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Economy

Sign of chilly ties: China no longer Australia's biggest investor

Concern and scrutiny from both governments slows the flow of Chinese money

The housing markets of Australian cities have attracted a raft of overseas investment in recent years, but Chinese purchases of Australian homes dropped 17% in fiscal 2017.   © Reuters

SYDNEY -- China, which for four consecutive years had been Australia's No. 1 source of foreign investment, fell from that perch for the 12 months through June, a symbol of the quivering relations between the nations.

According to a report by Australia's Foreign Investment Review Board, the U.S. overtook China as the country's top source of investment in terms of value and based on approved applications.

The board said China's stricter controls on capital outflows played a role, as did Australia's greater scrutiny of foreign investment in critical infrastructure.

China was Australia's second largest investor in fiscal 2017, its investment value dropping 39% on the year to about 23.7 billion Australian dollars ($16.8 billion). Real estate investment, which accounts for 53% of the total, fell 17% on the year to about AU$12.6 billion.

Chinese investment in the manufacturing, electricity and gas sectors was down 79%, to about AU$1.5 billion. Chinese investment in all six measured sectors declined.

Meanwhile, the U.S. moved A$36.5 billion to Australia in fiscal 2017, up 38% from a year earlier, becoming the largest investor for the first time in five years. The U.S. comeback was buoyed by a 58% increase in service sector investment.

The FIRB report notes that Chinese investment was trending down not only in Australia but everywhere else. It also points out that the Australian government at the start of fiscal 2017 began closely examining security risks associated with foreign investment in key infrastructure areas, such as telecommunications, electric power and ports. The report indicates that the policy could have affected the acceptance of foreign investment.

Australia has been willing to accept foreign investment but is increasingly wary of China, which is making its presence felt in the country. The Australian government in 2016 rejected proposals by Chinese and Hong Kong companies to purchase Ausgrid, Sydney's then state-owned electricity distributor, saying the sale of the utility to these companies would go against the national interest.

Some Australians, meanwhile, blame surging real estate prices in the central neighborhoods of major cities on an influx of foreign buyers. As a countermeasure, the Australian government in 2017 began imposing a tax on foreign owners of houses that remain empty for six months or longer.

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