By Rhiannon Hoyle
SYDNEY--The last time commodity prices tumbled, in 2008, Chinese
buyers snapped up iron-ore pits, coal mines and other natural
resources at knockdown prices.
This time, Chinese investors swooped here for a different sort
of bargain: the Sheraton on the Park, a five-star hotel overlooking
a public garden in central Sydney.
Beijing-based Sunshine Insurance Group Corp.'s purchase of the
Sheraton for about $400 million in November is emblematic of a
shift taking place in China's foreign-investment strategy. A thirst
for natural resources is being replaced by a rising hunger among
Chinese businesses and wealthy individuals to acquire trophy assets
and find homes for their cash overseas.
The state-owned enterprises that led the charge overseas in
search of commodities to satisfy demand at home have been overtaken
by private-equity firms, real-estate developers and insurance
giants. Other recent targets include cinema chains and beach
resorts on Australia's Gold Coast.
"What they were motivated by was security of supply, but now as
supply exceeds demand it's taken the heat out of that particular
argument," said Mike Elliott, global leader for mining and metals
at EY, the accounting and consulting firm.
The retreat from mining investments comes as Australia's
once-booming resources industry grapples with sliding prices.
Companies trying to sell assets to raise cash are getting lowball
bids, if any at all. The annual value of mining-related deals by
Chinese companies in Australia fell 80% from 2011 to 2014.
It is a shift that is playing out globally. China's overseas
investments in metals and energy tumbled to $35.20 billion last
year from more than $50 billion in each of the three years prior,
according to an investment database compiled by the American
Enterprise Institute and the Heritage Foundation. Total outbound
investment in 2014 was nevertheless 0.7% higher than in 2013,
totaling $84.37 billion, as investors spent more in other
sectors.
China's real-estate investments rose to $15.72 billion in 2014
from $11.71 billion in 2013, and just $3.72 billion as recently as
2011.
Among the trophy properties chosen by Chinese buyers is the
Waldorf Astoria hotel in New York, which Anbang Insurance Group Co.
bought earlier this year for $1.95 billion. Other active investors
include China Oceanwide Holdings Ltd., which is planning a tower
that will be one of San Francisco's tallest.
In Australia, Chinese property and entertainment giant Dalian
Wanda Group Co. is acquiring an office building on Sydney's
Circular Quay--moments from the city's famed Opera House and
Harbour Bridge--and plans to spend $1 billion transforming it into
a hotel and apartment tower.
Wanda last year acquired a beachfront hotel project in the
seaside resort town of Surfers Paradise, on eastern Australia's
Gold Coast.
Chinese companies are still likely to buy some commodity assets,
though not in areas of oversupply such as iron ore. UBS AG predicts
that in iron ore, the global surplus of annual output relative to
demand will widen to more than 200 million tons--triple South
Korea's yearly imports--by 2018.
People who work with Chinese investors say their interest is now
more likely to be piqued by metals such as copper, nickel and gold,
forecast to be in high demand as China's economy shifts toward more
consumer-led growth.
Both Barrick Gold Corp. and Newcrest Mining Ltd. are looking for
potential buyers for gold mines here, while BHP Billiton Ltd. says
its Nickel West operations aren't part of its strategic future.
While Chinese buyers are paying top dollar for shining urban
towers, much as they did for coal mines, they are driving harder
bargains for mining assets.
"As China slows, the desire to do deals--and do deals at any
cost--in the mining sector has also slowed," said David Ryan,
corporate partner at law firm DLA Piper.
Wang Yingsheng, deputy secretary-general of the state-backed
China Iron and Steel Association, said slower economic conditions
at home had constrained funds for large investments. "Steelmakers
can't just take out money to invest as easily as they could in the
past," Mr. Wang said.
Past deals have been costly. Projects acquired at high prices
during a decadelong commodities boom have been marred by
high-profile delays and cost blowouts. In 2013, the head of China's
mining association estimated that 80% of all overseas mining deals
had failed, according to state media.
Citic Ltd.'s massive Sino Iron project in Western Australia
garnered widespread attention due to skyrocketing costs and
environmental troubles, while a foray into Australia by Yanzhou
Coal Mining Co., through local unit Yancoal, led to a string of
losses and asset write-downs.
Even if commodity prices rebound, Chinese buyers will be more
careful. "I don't think it would go back to the helter-skelter we
have seen in recent years," EY's Mr. Elliott said.
On the other hand, bankers see considerable scope for Chinese
investment in other sectors to accelerate. In October, China's
Ministry of Commerce relaxed bureaucratic procedures for companies
making overseas investments.
"The Chinese have a different motivation for investing in other
sectors, like real estate," said Les Koltai, Australian head of
real estate at DLA Piper, which advised private-equity firm
Blackstone Group when it sold the Sydney tower to Dalian Wanda.
"They are keen to deploy more capital into offshore markets," he
said.
Chuin-Wei Yap contributed to this article.
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