Industry Trend Analysis - New Infrastructure Agency Signals Protectionist Shift - FEB 2017

BMI View: Chinese investments will bear the brunt of scrutiny from the newly created Critical Infrastructure Centre, slated with the rev iew of foreign bids for Australian ' key ' assets. This move by the Australian government has the potential to dampen a recent surge in Chinese investment into Australia; however, outright rejections will likely be limited to deals with a high degree of sovereign wealth fund and SOE involvement.

The creation of a new infrastructure agency - which will determine whether foreign bids for Australian assets pose national security risks - signals a more protectionist stance from the Australian government and may help to curtail a surge in FDI from China. On January 23, the Australian government announced the formation of the Critical Infrastructure Centre which will advise on transactions, assess risk and help to prevent sabotage, espionage and coercion. The new agency represents an expansion of policies aimed at protecting 'critical infrastructure' from potential national security risks - an area which has previously been under the auspices of the Foreign Investment Review Board.

We expect Chinese investment in Australia to bear the brunt of additional scrutiny, building on concerns about Chinese bids for infrastructure in 2016 - culminating in the rejection of some bids ( see ' Australia Nixes China Power Deal, Indicating Possible Policy Shift', August 12 2016). However, we highlight that outright rejections will be limited to deals involving 'key' assets and a high concentration of state-owned-enterprise (SOE) and sovereign wealth fund (SWF) participation, leaving plenty of scope for other Chinese actors to continue to operate in the market. Additionally, while blocking out these sources of capital will dampen demand and limit asset valuations somewhat, we expect continued strong demand for Australia assets which have become a favourite target of global infrastructure funds ( see ' Global Infrastructure Funds Flocking To Australia ' , see September 21 2016).

Australia Drawing Increasing Asian Investment
Australia - Foreign Investment In Australia By Country, AUDbn
Source: ABS, BMI

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