Australian authorities passed restrictions in February that limit foreign investment. They’re not aimed expressly at China, but that’s the country a lot of Australians are warily watching.
China is expanding economically around much of Eurasia to build trade routes and open more space for domestic companies that are cramped at home. Australia is part of that plan, the Belt and Road initiative, and according to central bank figures it received the equivalent of $26.3 billion in Chinese capital over the decade ending last year.
But despite the restrictions, Chinese investment is still coming in, helping to boost the Australian economy, economists say. The treasury’s controls apply largely to foreign investment in farmland and electricity grids. But Australian law lets Chinese firms invest now as before in mining, a major Australian economic engine, and a boom of infrastructure projects. It encourages the same in technology.
“Chinese investment into Australia is occurring across a number of areas,” says Katrina Ell, an economist with Moody’s Analytics in Sydney. “This investment is enabling improvement across the economy. The productivity gains from greater Chinese investment in infrastructure will pay dividends for many years to come and may not have been able to occur if only local funding was relied upon.”
The monetary authority Reserve Bank of Australia said May 1 it expects economic growth to “average a bit above 3%” this year and next. The economy grew 2.6% between the December quarter of 2016 and the same period of 2017, according to the Australian Bureau of Statistics. That growth is partly due to Chinese investments, analysts believe.
China keeps contributing
Chinese investors historically prefer Australia’s mining sector to others given its rich deposits of coal and iron ore, according to central bank data. Australia is the world’s largest coal exporter, and China needs that natural resource for its own manufacturing-reliant economy. Mining last year came to 6.3% of the gross value added to the Australian economy, which means production value minus costs, the auditing firm KPMG says.
About 90% of Chinese investment to Australia went to energy and metals before 2013 and declined after that to around 30% as infrastructure and real estate caught a lot of interest, the monetary authority says. (Real estate investment cooled last year after China announced its own controls on capital outflows.)
Chinese investors showed an “increased focus” on infrastructure in 2016, bringing those deals to 28% of the total from China, KPMG says. Infrastructure is the backbone of the Belt and Road, while last year construction was 8% of the Australian economy’s gross value added. Chinese-funded infrastructure investments broke a record in Australia last year, the auditing firm says in this 2017 report.
Investor interest in mining and infrastructure offsets any loss in farmland and electricity.
“What has the spillover of the Chinese economy into investment in Australia done?” says Stuart Orr, a business and law professor at Deakin University in Australia. “It has held up…the construction, energies and metal industry, given a boost to the agricultural industry and helped Australia to continue to grow its economy for the last 10 years in an otherwise flat global economic environment.”
Restrictions not always so restrictive
Before the restrictions emerged, Chinese investors had bought 14.4 million hectares of Australian farmland, per this Australian news report. Those purchases marked an increase of 10 times over a year ending some time in 2017. But Australians worried about outside money controlling vital food supplies, Ell says. In the electricity sector, the federal government blocked local officials in 2016 from letting State Grid Corp. of China take a stake in the publicly held electricity firm Ausgrid. It cited national interests.
But in most other sectors Australia remains either neutral, or even encourages Chinese investment. Government policymakers are not touching resource investments. Investment in the technology sector is also “encouraged” and likely to increase through 2020, Orr says. China’s 2016-2020 economic master plan calls for advances in a range of high-tech fields. Orr calls development in technology “critical to Australia’s long-term economic prosperity as a developed country” after a steep decline in its local manufacturing.
China has every incentive to keep looking for more tie-ups in infrastructure, as its $1 trillion economic Belt and Road initiative expands across 68 countries.
“The bottom line is that China’s economy benefits from offshore investment,” Ell says. “China’s global investment push via [Belt and Road] is a testament to that.” Using another term for the Belt and Road Initiative, Ell adds, “One Belt, One Road improves trade linkages especially with China and lifts China’s standing in these countries that are on the receiving end of investment.”