A Singular Opportunity: Israel And China Fortify Economic Ties
BEIJING — For Yair Sarussi, chairman of Israel's Bank Hapoalim, China is getting closer by the day. "You can feel the Chinese everywhere," he told Calcalist. "Almost every week I meet three or four Chinese companies interested to come to Israel."
The Chinese presence is felt mainly in Israel's high-tech sector — with investment in venture capital, or directly in companies. According to several technology-sector sources, investors from China are gradually replacing the Americans.
But relations are also developing in research and education. Universities and colleges engage in bilateral cooperation and Israeli students visit Beijing and Shanghai to familiarize themselves with China's business world.
One such recent tour in China allowed graduate students in real estate and business administration at the Netanya Academic College to have first-hand encounters with corporate leaders China. The meetings allowed a glance into Chinese business culture and a taste of the hurdles foreigners face when seeking to operate in China or when trying to convince Chinese companies to come to Israel.
But above all, this tour allowed an introduction to the country and an understanding of its immense power alongside its many weaknesses. The tour also offered a chance to understand what's behind the Chinese interest in Israeli businesses with the latest wave of acquisitions and construction contracts. Is it part of a global takeover in a bid to break out of the domestic economy, or is it an aid instrument for developing countries? Probably all answers are correct.
The infrastructure sector was the first to attract the Chinese to Israel. The China Civil Engineering Construction Corporation (CCECC) is a state-owned giant whose daughter companies register annual incomes of at least $20 billion. In Israel, CCECC was the contractor for the Carmel Tunnels, a series of road tunnels in Haifa, as well as part of the winning bid for constructing Tel Aviv's light rail.
The visit to CCECC's offices in a posh Beijing neighborhood was the highlight of the tour. CCECC is a gigantic corporation that operates in the field of trains and train infrastructure, as well as bridges and tunnels. Overall, CCECC's income is estimated at several hundreds of billions of dollars every year and it has 300,000 permanent employees. It has built most of the railways in China, including the high-speed train from Beijing to Tianjin and the one from Beijing to Shanghai.
In Israel CCECC is supposed to build the railway between Tel Aviv and Eilat, but this project has not been approved yet. So far, the Carmel Tunnels is CCECC's first and only project in the West, since it hasn't been able to penetrate into Europe.
"In the West they don't need us," says Wang Lei, a senior CCECC executive.
Wang mentioned bureaucracy and challenges from environmental organizations, as well as insufficient workforce, as hurdles in doing business in Israel. Nevertheless, he says Chinese companies adapt themselves rather quickly and easily to the legal and planning limitations in each country. "We don't have restrictions like you do," he added.
CCECC is also a key player in realizing the Chinese government's New Silk Road, a project meant to reconstruct the ancient Silk Road trading route that began during the Han dynasty (200 B.C.-200 A.C.), and delivered goods from China to Europe.
The New Silk Road will start in Xian, in central China, stretch westwards through Gansu and Xinjiang provinces, and from there to Kazakhstan, northern Iran, Iraq, Syria and Turkey. From Istanbul, the route will go through the Bosporous Strait and will then continue on to Europe via Bulgaria, Romania, the Czech Republic, Germany and Rotterdam in the Netherlands.
The Chinese plan to establish land and maritime routes along the Silk Road, with ambitions to be present across almost all of the Eurasian territory.
CCECC's first project in Dar es Salaam, Tanzania's largest city, was a relatively small project of 150,000 square meters, but it was a significant milestone for the company's strategy of competing with large western construction firms.
Yigal Karni, CEO of Israeli construction company Meggido, says that during his visit to Tanzania he found plenty of local hostility towards the Chinese. "They told me, "beware of them — they took over Africa,"" he says during the tour. "I think this hostility comes from the Chinese decision to employ low-waged local prisoners."
And indeed, labor conditions are a real concern, as the Chinese government is still struggling to understand its implications. The rapid demographic change, with a huge rise in university graduates has led to a quick saturation in white-collar professions and a severe shortage of blue-collar workers.
Many choose to work in state companies, where employment is more stable. In private companies, dismissals happen much more easily, whereas in state firms employees lose their jobs only in cases of corruption, violence, or adultery. Work disputes are solved through either companies' internal mechanism, sponsored by the employer, or a municipal arbitration mechanism.
Meanwhile, in another sign of Israel-Chinese cooperation, Israel's finance minister is planning to bring 20,000 Chinese construction workers in a bid to alleviate the country's housing crisis.
Also, the first fund China's e-commerce giant Alibaba invested in outside the country was the Israeli Jerusalem Ventures. Most of the investments in Israel's high-tech companies come from Chinese state-owned funds. Until several months ago, any Chinese company that wanted to make an overseas investment of more than $100 million was required to have a government approval. But now, bowing to pressure from the companies, the threshold has been raise to $1 billion.
And yet, the Israeli-Chinese cooperation is anything but obvious. Suspicions, sometimes mutual, as well as Israeli regulations, can be a deterrence. This is why negotiating and sealing the deal between China's international food and beverage company Bright Food and the Israeli dairy firm Tnuva took more than two years.
For the Chinese state-owned firm, coming to Israel was primarily seen as a chance to supply China with knowledge in the dairy industry — though there are also the potential future revenues from an expensive acquisition of 8.6 billion shekels ($2.24 billion for 56% of the shares).
And yet, it's a different story with private companies. Fosun is a private firm with ambitions to expand to the West. Sure, they want to bring to China insurance innovations from Portugal, the U.S. and even Israel's Phoenix. But unlike Bright Food, Fosun's motivation is getting a profitable deal and establishing a foothold in the West. Israelis who interacted with Fosun officials describe them as practical, sharp and Western-oriented.
In a good way
"The Chinese don't understand how little Israel, whose entire national population is merely one-third of the city of Shanghai, produced 12 Nobel laureates," says Israel's ambassador in Beijing Matan Vilnai. "Chinese leaders tell me — you control the world. Unlike in other places, here it's said with appreciation."
Vilnai, moreover, foresees a significant rise in Chinese tourism to Israel. "They're not scared by wars. During Operation Protective Edge, China was the only country whose numbers of tourists to Israel actually increased."
And there is of course, the trade and travel in the other direction. IronSource, ICI, Verint, Orbotech, Nilit and many more are Israeli firms who operate in China. The Israeli general consulate in Shanghai opened a business center that offers its offices to Israeli companies to help them interact with locals.
"Israelis who arrive here without patience, from a position of "we will show you how to do it better," will fail," says Inbar Grebler from the consulate's economic and commercial affairs department. "When working with the Chinese you need a lot of patience, long-term vision, and well, also deep pockets. They are suspicious and it takes time to build their trust."
Grebler notes the importance of knowing the local culture, including seeing ways that the strong government, which sometimes deters foreign investors, can also be an advantage. "Sometimes getting an approval for a project which would take years in a western country could be done in just a few days."
Gadi Ravid, dean of the business administration school at the Netanya Academic College, has been visiting China for years. "It's hard working with the Chinese," he says. "You need to learn about them, to carefully check them. There are quite a few Israeli companies that had bad experience here and won't be coming back."
But ultimately, Chinese leaders are eager to try to innovate. "The standards here are eventually not the same as in Europe," says Ravid. "In China they understand that this development will happen only if there is honesty and fairness, and this is one of the reasons they are putting such a strong emphasis on developing higher education."