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FDI: China hearts Australia

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COMMENTS

19 July 2010 09:00

As a follow up to my previous post on FDI, I thought it might be interesting to take another look at Chinese investment into Australia. 

This is only a partial look: the next ABS set of data on FDI by country is not due until the end of the month, and as far as I can tell, the latest official Chinese data on Chinese outward FDI (OFDI) by country is only available up to 2008. But there’s enough information out there to make three useful observations.

The first view comes from the Foreign Investment Review Board (FIRB), which earlier this year released its latest (2008-2009) annual report. This is recent enough to have captured some of the ongoing jump in Chinese investment into Australia:

  

Source: FIRB annual reports, various years. Note no values for Chinese investment are reported for 2000-01 and 2002-03. 

According to the report’s Table 2.14, the FIRB approved A$26.6 billion of Chinese investment in 2008-09, or about 16 per cent of total approvals by value. That puts China second only to the US, which accounted for A$39.6 billion of approvals (24 per cent of the total). 

Note that, of that Chinese total, virtually all of it (some A$26.3 billion) was in the mineral exploration and development sector. China accounted for 29 per cent of total approvals by value in this sector, well ahead of the second-placed US (with A$19.8 billion or 22 per cent of approvals). Mind you, this result was dominated by one proposed deal, worth A$19.8 billion, which on its own accounted for almost three-quarters of total approved Chinese investment.

A second view on the apparent attractiveness of Australian resources to Chinese investors comes from an Ernst and Young report (large pdf) on mergers and acquisitions in the global mining and metals sector last year. According to the report, China accounted for US$16.1 billion or 27 per cent of the value of all transactions in 2009. 

Over the past ten years, Chinese entities are estimated to have completed some 369 deals worth over US$50 billion, of which nearly 80 per cent took place in 2008 and 2009. And as the following chart shows, a rather large chunk of this money headed for Australia:

Here’s a table from the same report looking at the top 10 Chinese outbound deals last year: in six of the ten cases, Australia was the target country. 

A final perspective on how Australia compares with other countries as a destination for Chinese OFDI comes from The Heritage Foundation’s China Global Investment Tracker. This covers Chinese outward non-bond investment from 2005 to June 2010 for transactions larger than US$100 million. According to Heritage’s database, Australia has been the single most preferred destination for Chinese non-bond investment over this period:  

All of which suggests that, when it comes to OFDI, China Australia.  Or, more precisely, China Australian resources.

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