Trade ties between Australia and China worsened over the past year as the two countries became mired in a diplomatic dispute. Now it appears those problems, and the pandemic, are also hitting investment.
Chinese investment in Australia plunged to just over 1 billion Australian dollars ($775 million) in 2020, down 62% from the previous year, according to a report released Monday by the Australian National University’s Chinese Investment in Australia Database.
That’s also down nearly 94% from a peak of 16.5 billion Australian dollars ($12.8 billion) in 2016, according to the study.
The countries are big economic partners in Asia Pacific. China, the world’s second biggest economy, was Australia’s largest trading partner in 2018, with trade between the two valued at 215 billion Australian dollars ($158 billion), according to official statistics. And some Australian exports, such as iron ore, remain vital to powering Chinese industry during the post-Covid 19 recovery.
Australia has been toughening its rules on foreign investment in recent years. That likely has contributed to the steep dropoff since 2016, when the country strengthened its ability to veto foreign ownership of major infrastructure development.
And Monday’s report acknowledged that the coronavirus pandemic likely played a role in last year’s fall as much of the world locked down or rolled out severe restrictions in attempts to contain the virus.
But it also noted that the fall in Chinese investment into Australia was particularly steep.
“It reflects the effects of Covid but also more scrutiny of foreign investment by the Australian government, particularly that from China,” the university said.
Political relations between Beijing and Canberra rapidly deteriorated last April after Prime Minister Scott Morrison called for an international investigation into the origins of Covid-19.
Beijing slammed its trading partner in response, with Chinese Ambassador to Australia Chen Jingye openly musing about the possibility of economic fallout.
“Maybe the ordinary [Chinese] people will say ‘Why should we drink Australian wine? Eat Australian beef?’” he told the Australian Financial Review at the time.
Some Australian exports — including timber, beef, some types of coal and eventually, wine — began to encounter difficulties entering China.
Australian wine, for example, was slapped with tariffs of up to 212% following an “anti-dumping investigation” into the product by the Chinese Ministry of Commerce. And China appeared to put restrictions on some types of Australian coal late last year, prompting concerns among Australian government officials.
Political tensions appeared to play a role in at least one major business deal, too. In August, China Mengniu Dairy called off its plan to buy Lion Dairy, an Australian drinks business, for $430 million after the government in Australia said it would likely oppose the deal.
At the time, Treasurer Josh Frydenberg Frydenberg said that he had told Mengniu Dairy “that the proposed acquisition would be contrary to the national interest.”