International Relations: The panda in the room

The stringy zig-zag stripes of the newly-built birdcage stadium, one of seven built in Beijing for the 2008 Summer Olympic Games, would have been stunning without all that smog in the way. The sooty air, darkened from the exhaust of 3.3 million cars and booming industrial production, led some nervous athletes to wear masks when they arrived in the Chinese capital for the competition. In the weeks leading up to the event, China spent $17.58 billion to reduce air pollution, ordering cars off the streets, shuttering factories as far as 100 kilometers away and demanding 30 percent emissions cuts in its factories.

With economic growth projected at upwards of 7% this year and 5% to 6% for the next decade, there will only be more factories, more manufacturing and more cars spewing exhaust into the air. Not only must the country find ways to control its pollution – a national health hazard by any standard – but it must also find ways to accommodate its urbanizing population and shift its industry toward higherwage jobs, which is no small challenge.

But with challenges come opportunities, and Israeli business is chomping at the bit to cash in.

On the green front, China is increasingly looking to Israel as a source of alternative, clean technology, a growing area in the bilateral business relationship.

“Israel is not an energy supplier, even with all its gas. Our neighbors are,” says Amos Yudan, chairman of the Israel-China and Hong Kong chamber of commerce and CEO of Comodan, a company that promotes Sino-Israeli business. “The Chinese see Israel as a center of technological development, and they are very interested in everything having to do with energy and energy savings.”

In November, Chinese firm Suntech Solar sent executives to meet with Israeli solar companies in Israel and began testing new solar panels in the Arava Desert alongside Israeli investment firm Capital Nature. A few weeks later, China’s HuaXiang Group made a $2.5 million investment in 3G Solar, a Jerusalem-based start-up that develops dye-based photovoltaic cells. China Development Bank, one of the top 50 banks in the world, is seeking to finance solar energy projects in Israel.

“Israeli innovation positions it as the natural partner for China,” Alex Pevzner, the director of China affairs at The Israel Project, recently wrote in The Jerusalem Post. “Less than 10% of China’s land is arable and China is suffering from ever more severe droughts.”

Over the next decade, it is expected to spend $850b. to clean up its water supplies. That’s good news not only for Israel’s clean water technology companies but also for its agricultural companies, which have been built on efficient use of limited resources in the desert.

But thinking that Israel has the environmental solution for China may be a mistake. The clean technology game is more of a two-way street than most people realize.

According to Bloomberg, China’s clean technology investment in 2012 rose 20% to $68b., making it the world leader in green investment. (Its investment was over half the United States, which came in second).

With the mind-boggling levels of investment and its centralized ability to direct resources, China is also a technology incubator. In 2012, China was No. 1 in the world for new patents, and it may even best Israel at its own game.

“With all due respect to Better Place in Israel, China is the world leader in developing electric cars,” says Tzahi Kanza, co-CEO of the Tel Aviv-based China Alliance Institute, referring to the Israeli electric car company.

Kanza notes that five million cars are sold annually in Beijing alone. Because of the high demand, most people wanting to buy a car have to wait three to five years to get a license. Getting an electric vehicle moves you to the front of the line.

That makes sense, given the country’s energy needs. From 2008 to 2035, the Argonne National Library projects China’s transportation energy consumption will grow 310%.

“Despite this whole idea that we’re making big strides in the electric cars, the serious innovations will be in China,” Kanza predicts.

In the Middle East, of course, politics can sometimes get in the way of business.

“China is buying huge amounts of energy from Iran, including gas, so Israel’s new natural gas is a political matter,” says Yudan.

With China increasingly dependent on the Middle East for its oil, that may not be surprising. The International Energy Agency estimates that some 90% of the region’s oil will be devoted to fueling Asia by 2035. Israeli companies looking to China for investment in the Tamar gas field, Yudan says, have not received any response despite its vast potential.

Yet talks between a Chinese bank and Yarok Energy to build a $25m. wind farm on the Golan Heights demonstrate an ability to put political differences aside.

Indeed, the face of Israel’s business relationship with the super-power in waiting is changing in unexpected and dramatic ways.

For the last two decades, incomes have been rising in China, a fact that has two important implications. For one, labor is no longer dirt cheap, so the kinds of production in China are changing. High incomes also mean more consumers who want to spend money on a higher standard of living. “There’s a huge amount of urbanization. Between 200 [million] to 300 million people will move to cities in the coming years,” Kanza says. That’s the equivalent of the entire US population.

“They’ve understood they can no longer just be exporters, so they’re trying to aid imports and bring in technology for manufacturing,” he says.

Aside from buying chemicals like potash, used in fertilizer, and bromine, used in manufacturing, from Israel, China also buys huge amounts of electric equipment high-tech supply. A third of Israel’s 2012 exports to China came from Intel alone, and they are hungry to import technologies to further their development.

China’s development also means its exports to Israel are changing. No longer simply a powerhouse of cheap labor for basic products, China is now supplying Israel with products such as medical supplies and infrastructure. China is on board to build the railway line between Tel Aviv and Eilat, and will also help with the Tel Aviv light rail.

“They used to talk about importing schmattes [shabby garments] from China,” says Yudan, who predicts an influx of Chinese cars in the Israeli market in the future. “But now they are selling Chinese-branded smart phones in Israel.” •