Olmert predicted that bilateral trade would triple by 2010 to $10
billion a year. Israel-China trade totaled $3.8 billion in 2006, 27%
more than in 2005. "China is crying out for Israeli know-how and
technology, for example in water," he said. "For China, water is as
important as oil, and Israel is the leader in water desalination and
recycling technologies. The hydro-technology agreement we signed will
be the foundation for fruitful economic cooperation."
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.
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 boom.
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. Netafim has
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" according to Rami Levy, managing director of Netafim Asia
Pacific.
Recently, ÊIsrael's Global Environmental Services (GES) announced a
$5 million water purification project in Inner Mongolia. The company
also said it is discussing 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 producer 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.
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.
Entry into the Chinese market hasn't always been easy. 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.
After a four-year interruption 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.
In 2004 Infinity Venture Capital and Clal Industries and Investments
joined with Suzhou Industrial Park and China Singapore Venture
Capital and established a novel fund to invest in startup companies
whose research and development are to be in Israel and production in
China.
The joint fund has already invested $40 million in six semiconductor
and communications startups. A second $150 million fund is currently
being raised. 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.
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.
Prime Minister Ehud Olmert, during a recent visit to China, announced
the establishment of China-Israel Binational Fund for Investment in
High-Tech R&D. "The establishment of this fund, together with the
establishment of the joint committee for R&D investment is of extreme
importance. These funds will be the catalyst for deepening
cooperation," he said.