Since trade ties between China and Israel began in the 1990s, many companies have tried to break into the Chinese market. Israeli agricultural companies have been prominent in their activity in China, which suffers from a severe water shortage and a problem of desert creep. The Israeli dairy industry also has a presence in China, which is trying to accustom its huge population to the need for dairy products and to develop modern dairy farming and dairies. Israeli agrotechnologies have grabbed center stage in developing the sector in China over the past 15 years, but from a business standpoint Israeli firms have encountered difficulties, and have found it hard to overcome the "mental gap" between Chinese and Western business cultures. Exporters note that Israeli companies lack knowledge about the Chinese market, a fact that is delaying the development of exports. Israel has a growing trade gap with China as part of a world trend, since China's economy is based mainly on exports. In 2005, bilateral trade totaled more than a billion dollars, and according to data from the Israel Export and International Cooperation Institute (IEICI) Israeli exports to China fell that year. However, in the first half of 2006 there was a 22% increase in exports. In the past year, telecommunications companies have been the main stars in China, Israeli firms among them. For the first nine months of 2006, Israeli telecommunication exports to China totaled $70 million, a 119% rise over the corresponding period in 2005. China is currently the Israeli telecommunications sector's sixth largest trading partner, and exports to that country constitute 3% of all exports from the sector. The scope of trade is expected to increase further still in 2007, since the market in China is constantly growing, and currently has the largest number of cellular users in the world. Exports to China face defense hurdle Despite the fact that trade relations with China have become stronger in recent years, the Israeli economy faces a serious obstacle in exporting to China: All defense exports, or exports related even indirectly to Israel's defense industries, encounter difficulties due to US opposition. In recent years, two large deals, in which Israel undertook to provide China with defense technologies, were canceled due to American pressure. Cancellation of the Phalcon aircraft sale caused a severe crisis between Israel and China, and even led to the threat of a Chinese claim against Israel for failing to honor agreements. In 2005, another deal was canceled, in the context of which Chinese mini-UAVs (unmanned aerial vehicles) were supposed to be upgraded in Israel. Since then, supervision of defense exports to China has been increased, a fact that has caused a decline in the overall scope of exports. Meanwhile, China's relations with Arab states and with Iran are becoming closer, and US sources assess that China is providing a large portion of the Iranian weapons consumption. Last summer, it was reported in Israel that the missile that Hizbullah fired at the Israeli Navy missile boat during the Second Lebanon War was a Chinese-made missile that had been sent to Hizbullah through Iran. China denied those reports. Alongside its ties with the Muslim world and its large dependency on Iranian oil, China is trying to take a bigger part in diplomatic contacts in the Middle East as part of its efforts to become a significant political factor on the global stage. Chinese representatives are participating in the multinational force in Lebanon and in Gaza, and in early 2006 China appointed a special Middle East envoy, who has also visited Israel. Due to the defense hurdles, Israeli exports to China are currently concentrated in civilian technologies, and the Ministries of Foreign Affairs and Industry, Trade and Labor are attempting to encourage mainly small and medium exporters. In November, Accountant General Yaron Zelekha signed an agreement with Digital China, a large information company in China, according to which the company will serve as a "national agent" for Israeli companies in China. Two-thirds of the costs of the agreement with Digital China are being financed by the state, in an effort to encourage mainly small and medium companies to enter the Chinese market. The IEICI has three representative centers in China, in Beijing, Shanghai and Shenzhen. The trade promotion organization works through a private company that is supposed to represent Israeli interests, something that is eliciting criticism among some exporters, who claim the state is not doing enough to encourage exports. In November, a high-level delegation of Chinese business leaders visited Israel in order to examine Israeli technologies in the areas of information technology (IT), telecom, agriculture, the environment and more. In the context of the visit, four agreements were signed worth tens of millions of dollars. Additional agreements are expected to be signed during the prime minister's visit to Beijing this week. Olmert headed a delegation to China two years ago when he served as industry and trade minister in the Sharon government, and reports in China emphasize the "Chinese connection" of the prime minister, whose family was part of the community of Jews from Eastern Europe that settled in China in the early 20th century. Olmert's grandfather is even buried in the northern China city of Harbin. Although personal ties of this kind do not influence political or economic decisions, they do lend the prime minister's delegation a certain advantage, and help in the continued development of trade between the two countries.