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To boost trade with China look at Germany

Israel can sharply increase commerce in the vast Chinese market and it has the perfect role model to follow
Chinese President Xi Jinping with Prime Minister Benjamin Netanyahu at Beijing's Great Hall of the People in May 2013. (Avi Ohayon/GPO/Flash90)
Chinese President Xi Jinping with Prime Minister Benjamin Netanyahu at Beijing's Great Hall of the People in May 2013. (Avi Ohayon/GPO/Flash90)

Last weekend Chinese Prime Minister Li Keqiang visited Germany for the first time since he came into office. It will further strengthen the bilateral political and economic ties between the two countries. Trade was at the top of the agenda during Ms. Merkel and Mr. Li’s meeting. Prime Minister Li referred to the Sino-Germany relationship as “The Dream Team.” This reminded me of what Israeli Prime Minister Benjamin Netanyahu said during his visit to China three weeks ago, when he said in Beijing that Israel can be China’s perfect partner. Indeed, there are many similarities between Israel and Germany in relation to China, and Israel can learn a lot from Germany’s economic relations with China.

China-Germany trade has increased tremendously over the past few decades. with China becoming Germany’s fastest growing export market and biggest non-EU export market after the US. Germany has also become China’s biggest source of imports and trading partners in Europe. And China is the top foreign investment destination for German companies. The total volume of trade between the two countries reached US$161 billion last year, while Israel-China trade volume was around $8 billion.

Obviously, China needs technology and Germany needs markets and are developing a “technology for market” partnership. Structural synthesis and complementarity are the key for this special relationship. Germany is an attractive partner to China not only because of its cutting-edge technology, high-quality products and the shared strategic perspective, but also because of increased German dependence on China. In this regard, Israel has a strong resemblance to Germany. Israel and China are also highly complementary technologically and economically. China craves Israel’s expertise in science and technology, while the Israeli business sector is very interested in the Chinese market. China is a huge market for German luxury cars and state-of-the-art machinery and other high-quality products. German exports to China increased 22 per cent last year, with booming sales of cars, machine tools, chemicals and electronic products.

According to the German Chamber of Commerce in China, the number of German companies in China has increased significantly in recent years, and it is now estimated at over five thousand with more than two-hundred thousand employees, and the number of smaller German companies to have set up operations in China has increased dramatically. German companies are attracted by the vast potential of the Chinese market. More than 80 percent of German companies achieved or even exceeded their China business targets. More than 90 percent of German operations in China plan an expansion of their business activities. Many of them consider expanding Research and Development (R&D) in China, and most German businesses in China adapt their products and services to better meet specific Chinese customer requirements.

As for Israel, with its innovative and technological expertise the “Start-Up Nation” can take good advantage of China’s huge market, versatile manufacturing capabilities and diligent workforce. The number of Israeli companies operating in China is no more than a thousand, though Israel is especially strong in areas which China really admires: medicine, food processing, agriculture, water treatment, and clean technology. Israeli higher education and tourism are also very attractive to Chinese people. But more direct flights are needed to meet the demand: there are only two direct flights from China to Israel, whereas there are over 20 direct flights between Germany and China.

Israeli companies are highly regarded for their sophisticated technology and quality giving Israeli high-tech companies a strong competitive edge in the China market, but they need to adapt their products or services to the Chinese market. They would be better off setting up their own companies instead of joint-ventures because Chinese customers have a complicated view of local enterprises in the wake of quality scandals regarding JV companies. For instance, Germany’s BMW and Siemens have recently had products problems with their joint-venture. The German WFOE (Wholly Foreign Owned Enterprise) companies expanded much faster than German JV companies. Let’s look at an Israeli example: Israel Corp. established a 50-50 automobile JV company, Qoros, with Chinese car-maker Chery, in 2007. The JV intends to develop Western-standard vehicles for China’s domestic market as well as for export. But it has been growing very slowly. Very few people know Qoros, even though they are technologically superior.

Foreign chambers of commerce can play an important role for overseas market development. The German Chamber of Commerce in China is a representative body for German companies running in China, with over two-thousand members, and is one of the largest foreign chambers in China. It has lots of influence in China, and it has helped lots of German companies and organizations to develop Chinese markets. In contrast, the Israeli chamber could be doing far more for Israeli companies.

Another thing Israel can learn from Germany is the bilateral multi-field exchanges which assist business relations. The German central government and provincial governments have sent a large number of officials, business representatives, scientists and artists to China and attracted lots of attention from Chinese business and political circles, and also invited many counterparts to visit Germany. These exchanges have deepened mutual understanding and interests significantly, so as to boost bilateral economic cooperation. Israel can also carry out these exchanges to bring about more business opportunities for Israeli companies. Israel can attract more Chinese high-tech companies to set up R&D centers in Israel by investing in Israel.

China-Israel relations are currently the best they have been in recent decades, especially following Israeli Prime Minister Benjamin Netanyahu’s visit in Shanghai and Beijing three weeks ago. His delegation was composed mainly of economic officials and exceptional entrepreneurs, and in Shanghai Netanyahu said, “I came to open doors for Israeli companies. We’re interested in a small piece of a giant market.,” adding, in his Beijing speech that, “Israel can be a small perfect partner of China.”

It’s not difficult for the Israeli government to develop more far-reaching and deeper cooperation relations with China. It’s easy to open a gate for this perfect partnership. It just needs a felicitous opportunity and an effective model, and Israel has the advantage of being able to learn from Germany’s experience. I believe that the bilateral trade volume will hit a new high very shortly, and the business relationship will bolster mutual exchange and interaction, so as to strengthen the two country’s ties.

About the Author
The author is the founder of Israel Plan Organization, the NPO organization supporting and promoting Israel in China. He lived in Israel for two years, and studied MBA at IDC Herzliya.