ASX shares on watch: Chinese investment in Australia has dropped 61%

Should ASX shares be on watch as Chinese investment in Australia plummets? It has fallen 61% according to the Australian National University.

Two red shipping containers with the word 'Tariff' and Chinese flag

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

+It has been reported by the Australian National University (ANU) that Chinese investment in Australia dropped by 61% in 2020. Does this mean that some ASX shares are on watch?

The investment decline is the lowest number in six years. The ANU database covering Chinese investments in Australia showed there had been a total of A$1 billion invested over the year, split between 20 different investments. To put that into perspective, there were 111 Chinese investments made in 2016.

But the 2020 decline was also after a 47% fall in 2019.

According to the reporting, the three sectors where China still spent big was real estate, mining and manufacturing.

What's happening?

There are a number of different factors that could be at play.

For starters, there has been a number of tariffs and restrictions put Australian goods over the last year as part of troubling diplomatic issues between the two countries.

Those goods include an 80% tariff on Australian barley. There have been beef and lamb restrictions. Australian wine producers face tariffs of up to 200%. Australian cotton customers have been told to stop buying Australian cotton, with the potential for tariffs as high as 40%. Australian lobsters have been banned from China. Australian timber is another sector that's suffering. Australian coal is also being targeted.

But, it's not as though every Aussie export to China is suffering. Just look at how much iron ore that BHP Group Ltd (ASX: BHP), Rio Tinto Limited (ASX: RIO) and Fortescue Metals Group Ltd (ASX: FMG) is selling, at a high iron ore price as well.

Another factor that may be affecting things is that Australia currently has a much stricter foreign investment policy at the moment.

Every potential foreign investment is meant to be looked at by Australia's Foreign Investment Review Board (FIRB) so that Australian assets aren't sold at heavily discounted prices during a period of heavy economic disruption. There are also rules that allow the treasurer to stop deals after they've been signed. They also have to pass a national security test.

Which ASX shares does this affect?

It's hard to say precisely which ASX shares would be affected when it relates to deals that potentially haven't happened.

It is true that Bega Cheese Ltd (ASX: BGA) benefited when the Chinese Mengniu deal to try to buy Lion Dairy and Drinks didn't go through, leaving the acquisition of that business to Bega Cheese instead. Bega can now focus on more of the value-add parts of the dairy chain.

Other ASX shares are certainly suffering in this environment of lacklustre Chinese demand. Treasury Wine Estates Ltd (ASX: TWE) has taken a big hit to its earnings and share price.

Whilst not an Australian company, ASX business A2 Milk Company Ltd (ASX: A2M) is suffering from lower levels of demand for products. Synlait Milk Ltd (ASX: SM1) is indirectly suffering from that too.

Time will tell whether the investment decline, tariffs and restrictions will be lifted later this year or whether the disruption and frosty relations are here to stay between China and Australia.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended A2 Milk and Treasury Wine Estates Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Share Market News

A woman with a mobile phone in her hand looks sceptical with a puzzled expression on her face with an eyebrow raised and pursed lips.
Opinions

Is it time to be bullish or cautious on buying ASX shares right now?

Should investors be greedy or fearful as FY26 approaches?

Read more »

A happy young woman in a red t-shirt hold up two delicious burritos.
Opinions

Bull vs. Bear: Guzman Y Gomez shares

Guzman Y Gomez shares peaked at $45.99 in February and closed at $28.04 yesterday. Where to now?

Read more »

A young woman drinking coffee in a cafe smiles as she checks her phone.
Share Market News

5 things to watch on the ASX 200 on Friday

The Australian share market looks set to end the week in a positive fashion.

Read more »

Red buy button on an apple keyboard with a finger on it representing asx tech shares to buy today
Share Market News

The smartest growth stock to buy with $5,000 right now

This growth stock has the potential to keep on keeping on. 

Read more »

Suncorp share price Businessman cheering and smiling on smartphone
Broker Notes

5 ASX 200 shares for smart investors to buy in July

Brokers think these shares could be in the buy zone ahead of the new month.

Read more »

Man with backpack spreading his arms out and soaking in the sun.
Share Gainers

Here are the top 10 ASX 200 shares today

It was a disappointing session for investors today.

Read more »

A businessman hugs his computer and smiles.
Opinions

3 ASX 200 shares to buy and hold forever

I don't expect these stocks to go out of style anytime soon.

Read more »

American soldier in military uniform using laptop for drone controlling.
Share Market News

ASX defence shares lift amid NATO Summit decision to turbocharge spending to 5% GDP

The North Atlantic Treaty Organization (NATO) has also signed a 'milestone' agreement with Australia.

Read more »