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Morrison's China Problem Grows as Investment in Australia Slumps

Morrison's China Problem Grows as Investment in Australia Slumps

(Bloomberg) -- Chinese investment in Australia is in free fall, adding to Prime Minister Scott Morrison’s economic challenges at a time he’s trying repair relations with its biggest trading partner.

After reaching a peak of A$15.8 billion ($10.9 billion) in 2016, Chinese inflows into Australia slumped to A$9.6 billion in 2017 before plunging to A$4.8 billion last year, according to Australian National University data released on Tuesday.

Morrison's China Problem Grows as Investment in Australia Slumps

While Beijing-ordered capital controls are impacting the nation’s foreign investment worldwide, Morrison -- who won an unexpected third term in elections Saturday -- will be concerned at the pace of the downturn amid signs the local economy is slowing. Trade tensions between China and the U.S., Australia’s main ally, complicates the prime minister’s bid to fix strained ties.

“This is a warning sign,” Peter Drysdale, a researcher at the ANU’s Asian Bureau of Economic Research, said in a media release on Tuesday. “The China-Australia economic relationship faces a range of challenges including uncertainties in the global economy and an escalating trade war between Washington and Beijing.”

Australia has been seeking to repair its relationship with China after last year banning Huawei Technologies Co. from bidding for 5G contracts and the introduction of anti-foreign interference laws aimed at Beijing. China earlier this year instigated a slowdown of coal imports from Australia.

Morrison’s government in March announced the formation of the National Foundation for Australia-China Relations, which will use the private sector, industry lobby groups and non-government and cultural organizations to “turbo-charge our national effort in engaging China.”

Still, there are signs that may not be enough. The Global Times, a mouthpiece for the Communist Party of China, was hoping Morrison would lose Saturday’s election, as opinion polls in recent months had forecast.

“Australia’s election result will continue current poor relations with China,” Hu Xijin, the editor of the Global Times said in a tweet on Sunday. “Canberra took the lead among Western countries to boycott Huawei, plus a series of anti-China decisions, making Chinese believe Australia is the most radical Western country in helping the U.S. suppress China."

Chinese investment in Australia surged this century as buyers snapped up assets from mines to farms. In recent years, attention increasingly turned to real estate, driven by the appeal of Australia’s clean environment and a growing number of Chinese studying at Australian universities.

But in recent years Beijing imposed capital controls to help stabilize its currency, limiting the amount companies and individuals could move abroad, while a borrowing spree within China has been reined in by authorities. That’s coincided with a growing list of problems in Australia that suggest an economy in its 28th year of consecutive growth is losing momentum.

Morrison's China Problem Grows as Investment in Australia Slumps

In March, Reserve Bank Governor Philip Lowe noted the withdrawal of foreign buyers from the property market had contributed to a slump in prices, that’s impacted household spending and helped slow the economy.

Peter Leahy, Australia’s former army chief and now director of the University of Canberra’s National Security Institute, called on Morrison to conduct a national discussion on Australia’s relations with China. He said the prime minister needs to produce strategies to deal with future potential conflicts, including deciding where the “red lines” are in the relationship.

“We’ve done well because of Chinese trade and investment,” Leahy said. “China has alternate sources of materials -- we need them a whole lot more than they need us. I wouldn’t like to see us a the global whipping boy for China to point to and say ‘this is what happens if you don’t behave’.”

To contact the reporter on this story: Jason Scott in Canberra at jscott14@bloomberg.net

To contact the editors responsible for this story: Ruth Pollard at rpollard2@bloomberg.net, Edward Johnson

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