Chinese investment in Australia peaked at $15.8 billion in 2016, but has now fallen steeply to just $4.8 billion.
Chinese investments in Australia took a steep dive between 2017 and 2018, falling by 50 per cent according to new data from the Australian National University.
In 2017, China invested $9.6 billion within Australia's shores, compared to just $4.8 billion last year, signalling the lowest investment in five years.
Lead researcher from Chinese Investment in Australia (CHIIA) database Susan Travis said it was time to monitor the two countries' relationship more closely.
"There was no cause for panic when it came to Chinese investment, but it does bear watching," she said.
Chinese investment in Australia had been rapidly soaring until three years ago, rising from $5.7 billion in 2014 to $11 billion in 2015 before peaking at $15.8 billion in 2016.
Then, 2017 saw a significant fall to only $9.6 billion, and that downward decline continued to $4.8 billion last year.
This declining investment was a key feature of the ANU Asian Bureau of Economic Research's new study into the Australia-China relationship, which found economic ties between the two nations had still strengthened overall over the past five years.
But report co-author Professor Peter Drysdale said the escalating trade war between Washington and Beijing was placing strain and uncertainty on Australia's relationship with China.
"While Chinese investment to Australia is broadly in line with Chinese investment globally, that wasn't the case last year," he said.
"This is a warning sign and is one of the issues that needs to be addressed in the relationship."
The report says that narratives about 'the silent invasion' and 'false choices' are a distraction in the relationship.
"Australia and China must work closely together in multilateral organisations to defend and strengthen the international system," Professor Drysdale said.
"We also suggest China and Australia set up a bi-national commission, which will help the two countries define the nature of the relationship they want to develop, and their strategies to achieve those goals."