Chinese investment in Australia is at its highest point since the 2008 global financial crisis, according to a new report which shows deals in the energy sector topped those in mining for the first time last year.
Despite uncertainly around foreign investment rules, Chinese companies pumped $15.4 billion into Australian deals last year with commercial property, infrastructure and agriculture the most popular.
Now in its sixth year the report, Demystifying Chinese Investment in Australia, found that mining, once the backbone of the investment relationship, had dropped to sixth place with deals worth $839m last year, down 35 per cent from 2015.
Co-author of the report, Doug Ferguson from KPMG, said Australia's investment relationship with China continued to diversity with a record number of deals in 2016, while more of these than ever before were done by private companies.
Just under half the value of Chinese investment in Australia last year was conducted by private companies, although many of these would have received financing from state-owned banks and retained strong links to Beijing.
"Despite the impact of uncertainties about Australia's foreign investment review regime, Chinese investment ... continued to diversity and records were smashed," said Mr Ferguson.
He said Chinese investment in Australia was starting to "mature" and that parties from the mainland accepted they often needed to form local joint ventures and take minority stakes for high profile deals.
This attitude saw property develop Shanghai CRED team-up with Gina Reinehart and accept a minority stake in the purchase of the Kidman cattle empire.
But while Australia retains its second place behind the United States in the aggregate value of Chinese investment since 2007, another of the report's co-authors warns that others were catching up.
Hans Hendrischke, a professor at the University of Sydney Business School, said growth in Chinese investment in Australia was slowing compared to other parts of the world, including the US and European Union.
"Efforts by the Chinese government to increase oversight and accountability for overseas investment as well as geopolitical factors are expected to have an impact on investment flows globally," he said.
While forecasting strong outbound investment over the longer term, the reported noted efforts by Beijing to moderate capital outflows to keep the yuan relatively strong may impact deals this year.
"Real estate, hotels, films, entertainment and sports clubs are among the industries singled out as exhibiting a tendency for 'irrational' overseas investments," the report said.
"This is expected to impact investment flows to these sectors in the future."
For the third year running commercial real estate led the way in 2016, accounting for 36 per cent of deal volume with China, although a previous focus on office investments has morphed into greater demand for residential sites and hotel investments.
Over the last two years Chinese companies have invested $1.7b in hotel deals across Australia.
The next most popular was infrastructure, followed by agriculture and healthcare.
Energy investments, accounted for 9 per cent of overall deals, topping mining for the first time.
Australia's two speed economy continues, according to the report, but unlike during the mining boom it is NSW and Victoria wining out compared to Western Australia and Queensland.
NSW attracted more than half of all Chinese investment in 2016, then Victoria with 25pc, followed by WA then South Australia.
- This article first appeared in The Australian Financial Review
