The last five years have brought a wave of Chinese investors to Israel, including flagship technology companies like Alibaba, Baidu and Kuang-Chi. Whereas in 2013 only a handful of Chinese companies were active domestically, in 2018 more than fifty Chinese companies participated in financing local technology companies.
The surge in corporate activity is now yielding a new Chinese presence in Israel: investment promotion offices representing cities and provinces across China. More than a dozen of these offices are now actively supporting commercial activities between their localities and Israel, attracting new sources of Chinese capital and assisting Israeli companies in establishing operations in China.
Consider Dongguan. Located in China’s southern province of Guangdong – adjacent to Hong Kong, Shenzhen and Guangzhou—Dongguan is the world’s largest IT manufacturing hub and one of China’s largest trade ports. For decades, the city was famous in China as the emptiest city during holiday season – with more than 70% of the population comprising migrant factory workers, Dongguan would become a ghost town as the workers went home for Lunar New Year.
In 2018, Dongguan opened an office in Israel to promote trade and investment. That office is the direct result of a series of government policies with direct implication for Israeli businesses. In 2017, the Guangdong provincial government announced plans to develop a “Chinese Silicon Valley,” creating a hi-tech economy that will drive economic growth in a region (“Greater Bay”) the national government has committed to building into the world’s largest economic zone. Due to its central location, transportation networks, manufacturing legacy and sound governance, Dongguan was selected to be the linchpin for this new technology industry. In response, the city government is devoting millions of dollars to incentivize technology companies to relocate. Within China, these policies have led technology leaders like Huawei, Oppo and Kuang-Chi to set up new R&D headquarters in Dongguan. Globally, the government has established a network of investment promotion offices, including in Israel in January 2018.
Alongside Dongguan, Israel is home to representative offices from a cross section of Chinese cities. The largest Chinese cities—Beijing, Shanghai, Guangzhou and Hong Kong—are joined by cities unfamiliar to many Israelis— such as Qingdao, Zhuhai, and Xiamen. Although each municipal trade office varies in the services they offer, their importance for Israelis—especially companies seeking to enter China—is clear.
First, the opening of these offices over the last eighteen months is an encouraging sign of a maturing commercial relationship. Major US states, Canadian provinces and European cities all operate commercial representative offices in Israel. Like their Chinese counterparts, these government offices were established following private sector led growth in trade and investment. In China, where state and regional authorities provide support and oversight of local businesses, the establishment of foreign representative offices is akin to an endorsement of such activity. Moreover, government trade offices are a long-term commitment: public institutions operate on longer time-horizons than the private sector, and by opening an office overseas, the government is advertising that it is pursuing a long-term commercial relationship. As Dr. Ari Varon, founder of government relations firm 3Cubed explains, “Foreign companies operating in China need good working relationships with local governments at many levels, and government trade offices help legitimize and smooth a foreigner’s market entry.” For Israel, this is especially important given that the commercial relationship between China and Israel is at a relatively early stage. The new Chinese investment promotion offices are hence a natural and necessary resource for continued commercial activity.
Second, these offices provide Israeli companies with a literal blueprint to map out a successful business strategy in China. To avoid China’s complex cultural pitfalls, every company needs a soft landing, an entry point they can leverage to expand across the broader China marketplace. As Dorian Barak has written in this forum, a physical presence, in cooperation with a local government, is among the most effective ways to penetrate the local market. The Chinese trade offices in Israel provide that soft landing, securing Israeli companies Chinese public and private sector protekzia before they even arrive in-country.
The importance of leveraging both public and private sector ties in China cannot be understated. Given that Chinese companies often take their cue, if not their financing, from local authorities, every international company needs a government relations strategy in China—as tech giants like Google and Apple have learned at significant cost. The Chinese trade offices in Israel allow Israeli companies to develop these ties. In doing so, they can mine resources and knowledge to enable a China strategy that is aligned with local interests, industries and most important, customers.