5. Chinese Investment in Australia: the Australian and Chinese Perspectives
5.1 Australian Perspectives on Chinese Investment
Australians have benefited enormously from trade and investment from Chinese companies. In the 2012 Lowy Institute poll of approximately 1,000 Australian adults, 70 per cent of respondents credited the 'demand for Australian resources from countries like China...as a major reason why Australia managed to avoid a recession'.
This was similarly noted in the KGA survey which found that 64 per cent of respondents ranked China as Australia's most important economic partner, ahead of Japan (9 per cent), United States, India, United Kingdom and Indonesia (all 3 per cent).
Australians are clearly supportive of increased bilateral trade, yet there remains concern about Chinese SOE motives for investment, particularly in relation to controlling stakes and investment in Australia's agricultural land.
The 2014 Lowy poll found that 56 per cent of Australians still consider that the 'Australian Government is allowing too much investment from China', slightly better than 57 per cent in 2013. Meanwhile 34 per cent felt the Australian government was allowing about the right amount of investment from China (down from 42 per cent in 2009), so negative perceptions still persist.
KGA's survey found that 'nearly 70 per cent supported the acquisition of profitable, but not controlling, interests in Australian companies by Chinese investors'. Further, while half of the respondents thought that Chinese companies (i.e. SOEs) should be treated no differently from other foreign investors in terms of FIRB review standards, 'nearly 80 per cent thought Australia was well within its rights to place limits on Chinese investment that were deemed contrary to national interests'.
Time and Trust
There is a time and trust equation in play whereby the longer Australians experience interaction with certain foreign investors, the less concerned or resistant they appear to be and this is hopefully the case with the Chinese.
Andrew Michelmore, CEO of MMG said in his Lowy Institute speech in September 2013 'There is no difference to the early phases of US and Japanese investment in Australia, where community caution transformed to general acceptance over time. I firmly believe Australian attitudes to Chinese investment will travel a similar path'.
5.2 Chinese Perceptions of Investing in Australia
A Chinese Investors in Australia Survey in November 2014 was completed thanks to the generous support of Dr William Chiu to the Chinese Chamber of Commerce in Australia for a post-doctoral position at theUniversity of Sydney; KPMG and the university would like to take the opportunity to thank Dr Chiu.
This is the first research to focus on the real-life experiences and views of Chinese investors in Australia. The survey provides insights into the perceptions of the Australian investment climate by Chinese investors and identifies some of the key challenges they face in Australia.
The Chinese Investors in Australia Survey was conducted by KPMG and the University of Sydney with senior executives from 51 Chinese-invested companies registered in Australia in May 2014. These companies operate in a range of sectors including mining, gas, agribusiness, real estate, finance, infrastructure and engineering.
The survey questions covered topical statements relating to experience, perceptions and confidence of Chinese companies investing in Australia.
Chinese Investors in Australia are Profit Driven
Chinese investors see their engagement in the Australian market as part of their globalisation. Respondents indicated they are driven by commercial factors to invest in Australia just like other multi national corporations.
Chinese investors have a hierarchy of motivations which are clearly reflected in the survey responses. Profitability is by far the most important motivation for investment, followed in second position by the need to secure access to resources. This motivation is industry specific.
In third place is globalisation as a bundle of motivations revolving around access to global markets and building international brand names. In fourth place we find international management know-how and globalisation with other Chinese firms.
Acquiring or projecting technologies or export to the Australian market are notably low on the priority list for all industries.
In terms of industries, making profits is the top consideration of Chinese investors when taking investment decisions in Australia in all industries, with the exception of infrastructure.
For infrastructure, Chinese investors see their investment strategically as building up a business reputation for the purpose of gaining access to the global market. Links with other Chinese investors and building up an international brand name are more important than making profits.
Chinese mining investments are often perceived to be chiefly driven by the need to secure resources. Our survey shows that making profits, access to global markets and links with other Chinese investors are ranked as more important factors when making investment decisions.
These Chinese companies are going through a learning process and are increasingly concerned about their reputation.
Australia's Business Environment and Government Support
Chinese investors generally feel welcome in Australia, but have differentiated views on the kind of support they get.
The strongest support is perceived to come from state and local governments. Australian business leaders are also seen as supportive. Australia is seen as a safer environment for investment than many other countries.
Key Challenges
While Australia has the advantage of political stability, a favourable business environment and government support, the survey identified common key challenges faced by Chinese investors in Australia:
(1) Cost of doing business in Australia
Chinese investors have an understanding of comparative costs and see Australia in third position behind the United States and Canada as more cost effective locations.
Chinese investors estimate that in Australia overall business costs are 30 per cent higher than in the United States.
(2) Infrastructure bottleneck
Chinese investors feel that Australian physical infrastructure is constraining their operations.
(3) Institutional integration
The institutional integration poses challenges to Chinese investors when it comes to working with local governments, trade unions and local communities. Chinese investors need to adapt to the Australian legal and regulatory context by learning to work with formal and informal stakeholders, including local planning authorities, environmental protection bodies, trade unions and community representatives.
(4) Negative media
Chinese investors feel that the Australian media are not supportive. Only 16 per cent of respondents agreed that Australian media were supportive towards Chinese investment.
(5) Entry and approval processes
Chinese investors recognise that the approval process has become easier and faster in Australia. However concerns remain about discrimination and unequal treatment. Chinese investors feel that investors from other countries are more welcome and enjoy better conditions. Chinese investors feel that investment approval should be decided on the basis of commercial criteria rather than ownership.
Integrating with 'the Australian Way'
Chinese investors are aware of the need to better communicate with their local staff and unions as well as with local media and social organisations.
Relations with trade unions are seen as more difficult to manage than relations with Australian management or board members. Fifty per cent of respondents acknowledged that they found dealing with unions difficult as opposed to one-third of respondents having problems with Australian managers or board members.
This explains the observed preference of Chinese investors for take overs rather than joint ventures and for holding majority control over holding minority share holdings. This is part of a learning and adaptation process.
Inadequate Information about Australia
Chinese investors feel that information about Australia is lacking not only in Australia, but within their corporate headquarters in China. The information gap seems to be general and more related to the difficulties in obtaining information that would be helpful from a Chinese perspective rather than information in general.
Chinese investors spend on average six months doing research on specific projects. Their primary source of information is to use due diligence services by professional service providers.
Site visits to Australia and contacts with local governments are the next most important ways to obtain project information.
Performance Needs to Improve, but a Positive Outlook
Chinese investors perceive they are doing less well than expected and do not expect a quick turn-around to a more profitable performance. However their overall evaluation of the Australian market is positive. Respondents state that their long-term positive evaluation of the Australian market is shared by their headquarters in China.
A strong majority of Chinese investors see benefits in the Free Trade Agreement (ChAFTA).