Tapping Down Under’s rural sector

Late last year, a delegation of Chinese businessmen from private and State-owned enterprises met Australian government officials in Sydney to discuss investing in Australia’s vast rural sector.

They brought with them a shopping list said to be worth more than $500 million.

The list included super soft Merino wool product facilities, cattle stations, dairy farms, cotton production facilities, vineyards and sugar plantations.

Australia is now the biggest single destination for Chinese foreign direct investment (FDI) worldwide with investments totaling more than $38.4 billion.

In turn, China has become Australia’s biggest export market, surpassing traditional markets in the United States, Europe and Japan.

Much of that trade is resources based, such as coal and iron ore, which are the fuel needed to keep China’s economic engine running.

Australia alone caters to almost half of China’s iron ore imports, with BHP Billiton, Rio Tinto and Fortescue being the main suppliers.

Now China is looking at agriculture and food processing, not only in Australia but New Zealand as well.

Last month, the New Zealand government approved an application by the Shanghai Pengxin Group to buy 16 dairy farms that have been in receivership since 2009, saying the deal would boost dairy product sales to China.

New Zealand, the world’s biggest dairy shipper, is expected to see its dairy market rise more than 10 percent a year in value in the next few years.

The newly appointed head of KPMG’s China-Australia operations, Doug Ferguson, believes there is still “enormous potential” for growth in trade between the two countries.

“While the bulk of Chinese investment into Australia has been in resources – iron ore, coal and copper – there is a growing interest in agriculture, financial services and infrastructure,” he tells China Daily Asia Weekly.

Dr Chunlai Chen of the Crawford School of Economics and Government at the Australian National University in Canberra says China’s investments in Australia are still comparatively small compared with overall foreign direct investments.

“Last year it was less than 2 percent of all FDI into Australia,” he says.

“But it is growing and growing very fast,” he adds.

Chinese investments into Australia have jumped from $244 million in 2006 to $2.4 billion in 2010, according to the Australian Bureau of Statistics. Data for 2011 is yet to be released.

The International Monetary Fund has estimated that 12 percent of Australia's gross domestic product growth from 2000 to 2010 is due to trade with China and that figure could climb to 35 percent by 2020.

Last year China accounted for 40 percent of Australia’s mineral exports. A decade earlier, it was less than 5 percent.

Billions of dollars are being poured into mining and energy projects mainly in resource-rich Western Australia, Queensland and South Australia.

The Australian Treasurer, Wayne Swan, has likened the resources boom to the Gold Rush of the 1850s.

In a report last year by KPMG and the University of Sydney which examined the relationship between China and Australia, it was noted that China will remain Australia’s dominant trading partner “for the foreseeable future”.

“The investment relationship – especially the movement of investment flows from China to Australia – is becoming increasingly important for both countries,” the report said, adding that it will be China, more than any other country in the world that will determine Australia’s economic future and prosperity.

“In fact, Australia’s economy survived the global financial crisis better than most other developed countries, and this can largely be attributed to China’s robust economy and its unprecedented reliance on Australian resources,” says Ding Dou, associate professor at the School of International Studies, Peking University.

“Investment has overwhelmingly concentrated on Australia’s natural resources,” he notes.

Ding? believes the rationale behind this investment is consistent with China’s apparent hunger for resources and energy elsewhere around the world in order to secure a stable supply and steady price of raw materials. “For China, it has been helpful to consolidate production and supply chains — and this kind of resource trade and investment can supplement each other, helping to promote trade and investment for both sides.”

According to the Australian Financial Review, agriculture appears to be the next major target of investment in Australia by Chinese companies.

The weekly says Shandong Taifeng Textile Co Ltd and Shanghai Xiangfu Real Estate Investment showed interest in buying a 20,000 hectare cotton property and farmland in Western Australia and Queensland.

The Nanshan Group was said to be interested in buying four properties totaling some 30,000 hectare in the eastern states of New South Wales and Tasmania for the production of super fine wool.

The Chinese government-backed company, Shaanxi Kingbull Livestock, was reported to be interested in buying a 5,000 hectare cattle station in Australia as a stepping stone to importing 10,000 high-quality beef cattle and calves from Australia each year.

But such purchases will have only a minor impact on foreign ownership of agriculture in Australia. A recent government report claims that less than 12 percent of Australian farmland is owned or partly owned by foreign companies.