2014 was the year in Australia was knocked off his mantle as the most favored for Chinese outbound investment destination. It is a clear sign of China's investment appetite is changing - from a focus on the natural resources of a broader sectors such as agriculture, manufacturing and technology portfolio.
As China reinvigorates its overall strategy go, can Australia regain its charm and offer Chinese investors more than just minerals? Which sectors attract inward investment and what role Australia FTA with China play?
In his Report on the Work of the Government (released on March 5, 2015 as part of China third session of the National Congress Party Reyes) Premier Li Keqiang has said that in the last year of the Plan 12 years the Chinese Government " accelerate the implementation of the global strategy of running. " This push to go global is supported by the liberalization of the PRC Government System overseas investment introduced in May 2014.
According to the report (also supported in 2015 Draft Plan Reform Commission National Development for Economic and Social Development released March 5, 2015 also as part of the National Congress Party) Chinese only 2% of the total investment required review Outgoing and approval with other online submission only.
However, Australia has not been the recipient of this renewed focus on overseas investment, with 2014 represents a year of consolidation for Chinese buyers in Australia. While nearly one fifth of all public mergers and acquisitions in Australia last year were driven by Chinese suppliers, most transactions were by existing holders who try to "low average" cost of investment . Most of the major deals - as Baosteel in joint decision-Aquila Resources Limited and Guangdong Rising Assets in the indicative offer for PanAust Limited - involved a Chinese bidder who already had a major and lasting investment objective. Existing stakes in these companies were acquired closer to the top of the bottom resources cycle. So chances PRC investors are picking what they see as the bottom of the cycle resources and looking at the average down procurement costs - essential given the current focus by the Chinese Government on the profitability of SOEs.
Australia's fall from the top as preferred investment destination in China reflects the changing priorities of Chinese investors. In previous years, investments in China were all about securing access to natural resources with Australia a clear beneficiary. But now Chinese buyers are diversifying and turning their attention to new industries.
Report of Minister Li suggests the possible beneficiaries of Chinese outbound investment by 2015 will be investments that grow market share of China in railway, electricity, communications (recently opened an office in Sydney a good example of Unicom) and the supply of materials construction. China intends to expand credit insurance to provide export credit insurance for export in these areas.
It is also likely to focus on sectors that provide Chinese companies with distribution channels, intellectual property and expertise and access to the quality and safety of food for distribution in China Chinese investment - each key China change to a service economy developed.
2015 is the Chinese Year of the Sheep and Australia, it is said, was built on the back of the sheep. In this symbolic year is the new FTA China Australia (CHAFTA) combined with a plummeting dollar ensure Chinese investment continues to help build Australia (despite the high profile, but the divestments specific case). The political importance of the FTA with China goes beyond the promise of ensuring greater participation of the world's largest (see Australia FTA with China - Better to be still growing slowly) market. It is approved for Chinese companies to make acquisitions and invest in Australia.
We expect 2015 to be a different story to 2014, with an increase in the incoming RPC investment especially in sectors such as large scale residential property (which support the delivery of construction materials from China), the completely new infrastructure and technology food. With the current focus on combating bribery and corruption and reform of SOEs we expect to see a decrease in SOE investment and return to POE dominance.
Signs of a more vibrant M & A market for Chinese investment in 2015 are all there. The internationalization of the yuan, the Australian dollar falls mainly on the back of a more positive outlook for economic growth in the US will see a better view of the investments of the incoming RPC in the next year.
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