 41 percent of the overall figure. Commercial real estate came in second place at 36.7 percent, while oil and gas came third with 8.8 percent.

The report also showed Chinese investment in Australia to have fallen to $6.2 billion in 2018, down from $10 billion in 2017. Around $395 million of the 2018 total, or 5 percent, was invested in renewables, with just $100 million invested in other types of infrastructure.

The study tallied four new investments in Australian renewables in 2018. The largest of these was Power China’s acquisition of Cattle Hill Wind Farm in Tasmania from another Chinese company, Goldwind.

Interest in the renewables sector among Chinese investors remains high because of its growing maturity. Chinese solar companies also see international expansion as a way to close the profit shortfall in the domestic market following restrictions on the construction of new solar farms in China.

The survey recorded no major infrastructure assets being acquired by Chinese investors in 2018. The only transaction was CCCI’s purchase of engineering group RCR Tomlinson’s rail business. This represented a dramatic fall from 2016, when infrastructure accounted for 26 percent of all Chinese investment into Australia. This was fuelled by CIC Capital’s deals for listed rail and ports operator Asciano and the Port of Melbourne.

The report’s co-author Hans Hendrischke, professor of Chinese Business Management at the University of Sydney’s China Studies Centre, told Infrastructure Investor that the decline in infrastructure investment would not be a long-term trend “unless there’s some general change in the way developed countries deal with China. Otherwise, Chinese investment in infrastructure is something that’s going to come back.

“Chinese investors continue to be interested in extending their supply chains, including investments in port facilities and transport infrastructure, and in energy infrastructure to some degree, as these are areas where they have a competitive advantage and [can pay] better prices than some competitors.”

Hendrischke said Chinese investors still regard Australian renewables as a “very solid and stable long-term market”. He added that this contrasted with Australian perceptions of the sector, which were more pessimistic because of ongoing regulatory uncertainty.

Bilateral relations a ‘minor factor’

Hendrischke said the bilateral relationship between Australia and China was only a “minor factor” in the overall decline in investment. He argued that Beijing’s restrictions on Chinese companies’ ability to invest overseas and the pressure it was placing on them to reduce foreign debt levels were bigger factors.

“We did hear in our survey that the Foreign Investment Review Board has dampened Chinese interest in investment because there’s a degree of insecurity about what will be affected by security issues and whatnot,” he said.

“The Australian government is keen to say that we are open to foreign investment. But of course, what has happened in the last one or two years is that the dialogue about investment has been very mixed, because it was to some extent dominated by security concerns. That has sometimes overshadowed the economic rationale [behind investments]. But it’s not the major issue.”

Hendrischke added that it was “very hard” to make a prediction about the levels of Chinese investment in 2019 because of the continued uncertainty over the outcome of the US-China trade dispute.

“If the trade war drags on, we might stay at this level [of investment],” he said. “Whether we go down further is hard to say.”

Chinese investment in Australia in 2018 was focused on the east coast, with 53 percent of the overall figure flowing into New South Wales and 27 percent into Victoria.

Sixty-seven percent of respondents to a survey conducted as part of the study, regarded Australia as a safer economic environment than many other jurisdictions, up from 52 percent in 2017. Fifty-nine percent of respondents stated that the political debate in 2018 has made Chinese companies more cautious about in investing in the country, though this was down on the 70 percent recorded in 2017.

Only 19 percent of Chinese investors reported a negative average return on net assets in Australia, with 45 percent reporting an average return on net assets of more than 6 percent.