Closing the door: Why Chinese investment is collapsing in Australia even as investors go global

Executive summary

The value of new investment from the People’s Republic of China (PRC) being approved by the Australian government is now so low that the quarterly reports of the Foreign Investment Review Board (FIRB) often do not include it as it no longer ranks in the top 10 investors into Australia. Not only has the value of new investment fallen but previous investments have also been sold and the proceeds repatriated: the stock of Chinese direct investment in Australia has fallen by one-quarter since 2019 and now accounts for less than three percent of total foreign investment. Bright spots, such as investments by Chinese carmakers in distribution and after-sales service, are the exception. This runs counter to the positive trajectories of the two countries’ broader foreign investment relationships, as well as the outcome that Canberra and Beijing signalled when the China-Australia Free Trade Agreement (ChAFTA) was signed in 2015.

This report published by the Australia-China Relations Institute at the University of Technology Sydney (UTS:ACRI) seeks to identify the drivers of the retreat in Chinese investment. Extensive consultation with industry peak bodies and interviews with market participants and their advisers confirm that the drivers are multifaceted and include policy changes in Beijing as well as broader global trends. Nonetheless, those consulted consistently identified policy changes in Canberra as the decisive factor. More Chinese investment proposals have come to be regarded by the Australian government as contrary to the national interest as security concerns have increasingly been prioritised in the screening process and the number of assets, sectors and locations deemed sensitive have continued to expand. While industry actors recognise that national security concerns are, in their words, ‘real’, ‘legitimate’ and ‘necessary’, the overwhelming consensus is that the current system lacks clarity, transparency and predictability, and that this has negative implications not just for the businesses directly affected but also Australia’s broader national interest. Terms used to describe the current system included ‘a black box’, ‘a no-man’s land’, ‘irrational’ and ‘cumbersome’. Recent changes to the system aimed at speeding up approvals are largely seen as having little practical effect on proposals submitted by Chinese investors, although some industry actors are withholding firm judgement as they detect possible green shoots.

Requests by the authors for more data from the Foreign Investment Review Board (FIRB) were declined, constraining independent and rigorous scrutiny of industry perceptions and claims. The Australian government is adamant that all foreign investment continues to be screened on a risk-based case-by-case assessment, and that Chinese investment deemed not contrary to Australia’s national interest continues to be allowed to proceed. Policy changes are seen as prudent adaptation to changing strategic conditions and necessary to maintain public confidence that foreign investment is being appropriately scrutinised. While some industry actors saw the potential for Chinese investment to rebound if adjustments to the screening process were made, such as a ‘special approval channel’ for investments relating to the low carbon energy transition, there is little evidence within government for significant changes. Accordingly, the baseline expectation is that Chinese investment interest will remain subdued, and the potential exists for the current stock to shrink further.

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