China investment in Israeli companies rises

When Israel held its biggest agricultural technology conference, Agrivest, last month, one in 10 of the delegates who travelled to the central city of Rehovot to attend came from China.

A few weeks before, a large delegation from Alibaba, the Chinese e-commerce giant, had been in Tel Aviv to attend Cybertech, Israel's main conference on cyber security, an area in which the security-conscious Jewish state excels. Alibaba in January invested an undisclosed sum in Visualead, an Israeli company specialising in QR code technology.

Chinese companies are pushing deeper and further into Israel than ever before, and Israeli companies and government officials are returning the embrace. "There seems to be a kosher stamp from the government on both sides to let these trade relations blossom and bloom," says Jon Medved, founder and chief executive of OurCrowd, the Israeli crowdfunding company.

A decade ago, Chinese overseas investment was primarily focused on securing supplies of natural resources in places such as Africa and Latin America, and was driven by state-owned energy and mining companies.

Now the huge surge of outbound investment is increasingly targeting brands and technology that China lacks in its home market, with private as well as state companies ponying up cash. China's outbound investment is expected to exceed incoming foreign investment, which totalled about $128bn in 2014, for the first time this year.

"The interest stems from a clear strategic objective of China, and that is to become a power not only in copying and doing what others do - but more cheaply - but in coming on to the list of investors itself," says Oded Eran, who runs the China forum at Tel Aviv's Institute of National Security Studies.

China's Bright Food recently won official approval from its own government to buy control of Tnuva, Israel's biggest dairy company, from the private equity firm Apax Partners in a deal that values the target at $2bn.

The Chinese are eating more cheese than ever before. However, the company has said it was investing in Tnuva because "Israel is well known for its agriculture and the quality of its agricultural management".

The deal was the biggest Chinese buyout of an Israeli company since 2011, when China National Chemical Corporation bought Adama, the pesticides and crop protection company then known as Makhteshim Agan, for $2.4bn.

Chinese money has arrived in Israel only recently, and so far it has run into relatively little political backlash, even on critical infrastructure projects such as the new 3.3bn shekel port being built in the Mediterranean city of Ashdod, by contractor China Harbor.

The Chinese experience in Israel stands in contrast with the US, where the officials blocked a Chinese investment in wind farms in 2012 and more recently raised concerns that the Chinese government is linked to hacking attacks on US defence contractors.

In fact, Benjamin Netanyahu - who is set to take the helm of a new government in a few days - has been actively pursuing a policy of pivoting trade relations away from Europe, still Israel's biggest commercial partner by far, and toward emerging markets.

The goal is both pragmatic, as Israel does relatively little trade with the Brics, and political. some European countries have been sharply critical of what they see as Israeli intransigence in the unresolved conflict with the Palestinians, and Israeli officials fear political repercussions.

"Sometimes you say 'the state of Israel' in other regions of the world, and there are other things that come up in their minds," says Ophir Gore, Israel's trade attache in Beijing. "When you say 'Israel' in China they think innovation, they think high technology - so in that aspect, my job here is pretty easy."

Israel's trade turnover with China reached $11bn last year, about double the amount recorded in 2010. However, China still accounts for less than 10 per cent of overall Israeli trade compared, while a third goes to Europe, and a quarter to North America

Israel's economy ministry says that, in addition to the big deals like Agana and Tnuva, Chinese investment is going into smaller companies, notably in technology, agrotechnology and water management.

Baidu, China's largest search engine, has put $3m into Pixellot, an Israeli video capture start-up, and it provided funds to Carmel Ventures, an Israeli venture capital firm, last year.

In November Shouguang, on China's coastal plain, launched a "Water City" project meant to showcase Israeli innovations for water reuse and desalination. The first contracts are expected to be signed by the end of this year, and should be operational by 2017.

China, with its billion-plus population, can in turn serve Israel as both consumer market and commercial partner. "We are great inventors and brilliant at developing things," says Todd Dollinger of Trendlines, a technology investment company that organised Agrivest. But our production capabilities are nowhere near the ability of China, and we are very far from major markets - we are effectively an island, and we do best when we partner."

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