Israel’s Economic Relationship with the Asia-Pacific, Part 1: China

By Benedict Lynn and Grace Tate

For a number of years, Israel has carefully cultivated deep running economic and political ties with many countries throughout the Asia-Pacific. Despite a turbulent history in several cases, the importance of the region has not been lost on the West Asian country, and several nations in the Asia-Pacific have in turn recognized the merits of stronger bilateral ties with Israel. Now, as the Jewish state’s policies alienate it ever further from its allies in the West, Israel has ostensibly been moving eastward at a faster pace than ever before.

In part one of this two-part article that highlights Israel’s foray into Asia-Pacific markets, we focus on China. Next week, Israel’s relations with India and ASEAN will be analyzed.

China

Modern Sino-Israeli relations can be traced back to the Sino-Soviet split when the Asian superpower established diplomatic relations with the U.S. in 1979. A series of secret, non-official ties were subsequently formed with Israel; what started as Israeli expertise in modernizing China’s tanks soon branched into agriculture and high technology. Normal diplomatic relations were made official in 1992. 

Since then, bilateral trade has increased almost 200-fold from US$50 million to over US$10 billion in 2013. Indeed, China is now Israel’s largest trading partner in Asia and third largest export market in the world. Concerned by China’s rapidly growing and at times aggressive presence in the region, the U.S. has hindered much of the selling of Israel’s military technology, but ties in other areas have flourished. In the last nine years alone over US$3.8 billion of Chinese investment has poured into Israel.

Israel’s Economic Relationship with the Asia-Pacific, Part 2: India and ASEAN

Notably, Israel’s tech startups are catching the eye of Asia’s largest economy. The Jewish state is a world leader in research and development while China is a global manufacturing hub that is fast moving up the export chain. The extent of Chinese investments are such that analysts are speculating that China could soon replace the U.S. as the top source of Israeli tech capital.

Over the past couple of years Chinese tech giants have been visiting in droves, keen for a piece of Israeli venture capital firms that have investments in multiple startup companies. Hong Kong real-estate mogul and de facto ambassador for Chinese business Ronnie Chan owns shares in Chinese smartphone maker Xiaomi, and regularly leads business delegations to Israel. Lenovo Group Ltd., one of China’s biggest computer makers, invested some US$ 10 million into Canaan partners Israel in August, and Yongjin Group Inc., a Chinese equity-investment management and financial services company, has put almost US$20 million into Israeli venture fund Pitango Venture Capital over the last year.

In particular, the agriculture and water sectors provide space for collaboration. In the face of rapid growth and urbanization, the Middle Kingdom’s agriculture sector has grown increasingly inefficient. This, coupled with water purification and reclamation issues, has resulted in Israeli water technology becoming a key export to China. In 2012 the two nations signed a US$300 million deal for the technology and, in May of this year, a further US$300 million was jointly invested to establish the XIN center for scientific exchange and collaboration. This was a result of a bilateral agreement between Tel Aviv University and Beijing’s Tsinghua University that aims to “pursue strategic cooperation in research and teaching and serve as an international hub for scientific and technical innovation” in various sectors, from sustainable agriculture and water reclamation to biotechnology and solar power.

The relationship is of undeniable benefit to both parties; the Chinese are keen to advance their technology, and Israel – poor in natural resources – is eager to export its startups and services. With 2015 free trade negotiations just around the corner, this burgeoning relationship seems set to blossom even further, but many Israelis regard China with suspicion.

China’s Trade With North Korea

Trade may be strong, but there is a vast deficit in favor of China and almost a third of Israeli imports come from just two companies: Intel corp., which exports chips designed and manufactured in Israel, and Israel Chemicals Ltd., which ships chemicals. The sudden spike in interest in Israeli high technology is therefore welcome to many, but many more are wary of China’s reputation for intellectual property theft. When Chinese state-owned Bright Food Group Ltd. announced its intention to buy 56 percent of Israeli milk and dairy co-op Tnuva Food Industries Ltd., several prominent figures, including a former Mossad chief, sparked fears that it would lead to the theft of their cottage cheese-making technology. Other rumors abound, such as that reverse-engineering and copying of irrigation products will bring a premature end to ongoing deals.

China’s relationship with Iran further complicates matters. The Middle Kingdom is the top importer of Iranian exports, buying about 80 percent of the vocally anti-Israel republic’s oil. While on the surface Chinese and Israeli leaders champion their growing friendship, it is becoming increasingly difficult for China to remain so pragmatic in its dealings with the deeply fractious Middle East.

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