Chinese Investment in Australia Plunges Amid Pandemic, Bilateral Tensions

Investment falls 61% last year to reach record low . . . 

Chinese foreign direct investment (FDI) into Australia fell precipitously to just over C$1 billion last year, the lowest annual value for six years, according to figures released yesterday by Australian National University’s Chinese Investment in Australia Database (CHIIA). Unfortunately for Australian business, this looks like a trend rather than an isolated shock. The 61 per cent decline in 2020 followed a 47 per cent drop in 2019. And last year’s C$1-billion FDI injection is paltry compared to the record high of C$16.5 billion in 2016. The plunge is sparking major concern about the state of Australia’s broader economic relationship with China, its number one trading partner, which in recent years has accounted for one-quarter of Australia’s two-way trade, more than double that of second-ranked Japan.

Pandemic, bilateral tensions and new investment review . . .

While the pandemic may explain some of the fall – UN data showed a 42 per cent pandemic-induced drop in FDI globally last year – the chilly state of the China-Australia bilateral relationship is a more likely cause. Since Australia called for a review of COVID-19’s origin in China early last year, China has imposed hefty tariffs on Australian exports, including barley, beef, iron ore, and wine. Australia also added a national security review of all foreign takeovers, widely seen as a tool for blocking purchases by Chinese companies. It appears to have succeeded. Whether that is a good thing for the Australian economy remains to be seen.

How is Canada faring?

Chinese FDI into Canada has also fallen in recent years amid bilateral tensions and Canada’s tightened national security reviews on incoming investments. While China invested more than C$90 billion in Canada from 2003 through 2020, Canada received only C$1.5 billion worth of Chinese investment last year, a C$2.6-billion drop from C$4.1 billion in 2019. The drop cannot be explained away as a symptom of a worldwide reduction in Chinese investment abroad during the pandemic as Chinese outbound FDI rose 3.3 per cent last year. It seems frosty relations with Beijing leads to less investment in your economy.