A new report from Sydney based think tank Climate Energy Finance (CEF) has raised concerns that Australia’s investment policy towards China disincentivises a potential relationship that could deliver a “green capital tsunami” for Australia at a crucial point in its transition to renewables.
The new report from CEF found that Chinese firms have committed over $US100 billion ($A145 billion) in outbound foreign decarbonisation investment across at least 130 major clean technology transactions since 2023.
This breathtaking level of clean technology investment has spanned solar, wind, batteries, grid, new energy vehicles (NEV), hydroelectricity, and green hydrogen, with a geographical diversity spanning Europe, greater Asia, Africa, and South America.
According to the authors of the report, Chinese outbound foreign direct investment (OFDI) into Australia fell to a multi-decade low in 2023 of only $917 million, down from $2,103 million in 2022 – a figure that appears to have been drawn from research published in May by KPMG Australia and The University of Sydney Business School
This is reportedly due primarily to Australia’s “positioning with respect to Chinese firms’ investment into Australia,” the report says.
“Australia’s current formal posture with respect to Chinese firms’ investment is opaque, disincentivising investors, meaning investment into Australia is weak relative to the rest of the world,” the authors write.
They say this positioning puts at risk “the enormous opportunity for partnership with private Chinese companies where there is potential for significant value-adding onshore, leveraging Australia’s Future Made in Australia strategy.”
The CEF report envisions a bilateral partnership with the local region’s major power that supports both China’s continued local decarbonisation efforts and investment to build up Australian sovereign capabilities.
It would look to advance the nation’s strategic interest in energy and supply chain security, pivot the national export profile towards “embodied decarbonisation”, and future-proof the country’s economy.
One example of this “embodied decarbonisation” highlighted by the report’s authors is the potential to use Australia’s increasing level of firmed renewable energy generation to create green iron instead of unprocessed iron ore.
As the world’s number one exporter of iron ore, processing ore into steel using green power would add further value to Australia’s export of critical and strategic minerals while also China decarbonise its globally dominance steel industry, which is already beginning to be disadvantaged by carbon penalties in international trade.
Improving an investment relationship with China would also present the opportunity to co-investment in clean energy infrastructure and clean technology supply chains.
These opportunities would build off China’s increasing technological dominance and leadership in decarbonised technologies, while allowing the two countries to work together to better address climate change.
The report therefore calls for “a further elucidation of the government’s position on private Chinese investment into Australia” and “welcoming, stable, predictable, and transparent policy frameworks” to shore up “Chinese private investor confidence”.
The authors add, however, that these policies should be balanced by “appropriately calibrated mechanisms to expand the diversity of global demand for Australia’s key commodity exports, given China’s dominant market power in these sectors” and “appropriate foreign ownership limits” such as “majority Australian ownership to mitigate risks around control, influence, and national security.”
China’s accelerated investment in clean technologies – paired with labour practices that have raised concerns over human rights abuses – could undermine any potential rapprochement, however, a point obliquely acknowledged in the report.
Specifically, according to CEF, “China’s accelerated investment into new global strategic supply of critical minerals, and its leveraging of its globally dominant buying power, has driven oversupply and hence destructive commodity price outcomes” – an issue affecting not only Australia, but clean technology markets across the Western hemisphere.
It is unclear, however, if the authors have taken note of these larger humanitarian concerns around labour rights and religious persecution in China which have, to varying degrees, supported China’s ability to become the dominant financial and clean technology behemoth that it is.
Improving bilateral relations with China, then, certainly offers opportunities for Australia, and open the door for more favourable financial and decarbonisation outcomes. However, such considerations must also recognise the risks associated with closer Chinese ties – including the abstract and less important reputational issues, as well as the more important humanitarian concerns that could stem from actively supporting China’s current practices.
The CEF’s recommendations instead focus more on how to secure Australian sovereignty and financial independence, even while increasing investment ties with China.
In addition to more transparent investment and streamlined policies, the report suggests the establishment of a strategic critical minerals reserve trading fund so as to provide long term floor and ceiling price guarantees to underwrite new investment in mining and extraction, while also protecting Australia’s national interests.
The authors also called on the Australian federal government strongly advocate for a clear carbon emissions price signal for international trade so as to incentivise Australian miners to export embodied decarbonisation. This would include calling for the development of an Asian Carbon Border Adjustment Mechanism.
“It is clear that China leads the world in deploying a simply staggering 22GW per month of new renewable energy capacity since the start of 2023,” said Tim Buckley, director of CEF and report lead author.
“And with new energy vehicles hitting a record high 54% share of total passenger vehicle sales in China in the month of August 2024, the implications are profound – with China as a nation probably reaching peak emissions this year, six years early.
“CEF’s new analysis shows another globally profound trend in the making. There is growing hard evidence that China has responded to the escalating US and EU trade barriers against it by embracing the Paris Agreement commitment for world-leading countries to help the Global South access new zero-emissions investment opportunities.
“This report tracks over 130 major cleantech transactions since the start of 2023 that demonstrate a geopolitical pivot. China is not just exporting its world leading cleantech manufacturing capacity surplus. China is increasingly exporting its technology, engineering, supply chain, and financing capacities to create a win-win-win for the world.
“A win for emerging markets in the South desperate for manufacturing investment, new infrastructure and technology access, all supporting valuable jobs. A win for China to expand its global market reach, often in partnership with domestic cleantech champions. A win for the planet as countries from Saudi Arabia to Hungary and Brazil to Uzbekistan embrace zero-emissions industries of the future.
“And potentially a win for Australia if we grasp the opportunity to co-invest onshore with the world’s decarbonisation superpower, and pivot to secure our economic prosperity as a zero-emissions trade and investment leader.”
