Building the next generation of leaders in Israel-Asia relations

China and Israel celebrate two decades of diplomatic relations this year, and market access is easier than ever.

The early generation of Israeli business pioneers in China described their experience as “using a chopstick to knock a hole in the Great Wall.”

While actually doing that would surely terminate any business you have in China, it is a fairly accurate depiction of the difficulty of tapping into the market.

China and Israel are celebrating 20 years of diplomatic relations this year, and now market access is much easier. These new opportunities have fostered tough competition. Yet, after three decades of development of labor-intensive industry in the coastal regions, a new call from the government has been announced.

According to Beijing’s latest “Foreign Investment Catalogue,” the message is clear: the Wall is down. It’s time to bring smart and green ideas to China and to look for new opportunities.

China’s official economic planning department, the National Development and Reform Commission (NDRC), publishes a Foreign Investment Catalogue every few years. It provides a guideline for foreign investment and market openness strategies by putting investment in three baskets: encouraged, allowed and restricted. Introduced by the NDRC and the Ministry of Commerce in 1995, the Foreign Investment Catalogue has been revised four times. On December 31, the NDRC published its latest version, replacing the one published in 2007.

The update revolves around three concepts. First is furthering openness and transparency for foreign investors. Second is restructuring the direction of foreign investment by targeting highend manufacturing, new energy, agriculture and advanced service industry. The third is encouraging investment in Central and Western China.

What does the update mean for the “start-up nation”? First, Israeli companies enjoy global strength in both hi-tech and clean-tech, which overlaps beautifully with China’s focus on clean-tech. The sky-rocketing acceleration of clean-tech investment in China reached a historical high in 2011. Financing for China’s clean energy industry for 2011 was already up 124.95 percent from 2010’s total by November 2011.

The Climate Group estimates that clean energy investment in China totals $1.399 billion, covering 51 deals with an average of about $27.43 million per deal. While the money is pouring in, the substance of investment is changing. The emphasis in clean-tech investment in China has shifted from wind and solar energy to energy efficiency, pollution inspection and management technologies.

Major Chinese investors have begun to take note of this trend. One executive from Legend Capital – the venture capital arm of Legend Holdings, which also owns Lenovo – commented at a conference last year that solar and wind power industries remain difficult to profit from. He then announced a new direction for the fund: After recently raising about $1b., Legend Capital would allocate a significant portion of its portfolio to clean-tech, with a focus on next-generation battery technology.

On the other hand, as preferential policies for foreign investment in the South and more developed parts of China have been replaced, the frontier of regulatory support is moving to Central and Western China to balance development. In this process, foreign investment should assist the region’s technology upgrading and industrial restructuring. This is another chance for Israeli companies, especially those left out during the first decade of the China boom. One city to highlight for Israeli investment is Chengdu, the capital of Sichuan province.

Mostly known by Israeli backpackers as “the land of Pandas,” it also is the economic powerhouse of Western China and boasts a tenfold increase in foreign investment over the past decade. Its friendly attitude toward Israeli business started on May 16, 2008, when only four days after the devastating earthquake, diplomats from the Israeli Embassy visited the epicenter and made one of the first donations to the area. Local gratitude translates into a warm welcome and low entrance barriers for Israeli business. Israeli Ambassador Amos Nadai is an honorary citizen of Chengdu, and the city hosts the Chengdu-Israel Forum, one of the first of its kind in China. This close relationship is morphing into a lasting marriage for business and government from both sides.

Unfortunately, understanding the Chinese market remains daunting for Israelis. Protection of intellectual property is a huge concern, although the situation is improving. Mismatching and misunderstanding of investment objective also poses an obstacle in partnership building. The cultural difference and the lack of knowledge of each other form an impediment to successful business relations.

To most Chinese, Tel Aviv sounds like an Eastern European country, while Israeli chutzpah is troublesome in a Confucian society where patience, tolerance and humility are key. It is not hard to imagine how for most Israelis, surviving the torturing and humiliating process of getting through layers of bureaucracy in China can be difficult and slow. Longterm relationship-building should be on the agenda of both countries.

It is possible to bring the “green menorah” over the Great Wall to the inner heart of the Middle Kingdom. Israeli technologies have the potential to capitalize hugely from China’s latest movement. It will require some time, and some patience. Let’s keep the oil burning.

The writer is a fellow in the Israel Asia Leaders Fellowship at the Israel-Asia Center. He is studying environmental economics and green energy policy at Tel Aviv University as part of his master’s degree program at Yale University, and is developing a platform to promote Israel-China cooperation in clean-tech investment. He can be reached at howe.wang@yale.edu.