Chinese interest in mergers and acquisitions in Australia is growing with the thaw in political relations

In recent weeks, some banks have received orders from Chinese companies seeking to survey Australian assets, while other dealmakers say they are receiving inquiries from potential buyers in the world’s second-largest economy.

However, indications remain provisional, and Australia’s foreign investment framework is likely to exclude Chinese buyers from sectors such as telecoms, defense and critical metals deemed sensitive to national security.

“We are starting to see green shoots in Chinese interest in inbound M&A, but we are still close to pre-pandemic levels,” said Lawrence Mendes, partner at global law firm Baker McKenzie.

Australia’s six-month-old Labor government is trying to repair strained diplomatic relations with China after disputes in recent years over trade and influence in the South Pacific and the origins of the COVID-19 pandemic.

Australian Prime Minister Anthony Albanese met Chinese President Xi Jinping on the sidelines of the G-20 summit in Indonesia last month, raising expectations of closer bilateral ties.

In a sign of renewed Chinese interest in Australia, China’s Tianqi Lithium Corp said on Tuesday it is exploring investment opportunities in Australia’s burgeoning metal battery sector.

Mendez said his law firm has received questions from Chinese companies about approval requirements and Foreign Investment Review Board (FIRB) deadlines.

However, he added that the regulator’s approach would have a “significant impact” on Chinese investor interest.

Australia in 2020 unveiled the biggest overhaul of its foreign investment laws in nearly half a century to ensure companies are closely scrutinized when bidding on sensitive assets, regardless of deal size.

Mergers and acquisitions between China and Australia peaked a decade ago when Chinese investors spent $10.3 billion in 2013, targeting everything from dairy farms and commercial real estate to movie theater chains.

But political ties have soured in recent years and transactions have dried up – Chinese investment in Australia has fallen by more than 50% over the past four years to about A$12 billion (€8.86 billion).

Australian FIRB chief Bruce Miller said at a conference last month that he expects an increase in investment requests from China after they have become scarce over the past three to four years.

However, all investments are likely to focus on assets in non-sensitive sectors, after Chinese companies have historically tried to buy projects related to Australia’s national interests.

Australian companies in the natural resources and agricultural sectors could be targeted by Chinese investment, said Matthew Hodge, director of equity research in Australia and New Zealand at Morningstar.

“Capital-intensive and large-scale projects can be targeted through Chinese investment, provided they are not of national strategic importance,” Hodge said.