The Western Australian government is setting out to revive China’s appetite for investment in the state’s mining and energy industries.

Treasurer Ben Wyatt is in China this week with representatives from the four main universities, the Chamber of Commerce and Industry of Western Australia, the Chamber of Minerals and Energy of WA (CMEWA), the Association of Mining and Exploration Companies (AMEC), the Australian Petroleum Production and Exploration Association and private companies.

Chinese investment in Australia has been falling, according to KPMG and the University of Sydney Business School.

It fell 36.3 per cent or $8.2 billion last year.

Professor Hans Hendrischke from the University of Sydney Business School attributed the drop to global insecurity about Chinese investment but says recent political tensions between Canberra and Beijing may also have had an impact on investment levels.

Earlier this year, the Australian government banned tech company Huawei from participating in the 5G network.

Not long after, China placed an indefinite ban on Australian coal imports and a 12 million tonne cap on all other international imports.

But federal Treasurer Josh Frydenberg reckoned at the time the two weren’t linked.

Investment shift to ‘high value-added’ sectors

Hendrischke said the “strong dominance of private investors reflects a desire amongst Chinese [overseas direct investment] to invest in high value-added sectors able to ‘bring back’ expertise and high-quality brands and products that can support China’s industrial upgrading and meet the evolving demands of Chinese middle class consumers”.

“As part of this trend, large strategic investments in resources, energy and infrastructure have given way to smaller investments and in projects that are tactical and directly linked to Chinese consumer market demand,” he said.

“This is particularly evident in the targeting of the Australian healthcare sector by Chinese investors.”

Private Chinese companies dominated the investment landscape in 2018, accounting for 87 per cent of deal value and over 92 per cent of deal volume, with an overall trend towards smaller sized deals.

According to Doug Ferguson, head of Asia & international markets for KPMG Australia, despite Chinese global outbound direct investment actually growing by 4.2 per cent in 2018, Australia has “felt the pinch” of a significant reduction, reflecting the impact of policy changes in China.

“Our rate of decline has been accelerating and is now closer to the trend observed in the United States and Canada, where Chinese overseas direct investment (ODI) dropped by 83 per cent and 47 per cent respectively in 2018,” he said.

“While this annual result brings Chinese ODI in Australia back to the second lowest level since the mining and gas driven investment peak year of 2008, there is no reason why Australia can’t return to higher levels of Chinese capital inflow seen historically.”

According to the Australian Bureau of Statistics, the level of foreign direct investment (FDI) in Australia totalled $967.5 billion in 2018, up from $849.1 billion in 2017.

FDI from China accounted for 4.1 per cent, or $40.1 billion, of national FDI in 2018, or the 5th largest share. Hong Kong contributed a further $16.3 billion in FDI (the 12th largest share).


Lithium and critical minerals a talking point

During this week’s visit to China, the WA Treasurer will meet with top private investors as well as other key organisations such as the Chinese government’s National Development and Reform Commission and the China Education Association for International Exchange.

The Treasurer has also arranged for a representative from the Commonwealth Treasury to explain to Chinese investors the Foreign Investment Review Board process.

“With the state finances back on track and the economy continuing to recover, it is an important time to deliver the message that Western Australia has a number of exciting investment opportunities,” Wyatt said.

“Ultimately this mission is about creating a pipeline of investment in Western Australia, and with it a steady stream of well-paid local jobs.”

A spokesman for the Treasurer told Stockhead oil and gas player Theia Energy had joined the delegation, as well as a wide variety of industry groups that are representing a range of private interests.

“There are a broad range of potential projects that with funding would unlock further opportunities to grow jobs in WA,” he said.

“The government has collaborated with industry on the private sector’s specific investment priorities.”

AMEC CEO Warren Pearce is part of the delegation.

Deputy CEO Graham Short told Stockhead that Pearce would be showcasing Australia’s mining industry and the business opportunities available.

He noted that there was a particular interest in lithium and critical minerals.

China is the largest source of demand for WA exports, accounting for almost half of annual exports (49 per cent in May 2019) and about 15 per cent of imports.

“Given China’s demand for Western Australia products, it is natural to seek Chinese investment to support the WA economy and jobs,” the Treasurer’s spokesman told Stockhead.

“While the government has no set targets on the rate of growth, it is safe to say we are looking to increase on the current level.”