(Bloomberg) -- Chinese investment in Australia plunged 58.4% last year to A$3.4 billion ($2.39 billion) -- the lowest level since 2007, according to a report released amid a broadening diplomatic spat between the nations.
The Demystifying Chinese Investment in Australia report by KPMG and The University of Sydney also showed the number of Chinese investment deals dropped 43% to 42, from 74 in 2018. One deal -- Mengniu Dairy Co.’s acquisition of Bellamy’s Australia Ltd. for A$1.5 billion, accounted for 43.7% of the year’s total.
Read more: China Issues Australia Travel Warning as Relationship Sours
Even as China remains Australia’s largest trading partner, there are increasing signs of a widening rift between the nations.
Australia announced on Friday it will implement a tougher screening regime on foreign investors seeking to buy sensitive assets, with telecommunications, energy, technology and defense-manufacturing companies to be included in the zero-dollar threshold for screening.
Factors contributing to last year’s investment decline include tighter Chinese regulations for overseas deals, state-owned enterprises reducing investments in developed markets in favor of developing nations, and negative perceptions by China toward stricter investment regulations by the Australian government, according to report co-author Doug Ferguson.
“Chinese companies have invested over $107 billion into Australia since 2008 and this capital has been a really important contributor to economic growth locally, but new investment is slowing,” Ferguson, KPMG Australia’s head for Asia, said in a statement. Chinese investments in Australia will “remain subdued in the coming year,” he said.
The food and agribusiness sector accounted for the largest proportion of Chinese investment in 2019 with 44% of the total, or A$1.53 billion. That was followed by commercial real estate, with 43%, or A$1.48 billion.
Australia’s investment-screening changes announced Friday could have implications for its relations with China, which have soured this year after Prime Minister Scott Morrison led calls for an independent probe into the origins of the coronavirus in Wuhan.
Beijing responded with verbal attacks on the conservative government, saying it was doing the bidding of key ally the U.S., while new tariffs on Australian barley and a ban on beef from four meatworks have raised fears in Canberra that the Chinese government is using “economic coercion” in retaliation.
On Saturday in a further sign of strained relations, China warned its citizens not to travel in Australia, saying it was unsafe due to discrimination and violent behavior against Chinese and Asians.
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