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An Economic Powerhouse and a Rising Hi-Tech Superpower – 25 Years of Diplomatic Relations Between China and Israel

This January, Israel and China marked 25 years of diplomatic relations, a move that enabled cooperation in a variety of fields, peaking in recent years with joint activity in trade, tourism, healthcare, academia and technological R&D
Prime Minister Benjamin Netanyahu and China's President Xi Jinping (R) shake hands ahead of their talks at Diaoyutai State Guesthouse in Beijing on March 21, 2017. (AFP Photo/Pool/Etienne Oliveau)
Prime Minister Benjamin Netanyahu and China's President Xi Jinping (R) shake hands ahead of their talks at Diaoyutai State Guesthouse in Beijing on March 21, 2017. (AFP Photo/Pool/Etienne Oliveau)

This January, Israel and China marked 25 years of diplomatic relations. Israel was the first Middle Eastern country to recognize the People’s Republic of China in January 1950, but formal diplomatic relations were only established in January 1992. This move enabled cooperation in a variety of fields, peaking in recent years with joint activity in trade, tourism, healthcare, academia, technological R&D and more. Nevertheless, the great economic potential has yet to be fully realized. Today, trade between the countries stands at over $11 billion, of which only $3 billion come from exports.

China is perceived by many as the world’s center of manufacturing, but it is less often considered a center of innovation. We are used to thinking of “Made in China” but vary rarely think of “Designed in China” or “Invented in China.” This may have been true in the past, but China has been working energetically to become a central player in the global innovation ecosystem.

Over the past several years, China has invested tremendous efforts in the field of innovation. This is evident in its investment in R&D as a percentage of GDP (2.1%), in research ($200 billion) and in human resources (30,000 PhDs in the sciences and in engineering), annually. This profound transformation in China from a production to an innovation powerhouse – has created an invaluable opportunity for Israeli hi-tech companies.

The Chinese government’s goal of turning the country into a global economic leader, in part by harnessing innovation to create a competitive edge in the international arena, has created a range of opportunities for Israel, itself a global innovation trailblazer. China is therefore of the utmost significance to Israeli industry and an important target market for technological exports and business cooperation in fields like cloud computing and big data, medical equipment, artificial intelligence, advanced automotive technologies, FinTech and more.

China’s unique interest in Israel is evidenced by the dozens of delegations of senior government officials and businesspeople who have visited Israel in recent years. Representatives of large companies and private investors from China often arrive in Israel in an attempt to crack “the Israeli code,” to understand the local innovation ecosystem and to implement the innovative and entrepreneurial Israeli character into their own DNA.

Likewise, China’s involvement in Israel’s economy has grown over the past five years as evidenced in major M&A activity like the purchase of controlling shares in Makhteshim Agan by ChemChina in 2011, the purchase of Alma Lasers by Fosun Pharma in 2013, the sale of Tnuva in 2014 to China’s Bright Food and the acquisition of Ahava Cosmetics by Fosun in 2016. Growing Chinese investment in Israeli hi-tech is further evidence of this phenomenon.

At the same time, the interest of Israeli companies in Asian markets, specifically the Chinese market, is growing as well. If in the past Israeli companies were primarily active in Western markets, today they look eastward to seek opportunities and expand their opportunities. This trend is not without its challenges: penetrating this giant market comes with numerous obstacles on the road to success.

The Israel Innovation Authority (formerly the Office of the Chief Scientist) has developed tools to help meet these challenges.

The Authority offers eight unique funding programs to Israeli industry, in cooperation with the Chinese Ministries of Science and Technology. These programs help Israeli companies find a potential Chinese partner in innovative R&D, and spread the risk inherent in joint projects through Israeli and Chinese government grants.

Companies with an existing product seeking to adapt it to the Chinese market can, for example, make use of a unique support program developed for the purpose of tailoring products to the Chinese economy. The program recognizes the costs involved in adaptation of functionality/language/local regulations and even specific cultural aspects, enabling a more focused penetration of this enormous market.

The China-Israel Changzhou Innovation Park (CIP) was established for companies seeking to establish a branch in China – essential for an Israeli company that wants to be active in the Chinese market. This initiative is intended to give Israeli companies a “soft landing” in the Chinese market via a Sino-Israeli governmental framework. Israeli companies can receive office space, as well as space for production and laboratory work in the national industrial park in Changzhou in the Province of Jiangsu. In addition, they can receive unique grants, and help in safeguarding intellectual property, recruiting local personnel, logistics, professional consultation, cultural bridging and more.

As ties between the countries continue to grow stronger, increased cooperation between hi-tech companies from both countries is a win-win for both sides. China’s economic might and growth make it an obvious choice for Israeli companies looking to expand their opportunities in global markets. The Israel Innovation Authority and other government entities are at the service of companies want to make such a move into the Chinese market.

About the Author
Avi Luvton is the Israel Innovation Authority’s Executive Director of Asia Pacific and Latin America and oversees the international cooperation programs with both regions. He is a graduate of Ben Gurion University and previously served as the Head of Networks Engineering at Bezeq.
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