Israel-China affair blooms even as culture gap weighs on rapport

Israel-China affair blooms even as culture gap weighs on rapport

The Chinese seek a long-term relationship but Israelis ‘don’t want to spend time on you,’ says Chinese entrepreneur in Israel, ruefully

Illustrative view of Shanghai. (Liron Almog/Flash90)
Illustrative view of Shanghai. (Liron Almog/Flash90)

In the past four years the romance between Israel and China has blossomed. More than 500 Chinese delegations visited Israel in 2015 and Chinese investment in Israeli companies and venture capital funds has surged to record highs.

As the world’s second-largest economy shifts its focus from being a manufacturing and labor intensive economy to becoming a high-end innovative force, Asian giants including Alibaba Group, Hutchison Water Ltd., and Huawei have set up R&D centers, invested in funds and snapped up Israeli start-ups and companies.

And more interest may be on its way, as earlier this month China’s president Xi Jinping called for his country to establish itself as one of the most innovative countries in the world by 2020. And as long as China lacks home-grown technology, the nation is out on a shopping spree.

Even so, says Edwards You Lyu — the CEO of Israel Vadi Ventures Ltd., which claims to be the first wholly Chinese-owned company established in Israel — the romance is just at the beginning, and Chinese investment in Israel is still tiny compared to what it could be once diffidence and language barriers are overcome.

Edwards You Lyu (Courtesy)
Edwards You Lyu (Courtesy)

“There are cultural differences, the way of thinking and working is different,” said You Lyu in an interview in Vadi’s offices in Tel Aviv. “Israelis are not patient, they want quick answers, they don’t want to spend time on you. The Chinese have a slow decision making process, they first want to know you and then do business with you. They are looking for a long-term relationship.”

Total capital invested in deals with some Chinese participation is expected to rise to $500 million this year compared to $118 million in 2012 and $467 million in 2014, according to data compiled by IVC Research Center, which tracks investment in Israel’s high-tech industry. IVC expects “the vast majority” of Israeli venture capital funds to have at least one Chinese investor in their financing rounds in 2016.

“We see Chinese investors operating in a number of parallel fields – via direct investments, through the setting up of research and development centers, via acquisitions or via investment in funds,” Koby Simana, the CEO of IVC, said in an interview.

Israeli companies see the Chinese companies as an opportunity to access a massive market but also as a source of funding, he said. “There is a huge interest for both sides. It is just a matter of finding the right formula” so that more investments will happen.

Israel’s Ministry of Economy and Industry will add a commercial attache to its Chinese team this summer, bringing the number to six from five, more than those allocated to the US, said Ziva Eger, chief executive of foreign investments and industrial cooperation at the ministry. “China is a target,” Eger said. “It is a country that has opened up to us in the past two years, and once you open the door to China you get an immense market.”

The ministry’s message to Chinese firms is that they must set up R&D centers in Israel, Eger said. “If they want to ‘live’ research and development then they must set up research and development centers here in Israel,” she said. “Technology gets old very quickly. They must be on the ground.”

Chinese overseas investments globally reached a historic high of $118 billion in 2015, according You Lyu, based on data compiled by the China Statistical Database. Investments have shifted from the mining, manufacturing and construction industries to healthcare, entertainment and the high tech sectors.

Israel is getting just a fraction of this investment, You Lyu said, because of the language barriers, lack of information regarding Israeli innovation trends, lack of channels to manage investments afterwards and lack of resources for due diligence. “There is a lot of enthusiasm, but when you get down to the nitty gritty there are a lot of differences,” he said.

You Lyu, a former worker in the Nanjing Municipal Government in China, in charge of China-Israel cooperation, first visited Israel as part of a delegation sent to get training in Tel Aviv University. He later enlisted for a MBA in Tel Aviv and at the end of last year set up Vadi Ventures, with the aim of helping promote joint ventures between the two countries. Vadi has a sister company operating in California’s Silicon Valley.

Vadi is holding the China-Israel High-tech Investment Forum in Tel Aviv this week in which Israeli entrepreneurs will pitch their companies to more than 100 visiting Chinese investors and firms, with a focus on mobile internet, virtual reality and artificial intelligence, medical devices, digital health and clean tech.

“We are here to help them overcome these differences,” You Lyu said. “We still have to find out how to bridge these differences. They are just getting to know each other. You just need to find the right mechanism.”

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