Israel and China's national flags fly over Tiananmen Square for the arrival of Israeli Prime Minister Benjamin Netanyahu on a state visit to Beijing on May 8, 2013. Photo: IC

 

On July 8, Israeli Economy Minister Naftali Bennett arrived in China on a five-day visit to promote investment, trade and research and development between the two countries.

He told representatives of investment firms in China that "Chinese investments have been paying off with great prosperity. I recommend great investment activity in Israel for the benefit of both countries."

While recognizing the differing investment environment in China compared with Western countries, Bennett signaled that the Israeli government would take a more active role in trade deals between the two countries.

Though a continent apart and traditionally occupied with events in their own regions, China and Israel have moved closer together over the past several years, with investment and trade leading the way.

Most recently, on July 8, Israeli IT provider Matrix announced that they would be opening a mobile application development center in Changzhou, East China's Jiangsu Province, with more to follow throughout China. The R&D center is being set up as a joint venture with PTL Group, a China-based company under Israeli shareholder ownership, according to Reuters.

In June, Fosun International, a Shanghai-based private conglomerate, announced plans to establish a technology incubator that would fund Israeli start-ups, two months after the firm acquired a 95.6 percent stake in Israeli medical equipment manufacturer Alma Lasers for $240 million.

According to a statement from the Israeli Prime Minister's Office, the Fosun project intends "to find additional business opportunities for cooperation with Israeli companies and distribute their products in the Chinese and international markets."

Israel's recent investment in China and visits from high-ranking officials are only the latest in a series of developments that suggest deepening trade and economic ties between the two countries, with Israel's high-tech industry - one of the most advanced in the world - being a primary target for Chinese companies and venture capitalists.

It is a growing economic relationship, which some might view as odd given Israel's traditionally close economic and political ties with the US. But businessmen and leaders on both sides insist it is a natural match, given their relative economic strengths.

Competitive advantages

For China, Israel has emerged as a natural source of investment because of its competitive advantages in the high-tech fields.

Li Shaoxian, dean of the China Institute of Contemporary International Relations, told the Global Times on July 11 that it was an inevitable trend for China to enhance its cooperation with the country, in light of Israel's advanced development and high-technology capabilities.

He added that it was natural for China, as an emerging power, to play a growing role in the international community.

Israel, in turn, is seeking sources of funding and investment for domestic R&D, as well as access to Chinese markets.

Israeli Chief Scientist Avi Hasson told Israeli newspaper Ha'aretz that in 2013, China would be running the largest number of joint ventures with Israeli companies run by the Chief Scientist's Office.

While the number of Israeli companies doing business in China is still below 1,000, it is clear that entrepreneurs and investors on both sides are eager to see that number increase.

On a visit to China in May, Israeli Prime Minister Benjamin Netanyahu said that Israel "can be the perfect junior partner for China in its pursuit of economic excellence and competitive advantage, by offering our technological capabilities," according to a report in the Jerusalem Post.

Netanyahu visited Chinese pharmaceutical companies in an effort to promote investment in Israel's biotechnology sector.

Lu Di, a senior manager in Shanghai Pharma's board office, refused to disclose specific details but said that Shanghai Pharma was in discussions with other companies in Israel and was exploring future investment opportunities there.

Other areas of cooperation between the two countries that are slated to increase in the coming years include clean energy and water technology, telecommunications, medicine and biotechnology, and technological incubators.

During Bennett's recent visit, for example, Israel announced its intention to work with the Shanghai Water Authority to promote desalination technology and clean water supplies, which will allow Israeli companies to help China improve its water quality.

Differing cultures

Cultivating economic ties between countries with such different approaches to investment may provide some challenges, officials acknowledged.

In a report in Ha'aretz, Bennett argued that one area where Israel would have to adjust in its dealings with China was over the proper role of government. "In China, as opposed to other countries, the government is very involved in trade and that's what they expect from the other party," he wrote in a statement during his visit.

In the past, Israeli companies have rejected offers by Chinese investors over concerns that they would lose control over their intellectual property, but this appears to be changing.

Bennett acknowledged that there have been some concerns among Israeli companies and officials over intellectual property rights, an area where many countries remain critical of China, although he expressed confidence that the issue was not insurmountable.

"There was no small number of cases in the past where our intellectual property was used inappropriately, but the Chinese are very aware of the problem and are trying to limit it," Bennett said.

To address concerns about intellectual property infringement, China has established 41 national patent technology exhibition and exchange centers and 75 intellectual property aid centers, said Tian Lipu, the commissioner of China's State Intellectual Property Office (SIPO), in a May 8 report on domestic news portal chinanews.com.

He noted that the SIPO handled over 9,000 intellectual property cases in 2012, a surge of 200 percent year-on-year, the report said.

Changing geopolitics

Experts in China pointed out that changing geopolitical circumstances have also created an opportunity for China to play a larger economic and political role in the Middle East. Yang Mian, professor of the International Relations Academy at the Communication University of China, told the Global Times on July 11 that it is was sensible for China to strengthen economic ties with Israel given the complementary competitive trade advantages and Israel's strategic geographic position, especially in terms of access to energy supplies and routes, which have become increasingly important during the global recession.

Difficulties faced by Western countries, particularly the US, have also opened the door for China to invigorate its efforts in the Middle East.

"With the gradual waning of Western influence in the Middle East, a vacuum is emerging and China is getting progressively more involved as a mediator in regional issues," Yang said.

Whether China's warming economic relations with Israel indicate a desire to become more active in diplomatic issues such as the Middle East peace process remains unclear.

On his recent visit, Bennett was adamant that during his meetings with Chinese officials, both sides maintained a laser-like focus on economic and trade issues.

On the other hand, during Prime Minister Netanyahu's visit to China in May, Premier Li Keqiang expressed his desire to explore bilateral cooperation with Israel on matters of Middle East peace and security, including "the question of Palestine, and the Middle East peace process," according to a report in the Jerusalem Post.