Australia Foreign Investment Uncertainty Spikes as Tensions Rise

Foreign investment uncertainty in Australia jumped in 2020 amid increased international tensions and the politicization of decisions relating to the energy and resources industries, according to a new gauge.

The index showed uncertainty almost doubled last year compared with the average in 2019, according to a report from the U.S. Studies Centre in Sydney released on Friday. Gross inflow of foreign direct investment in 2020 fell to only half the average of the five years through 2019, it said.

“The industry sectors most affected by foreign investment uncertainty in Australia are the energy and resources sectors, reflecting their high levels of foreign ownership and high-profile cross-border acquisitions that are more likely to become politicized,” said Stephen Kirchner, an economist at the U.S. Studies Centre who compiled the report.

Australia slashed its FDI review threshold to zero in order to avoid foreign buyers snapping up potentially distressed assets during the pandemic. It also introduced a new national security test in response to rising tensions with China and signs state-owned companies were acting as an arm of Beijing’s foreign policy.

Ties between Australia and its largest trading partner have deteriorated since last April, when Prime Minister Scott Morrison’s government called for independent investigators to be allowed into Wuhan to probe the origins of the coronavirus. Since then, Beijing has implemented a range of trade actions against Australian goods, including coal, wine and barley.

Chinese cross-border acquisitions in Australia fell to A$2.6 billion ($2 billion) in 2019 and just A$1 billion in 2020, compared with A$16 billion in 2016. Kirchner suggested that Beijing-backed cross-border acquisitions have been subject to an informal Australian ban since the beginning of the pandemic.

The index is based on a keyword search of major Australian newspapers from 1997 through to the end of 2020.

©2021 Bloomberg L.P.

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