Chinese investment in Australia collapsed in 2020, dropping 61 per cent on 2019 levels, with investors scared off by government policies that offers them little certainty amid rising tensions.
The data to be released on Monday from Australian National University's Chinese Investment in Australia database, shows the investment relationship between the two countries is going backwards.
Chinese companies invested just $1.1 billion into Australian projects across mining, real estate and manufacturing last year, down from a high of $16.5 billion in 2016 across a wide range of sectors.
Relations between China and Australia soured significantly in 2020, after the Australian government led a push for an inquiry into the origins of the coronavirus pandemic.
Those tensions have led to China introducing restrictions on trade, hitting imports of wine, lobster and coal particularly hard, but this investment data collects instances of Chinese funds moving into Australia for specific projects.
While the pandemic has hit foreign investment all over the world, the deterioration between China and Australia has been more severe, according to Dr Shiro Armstrong, director of the East Asian Bureau of Economic Research at the university that produces the database.
"In 2020, the year of COVID-19, foreign direct investment fell globally by 42 per cent according to the United Nations," Dr Armstrong said.
"UN data is measured differently, but the fall in Chinese investment to Australia was much larger."
Foreign investment to Australia dropped 46 per cent, according to the United Nations, making the drop in Chinese investment even more significant. Dr Armstrong said a series of decisions by the Australian government had reduced confidence for overseas investment.
"It reflects the effects of COVID but also more scrutiny of foreign investment by the Australian government, particularly that from China," he said.
"It's quite remarkable - if you put it in context, during the height of the commodities boom in 2011, Australia was the largest destination for Chinese investment globally, larger than the US, larger than the whole of Europe."
As part of the government's economic response to COVID-19, foreign investments of any value were subject to review and approval by the Foreign Investment Review Board, a move designed to avoid Australian assets moving into overseas hands at fire sale prices in the downturn.
In June the government announced it would legislate a new national security test for foreign investment, where investors from overseas would be forced to get government approval for buying assets in a "sensitive national security business," regardless of value.
The legislation, passed by Parliament in December, also gives the Treasurer the power to review foreign acquisitions and issue divestment orders in cases of national security risk.
"That introduces a lot of uncertainty into the investment environment, not just for Chinese investors but other investors as well. Add to all that the mistrust in Australia-China relations, both ways, it's not congenial to investment when companies look for certainty," Dr Armstrong said.
There are genuine questions about whether Chinese investment is wanted in the current political climate, Dr Armstrong said, but without Chinese investment in the Australian market, there isn't an obvious second bidder, either international or domestic.
"That's where we want confidence in our regulatory regime here, to confidently manage Chinese and other foreign investment alongside domestic investment," he said.
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