Is Chinese investment in Australian infrastructure viable in the long-term?
China’s investment in national infrastructure has garnered public attention, controversy and anxiety in Australian politics.
Treasurer Scott Morrison rejected a number of key investment bids from China. An initial Chinese bid for the Kidman cattle property was rejected on the basis of “national interest”. It was finally sold last year in a joint deal to Gina Rinehart and Shanghai CRED for $365 million. Morrison and the Foreign Investment Review Board (FIRB) have tightened rules for foreign investment in Australia to the extent that application times and regulations are prohibitive.
In 2014-2015, the FIRB approved Chinese investment in Australia, totaling A$ 46.3 billion. More than half of these investments were in real estate, followed by mining, manufacturing, energy assets, agriculture, forestry and fishing.
Definitions of what is in the “national interest” test have been expanded and applied at the discretion of the Treasurer. This is in response to what is perceived by the Australian government as areas with public and political sensitivities, national security, and consistency with other Australian policies.
Since 2015, when China launched the “One Belt, One Road” strategy, there were US$14.8 billion investments in countries along the “belt”, up 18.2 per cent from the previous year. 2016 saw Chinese enterprises investing in the most significant overseas assets to date. ChemChina invested US $43 billion in Syngenta, a Swiss agribusiness and Tianjin Tianhai Investment acquired Ingram Micro for US $6.3 billion.
China, with a forecasted GDP growth of 6.5 per cent, is still the fastest growing economy among the top five economies around the world. According to a report by EY, China’s outbound investment will continue to grow by at least 10 per cent per year for the next five years.
Australia attracts $3 trillion in overseas investment each year and has become a magnet for Chinese money, particularly within property, agriculture and mining, becoming a key focus for the FIRB due to lowering of investment thresholds that require approvals, especially with regards to agricultural and infrastructure assets.
China’s State Council are also scrutinizing mergers and acquisitions over US$10 billion and deals worth more than US$1 billion, particularly for state-owned companies investing in overseas real estate as well as private enterprises who invest beyond their “core” businesses.
Li Ka-Shing, the Hong Kong business magnate is bidding for a large slice of the Australian energy pie with the announcement last week of a deal with Duet Group worth A$7.4 billion dollars.
The Duet Group, an Australian-listed energy group with major gas pipeline operations in Western Australia and electricity and gas lines in Victoria have backed Li’s takeover bid (via utility company, Cheong Kong Infrastructure (CKI)). This takeover bid is subject to approval by the Australian Government Foreign Investment Review Board. Morrison needs to approve the bid by Cheong Kong Infrastructure for the deal to go ahead.
Yet only last year, Morrison cited national security concerns for rejecting separate bids from a group of Li Ka-Shing’s publicly listed companies and the State Grid Corporation of China, the Chinese State-owned energy provider. These investments would mean a 99 year lease of Ausgrid, a company that supplies electricity to Sydney and regional NSW. Morrison stated that “national security issues were identified in critical power and communications services that Ausgrid provides to businesses and governments.” There were also political ramifications, with public objections from the likes of hardline politicians such as Nick Xenothon and Pauline Hanson.
Li Ka-Shing’s business interests have been expanding in Australia in recent years. Of the major Australian electricity distributors, Powercor and Citipower, Li’s companies have a 51 % share in each. His interest into Australian energy harks back to 1999, when he invested in what was then the South Australian electricity provider ETSA Utilities for $3.5 billion, gaining a 200-year lease on SA Power Networks.
As one of the wealthiest investors in Asia, at the age of 88, Li Kai-Shing, has a net worth estimated last year by Forbes at US$27.1 billion, Li’s global business empire covers diverse areas from energy, cement, banking, construction, real estate, hotels, steel production and shipping. Li is the world’s leading port investor, developer and operator.