Israel and China: More than Just Sunday Night Dinner

I believe that this year is 4607 in the Chinese calender and 5757 in the Hebrew Calendar if my numbers are correct this means that for 1,150 years Jews had no where to eat on Sunday nights. Despite that old groaner, the connection between the Chinese and Jewish people goes way beyond running to Main Street on Sunday afternoon for kosher Chinese food. While many countries refused to take and protect Jews fleeing the Shaoh, China did.

Mr. Ho Fengshan, was the Chinese consul-general in Vienna, Austria from 1938 to 1940. He risked his life and career to issue hundreds of visas to Jewish refugees, which enabled them to go to Shanghai, China, to flee Nazis' rule over Austria. Yad Vashem has given Ho the title of Righteous Among the Nations from Yad Vashem for his brave efforts.

Almost seventy years later, Israel and China have become important trading partners as described in this week's Business Week;

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

by Neal Sandler

Eli Glazer moved with his family to Shanghai less than four months ago to take up a post there as general manager for Israel Chemicals, one of Israel's leading industrial concerns. In doing so, he became the latest member of a rapidly expanding Israeli business community in China's booming commercial capital.

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.

Redistributing the Resources

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 is already a major market for us and accounts for hundreds of millions of dollars in annual sales," says Glazer of Israel Chemicals. The company is one of Israel's largest exporters to China, where it sells potash and industrial chemicals and has set up five joint venture factories.

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.

Salt of the Earth

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. The company, based in Petah Tikva, Israel, entered China eight years ago through a venture with Eastern Communications Company (Eastcom), a leading Chinese manufacturer of cellular technology.

First Stop for Some Tech

But in 2006 ECI took over full control of the joint venture, which produces components for ECI products and more recently has started doing research and development work for its Israeli parent company. "Now nearly 10% of our 3,000 employees are located in China," says ECI Chief Executive Rafi Maor.

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. Security software developer Aladdin Knowledge Systems (ALDN) first tried seven years ago through a local representative. "This strategy didn't work for us and after a year or so we just dropped out of the Chinese market," says Yanki Margalit, founder and CEO of Tel Aviv-based Aladdin.

Venturing Forth

After a four-year hiatus Aladdin decided the try a new approach and opened up its own office in Hong Kong, and last year moved to Shanghai with an Israeli overseeing the operations. "Sales doubled in 2006 and we're looking for an even bigger increase this year, making China our fastest growing market," says Margalit.

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."

Filling the Flights

The joint fund has already invested $40 million in six semiconductor and communications startups and is in the process of raising a second $150 million fund. Two of the funded companies already have been sold, and there is talk of two others going public on the Shanghai and Shenzhen stock markets. "When we first started out, we were lucky to find a handful of startups," says Infinity's Gal-Or, "but nowadays the deal flow is so fantastic there just isn't enough time to meet with everyone."

Even El Al Airlines has benefited from the rapidly expanding trade ties. The Israeli national carrier doubled service this winter to both Beijing and Hong Kong to meet the growing demand for business travel between the two countries. The airline has also greatly expanded its cargo service to Shanghai.

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.