China, the world’s most populous country and second-largest economy, is still a “relatively minor player” in the Israeli economy, focusing almost exclusively on strategic investments, a new report by IVC Research Center shows.
Chinese direct investments, mergers and acquisitions, and buyout activity make up at most 5 percent of the total activity in Israel, IVC said. And while the percentages and dollar amounts have risen from 2013 levels, they have changed little over the past few years, ranging around $500 to $600 million in 2015-2017, and averaging some 12% of the total capital raised by all Israeli startups in the corresponding years, the report said.
Chinese investment in Israeli high-tech companies in 2017 totaled $596 million in 43 deals in 2017, compared with $543 million in 42 deals in 2016, and compared with $232 million in 26 deals in 2013, the data show.
Some 34 Chinese entities were invested in Israeli companies as of end 2017, according to IVC, up from 18 in 2013.
The total amount of funds raised by Israeli VC funds with participation of Chinese investors surged to $1.31 billion in 2014 from almost nothing in 2013, but dropped to $617 million in 2015 and totaled $360 million in 2017.
“The Chinese market represents a huge potential for Israel’s high-tech sector and specifically startup companies,” the report said. “However, this market is extremely complex for Israeli high-tech companies, far more familiar with the US and European markets, where they face far fewer cultural and language barriers and more familiar business practices.”
The key question, the report said, is if this trend is set to change.
In November, 10 Israeli startups were chosen to take part in a first-of-its-kind accelerator program in Beijing. They were chosen from 100 applicants based on their chances of entering the Chinese market. The accelerator was established by Israel’s Economy Ministry and ShengJing Group, one of China’s largest management consulting and private equity firms.
“This represents a small but significant change that could start a trend, which could have long-term impact on the China Israel high-tech equation,” the report said.
Alibaba founder and chairman Jack Ma is reportedly visiting Israel in May to meet with local venture capital funds and startups, the Calcalist website reported in January. The Chinese e-commerce giant has finalized a deal to buy Israeli startup Visualead Ltd., and has announced plans to set up an office in Tel Aviv as part of a $15 billion global R&D program.
Alibaba has also invested in other Israeli startups over the past two years that focus on strategic technologies for Alibaba, IVC said, and two years ago the Chinese giant in Israeli VC JVP’s $160 million seventh fund.
“No exact amount was given at the time, but it was thought to be around $20 million,” the IVC report said.
Even so, in the field of M&A and buyouts of Israeli tech firms, Chinese players have taken a “backseat position” to US, European and even Japanese firms, the report said. The only exception was in 2016, when a consortium including China’s Giant Investment (HK) Ltd. paid $4.4 billion for the Israeli gaming firm Playtika, which accounted for 44% of all M&A activity that year, IVC said. In 2015 the percentage of Chinese activity accounted for 8% of all M&A deals in Israel, while in 2017 the figure dropped to 1.1%, the IVC data shows.
“Even if the huge Mobileye-Intel deal is excluded from 2017’s record tally, the percentage would only rise to 3.5% and three M&A deals done by Chinese,” IVC said.