The China-Israel Business Connections

Following the Israeli PM’s recent visit to China, yesterday’s Business Week has a long article about the increasing business collaborations between Israel and China. In the past week numerous articles covered the new bilateral treaties that have been signed and the expanding economic cooperation between the two countries. Here are some interesting highlights from the article that pretty much sums up the visit :

The China-Israel Connection

Though at present it’s only responsible for 1% of imports, the Jewish state’s presence in Asia’s No. 1 economic powerhouse is rapidly expanding (Neal Sandler)

The Israeli presence underscores the growing importance of trade relations between the two countries. Israel-China trade climbed nearly 30% in 2006, to $3.8 billion, and is expected to reach $5 billion this year, catapulting China to the position of Israel’s No. 2 trading partner, second only to the U.S. During an official visit to China last week, Israeli Prime Minister Ehud Olmert said he expects a further doubling in trade, to $10 billion annually, by 2010.

But official statistics don’t tell the whole story. The China trade figures exclude business with Hong Kong, even though much of it is redirected to the mainland. The numbers also would be higher if Israel’s lucrative arms sales to China hadn’t come to an abrupt end in 2005 under heavy pressure from the Bush administration.

Fortunately for Israel, the Chinese are interested in more than just military hardware. As with many countries, Israel has been flooded with imports of Chinese consumer goods and textiles in recent years. But moving in the other direction, hundreds of Israeli high-tech, chemical, and agricultural technology companies have seen exports to China soar. [...]

China also is becoming a big buyer of Israeli agro-technology. Companies like Netafim, a world leader in drip irrigation systems, have seen steady growth in demand in the past decade. The company has even opened a factory in China. "With water shortages becoming more acute we expect China to become one of our major markets in the coming years" says Rami Levy, managing director of Netafim Asia Pacific.

Indeed, water was a major topic of discussion during Olmert’s Beijing visit, during which the two countries inked a water technology agreement. "For China, water is as important as oil," the Israeli prime minister said at the signing ceremony, noting that Israel is a world leader in desalination and recycling technologies.

Israeli companies are already drumming up deals. Just days before the water deal was signed, Israel’s Global Environmental Services (GES) announced a $5 million water purification project in Inner Mongolia. The company also said it is in talks for a huge desalination project in another region of China. Perhaps Israel’s biggest export to China is high tech. Established companies like ECI Telecom (ECIL), a maker of telecommunications equipment, initially followed the joint venture route. [...]

Even high tech newcomers have discovered the potential of the Chinese market. "It used to be that our startups ran straight to the American market, but now we’re seeing many go first to China," says Yoram Oron, managing partner at Vertex Venture Capital. This is especially the case with mobile and gaming applications. Entry into the Chinese market hasn’t always been easy, though, especially for smaller tech and software companies. [...]

China has also started to attract the Israeli venture-capital industry. In 2004 Infinity Venture Capital and Clal Industries and Investments teamed up with Suzhou Industrial Park and China Singapore Venture Capital to set up a first-of-its-kind fund for investing in startup companies with research and development in Israel and production in China.

"Unlike U.S. companies, Israeli companies are not viewed as a threat to China," says Amir Gal-Or, managing partner at Tel Aviv-based Infinity. "The Israelis’ main interest is to develop technology and allow the Chinese to create global brands." [...]

Israel of course can hardly expect to compete with many of the major players in the Chinese market. Exports from the Jewish state account for less than 1% of China’s total imports. But in key fields such as tech, agriculture, and water, and high tech, Israel has what China is looking for. The impact on the Israeli economy is only set to increase.

Here are some stats, from the Trade Mission to China :

Israel - China Trade Growth (Million US$)

Leading Exports to China :

1. Telecommunications and  high-tech equipment, machinery and electrical Equipment (38%)
2. Chemical industry and Chemical related products (26.8%)

Leading Imports from China :

1. Telecommunications and  high-tech equipment, machinery and electrical Equipment (28.3%)
2. Textiles and Textile Articles (25.8%)

Information is also becoming available through other various projects and websites, like the useful Israeli Export and International Cooperation Institute which is running an online forum for business in China.