Where do Israeli businesses stand amid the escalating trade war?

Israeli exports to Asia have soared in recent years, with China now representing Israel's second largest export market after the United States.

By
June 18, 2019 17:53
3 minute read.
Where do Israeli businesses stand amid the escalating trade war?

A worker walks in a shipping container area at the Port of Shanghai April 10, 2012.. (photo credit: ALY SONG/REUTERS)

 
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As simmering trade tensions between the United States and China show few signs of relenting, Israeli exporters and businesses remain uncertain regarding the impact of the lengthy dispute on their activities with Israel's two leading trade partners.


Israeli exports to Asia have soared in recent years, with China now representing Israel's second largest export market after the United States. China is today the destination for approximately 50% of all Israeli exports to Asia, compared to just 16.3% as recently as 2007. 
In the other direction, approximately 20% of all foreign investments in Israel originate from China, boosted by annual meetings of the Israel-China Joint Committee on Innovation Cooperation (JCIC) and 30 weekly flights between Israel, mainland China and Hong Kong. In November, Israeli and Chinese negotiating teams will convene for a further round of talks on finalizing a free trade agreement, under discussion since 2016. 


With China estimated to overtake the United States as the world's largest economy by 2028 and overseas investment reaching almost $130 billion last year, Beijing and China's vast provinces represent a lucrative opportunity for global businesses. 


Israeli companies, however, have remained cautious regarding how they should develop strategies toward the two huge markets offered by the jousting superpowers.


Speaking at a Tel Aviv conference on Chinese investment trends in Israel on Tuesday, New York University law and business professor Dr. Efraim Chalamish said that Israeli and global traders have not been significantly affected by the trade war.


The conference, organized by Erdinast, Ben Nathan, Toledano & Co. law firm and the Israel-Asia Chamber of Commerce, was attended by Israeli businessmen and exporters from a range of industries. 


"The impact of the US-China trade war has been limited on the trade side, but that may change if the tariffs are significantly higher," Chalamish told The Jerusalem Post. 


"US-China investment restrictions and review, on the other hand, may limit fundraising opportunities and the ability of Israeli tech companies to execute mergers in the US market."


Chalamish also highlighted the steep drop in Chinese investments in the United States due to the trade war, that could present opportunities for Israeli and other foreign companies. 


According to the Rhodium Group, Chinese investments in the United States declined to $4.8b. in 2018, down 84% from $29b. in 2017 and 90% from $46b. in 2016. 


The "investment wars" caused by the trade dispute, Chalamish said, means that large sums of money are left on the table and are likely to find their way to a new destination. Despite American disapproval in some cases, Israeli businesses, infrastructure and venture capital funds represent potential beneficiaries of the redirected funds. 


The question remains, however, whether Israeli businesses are capable of satisfying both potential American and Chinese investors, and both countries' governments, at the same time. 


The long-running dispute over a deal to allow Chinese government-controlled Shanghai International Port Group (SIPG) manage Haifa Port - a frequent dock for the US Sixth Fleet - from 2021 is just one example of the impact of the trade war on Israeli businesses. A bill was introduced to the US Senate last week citing "serious security concerns" over the deal.


"In sensitive and strategic sectors, Israeli companies will not be able to operate in China and the US in the same way," said Chalamish. "The Israeli government should help guide the private sector and also better communicate with it regarding Israeli restrictions on Chinese investments in Israel."


Lior Oren, senior partner M&A and head of East Asia Practice at Erdinast, Ben Nathan, Toledano & Co., emphasized two key strategies driving Chinese investment in recent years - the Made in China 2025 plan and the Belt and Road Initiative.


Targets for Chinese investments have narrowed significantly, Oren said, following the introduction of new restrictions on Chinese outbound investments in November 2016.


"The real interest of Chinese investors in Israel is to see how they can make strategic investments and develop the Chinese market, rather than making financial investments which are of less interest," Oren told the Post.


Chinese company Bright Food's multi-billion dollar deal in 2014 to acquire control of Israeli food manufacturer Tnuva, later criticized as an unnecessarily expensive acquisition, serves as a prime example of Chinese investors' desire for technology-focused strategic investments rather than profits, Oren said. 


"It's clear that Chinese investors are very interested in Israeli technology in general, but more specifically medical devices, automotive innovation and technology. This is all in order to advance Chinese manufacturing, so they can maintain their edge as the manufacturing capital of the world."


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