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

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

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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.

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