Trade and technology exchanges have reached new heights between China and Israel this year. The Chinese economy is undergoing a critical period of transformation, with innovation seen as a key new economic engine. Innovation has long been a major part of the Israeli economy, and compared with some Western nations, the country is more willing to provide advanced technology to China for civil use in a variety of sectors.

Senior Israeli officials and guests inaugurate the new site for the Israeli Chamber of Commerce China on June 28. Photo: Courtesy of IsCham

 

On a hot August day, a heavily pregnant Meirav Rene Shacked, 32, was running around a building in Beijing's trendy 798 art district trying to make sure her event went off without a hitch. For weeks she had been sending out invitations to Chinese businesspeople looking to work with Israeli companies.

The seminar, which was titled "An introduction to doing business in Israel," was held by the Israeli Chamber of Commerce China (IsCham) in their newly-refurbished building and attracted around 60 participants who put their questions to two Israeli officials from the embassy, one Israeli banker, two lawyers and senior staff from the federation of Israeli commerce.

IsCham, of which Shacked is the general manager, is a non-profit organization established in Beijing in 2008 by former Israeli President Shimon Peres.

The Chinese attendees wanted to know what Israel can offer them and how it has cultivated its vibrant start-up and innovation culture.

"They are very enthusiastic. The Q&A session was amazing, people asked very specific questions, they wanted to know what technology people have to offer. How to work, what kind of regulations there are in Israel about starting a company, registrations, government support," said Shacked.

Shacked says she chose a Chinese name that means "plum blossom" as she says that the Sino-Israeli relationship is blossoming now and she wants to play a role in bringing the two nations she loves closer together.

While most foreign chambers of commerce are located among the monolithic glass skyscrapers of Beijing's business district, IsCham chose instead to settle in the midst of 798, an area of old factories that have been turned into galleries and artists' workshops.

"This is exactly why we chose this location, we want to show the innovative and creative aspects of Israel," Shacked said.

Despite their vast difference in size, China and Israel have enjoyed a rapid expansion of trade and investment.

"Israel is known for its innovation and strong R&D, and its water treatment and agricultural technologies. China's and Israel's economies are highly complimentary, not just in trade, but also as Chinese investment in Israel has increased rapidly," said Pan Guang, Dean of the Center of Jewish Studies Shanghai.

China is now Israel's third largest export destination. In 2014, bilateral trade value reached $11 billion and Israeli exports to China accounted for nearly 30 percent of that amount. Meanwhile, China also invested $300 million in Israeli hi-tech products in 2014.

Chinese and Israeli national flags fly in Beijing during a visit by former Israeli President Shimon Peres to China on April 9, 2014. Photo: CFP

 

Silk Road support

In May, Israel joined the Asian Infrastructure Investment Bank (AIIB) in the most recent development in what seems to be a long-term Israeli plan to strengthen its ties with China.

"Israel is an important economic and trade partner of China in the Middle East and along the 'One Belt, One Road' initiative," said Pan.

The Belt and Road refers to the Silk Road Economic Belt and the 21st Century Maritime Silk Road, the international trade and infrastructure projects proposed by China in the last few years.

Early this year, Shen Danyang, spokesman for China's Ministry of Commerce, said that Israel and China have completed feasibility studies into an Israel-China free trade zone and the two governments will begin negotiations on the zone this year.

Once the free trade zone is approved, expected for 2017, Israel will eliminate tariffs on 98 percent of Chinese goods, and China will do the same for Israeli goods.

The local governments of Zhejiang, Jiangsu, Shandong, Guangdong and Yunnan provinces have in recent years established several Israel industrial parks to attract cooperation with Israeli companies. They provide free office space, tax incentives and other helpful policies.

"It is very good that China is willing to provide offices. But Israel is a small country with many small vibrant companies. They don't have the money and budget to maintain many Israeli employees in China for an extended period. They are more interested in selling technology and products, not staying in parks," Mickey Mushinsky, chairman of IsCham China said.

Innovative minds

The Chinese economy is undergoing a critical period of transformation, and developing a greater ability to innovate is a key part of this process.

Chinese Premier Li Keqiang stressed several times that innovation and helping startups grow are of vital importance during a series of recent State Council meetings. Premier Li said that the Chinese people have limitless creative potential for economic development.

Help with innovation and startup culture are exactly the things Israel can offer.

"In Israel, innovation is a way of life. Innovation is our growth engine. The Israeli economy adapted to a process similar to what China's economy is undergoing. When the State of Israel was established 66 years ago, we were socialist. Our economy was centrally planned but eventually involved the private sector. We developed our industries," said Yaffa Ben-Ari, deputy director general of the Economic Affairs Division of Israel's Ministry of Foreign Affairs, told the Global Times during her visit to Beijing in March.

Compared with Western nations, Israel is more than willing to provide advanced technology for civil use in sectors such as computing, health, medicine, chemistry to China.

The US imposes export controls on advanced technology and products heading to China, which the US believes could be used for military purposes. According to Wall Street Journal, the US recently blocked companies from supplying equipment for use in China's Tianhe-2 supercomputer, the world's fastest, which has heightened tensions between the US and China over export restrictions on technology.

"From a historical political perspective, Israel is close to the Western countries and China has identified itself as one of the countries that support the Arab nations so we need to find a business area that's not related to military and defense areas," said Mushinsky.

China is moving now from low-tech production and is attempting to become a world-leader in hi-tech products. Israel has many advanced technologies but lacks a market for its goods and capital investment. China has a huge market and the needed production capacity. An Israeli businessmen interviewed said their biggest concerns about doing business in China are not legal ambiguity or bureaucracy, but the culture gap and attitude.

In 2013, Israeli Prime Minister Benjamin Netanyahu visited China and stressed that the two countries have an opportunity to strengthen their relations.

In January, Chinese Vice Premier Liu Yandong and Israeli Foreign Minister Lieberman launched the first "China-Israel joint committee on innovation cooperation." Under this initiative, the two governments signed a "three-year action plan" to strengthen cooperation on innovation in various fields such as science, technology, and education and culture.

According to Israel's Ministry of Foreign Affairs, the Israeli Foreign Trade Administration has five trade attachés across China. There are two in Beijing, including one that focuses on policy and regulation; one in Guangzhou, Guangdong Province; one in Shanghai; and one in Hong Kong. This number is identical to the number of attachés in the United States and the goal is to continue expanding the distribution of trade missions in China.

Follow the trend 

Israeli and Chinese companies have already put these cooperation agreements into action. In March alone, several big business projects were signed by both sides.

The Israel Ports Authority decided to grant the Shanghai International Port Group the right to operate New Haifa Port, the biggest port in Israel, for 25 years. Super-Pharm, the biggest drug store chain in Israel, declared that it had officially launched in China. Meanwhile, China's Bright Food Group acquired a 77.7 percent stake in Tnuva, the biggest food enterprise in Israel.

In 2014, leading Israeli agricultural technology company Trendlines Group established a joint agritech project with Luban Construction Investment Group based in Anhui Province.

In January 2015, representatives of Alibaba, the Chinese e-commerce giant, went to Tel Aviv to attend Cybertech, Israel's main conference on cyber security. Alibaba invested an undisclosed sum in Visualead, an Israeli company specializing in QR code technology.

"When leading Chinese companies lead the trend to invest or cooperate with Israel, many more Chinese companies follow this trend. If the current trend is to invest in Israel, this trend will really affect us," said one Israeli businessman.

This trend has been met with a mixed reaction in the Middle Eastern nation. Some Israeli newspapers raised concerns about huge Chinese investment and involvement in building high speed rail and other Israeli infrastructure. 

"Some Israelis worry that China is too involved in major infrastructure. Many others believe this is a good solution. Chinese has the expertise, the budget and Chinese companies can complete projects on time. We understand now the world is changing. It is not everybody doing things alone, different companies from different nations are investing in and controlling companies in other parts the world," said Mushinsky.