Israel and China: A mouse-and-elephant love affair

Selling Israel’s creativity, technology and start-up mind-set to China.

By SHLOMO MAITAL
February 13, 2016 04:13
Art by Avi Katz

Illustration by Avi Katz. (photo credit: AVI KATZ)

 
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BEIJING – I am in China’s capital city, clogged with cars, trucks, smoky air and vast numbers of people, to speak at the China Israel Technology Innovation & Investment Summit, January 4-6, a conference organized by the Israeli Economy Ministry.

The two-day conference, opened by National Infrastructure and Energy Minister Yuval Steinitz and Ambassador to China Matan Vilnai, has just ended. I am looking out my hotel window at soaring skyscrapers, new ones sprouting almost daily, and reflecting on the burgeoning mouse-and-elephant love affair between China and Israel.

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The goal of the conference was unabashedly to sell Israel – its creativity, technology and start-up mind-set – to China.

It is widely believed that Israel urgently needs a big new geopolitical friend, as the support from its main ally, the United States, and its president, has waned.

The conference attracted a large number of Chinese managers, entrepreneurs and academics, all of them curious about the Jewish people and Israel and the “secret sauce” of their perceived intelligence, creativity and skill in business I spent a lot of time at the booth of my Chinese publisher Hangzhu, spoke with several hundred Chinese, signed copies of my book “The Imagination Elevator” ( coauthored with Arie Ruttenberg) and talked about how our two countries can work together.

China has huge markets, vast sums of money and increasing global clout. Its rapid economic growth has horribly polluted its air, water and land – and Israel is a world leader in so-called clean-tech technologies that can help clean up China.

At the conference, several dozen Israeli hi-tech companies displayed their wares in punchy six-minute presentations. Prominent among them were some of the water companies, such as WaterGen, which uses Israeli technology first developed for the IDF to generate pure water out of the air, and Aquanos, which purifies waste water by technology far cheaper and better than the costly century-old, energy-hungry activated sludge method.



But China is also a rival of the US, with friction between the two powers growing, especially in the South China Sea. The US has long banned Israel from selling any type of defense technology to China and, in some cases, insists that Israeli defense industry officials not set foot in China, even as tourists − though lately, one large Israeli defense contractor has managed to do some strong civilian business in China.

The Pentagon defines China as America’s main strategic threat. Hence, Israel’s cuddling with China, without losing US support and aid, is very tricky. Every small embattled country needs all the friends it can muster – especially Israel.

How then can Israel sell itself to China? Why would China risk angering Muslim nations, and perhaps its own sizable Muslim population, which will number 30 million by 2030, by befriending Israel? What can Israel offer China? To seek some answers, I interviewed Einar Tangen, an American of mixed Korean and Norwegian descent, who has lived and worked in China for a decade.

Tangen, a lawyer and graduate of Marquette University, runs a leading architectural and interior design company in Beijing and is a respected radio and TV commentator there.

The Jerusalem Report: Einar, how do you explain China’s fascination with the Jewish people and with Israel? Tangen: “The Jewish people have a long history of involvement with China. The Jews of Harbin, a province in Northern China, most of whom came from Russia, go back many years. Jews were prominent in trading along China’s Silk Road. But, more importantly, in recent times, the Chinese perceive that Israel is a very strong country, good at defending itself, and the Chinese greatly respect such strength. The word the Chinese use for it is li hai, meaning top level, strong, ‘you can get things done.’ They respect Israel for this.”

TJR: There is global concern over China’s slowing economy. China’s stock market plunged 7 percent on the first trading day of 2016, and small-cap stocks fell even more, by 10 percent, the daily maximum.

This invoked “circuit breakers” that halted trading. The panic spread to financial markets abroad, which worry about whether China will continue to be an engine of growth and demand. What is going on? Tangen: “There are many myths about China’s economy. The laws of physics and reality mean China’s growth will slow, but it is still 5.5 to 6.5 percent annually. We should remember that China is a huge importer, not just exporter, and lately, China has been importing more than in the past, not less.

“Companies anticipated continued high growth and built excess capacity, in oil, steel and other goods. Now they are deleveraging, slowing.

“China is now dealing with the middle income trap. Its early growth was driven by low wages. But wages have risen, creating the world’s largest middle class. Now China must become more productive, more efficient, to remain competitive in world markets and retain its price advantage. This is the middle-income trap.

“Malaysia, South Africa and Brazil are examples of countries that have not gotten beyond the middle-income trap. Taiwan and Japan did get past it, but seem to be suffering from economic stagnation due to factors like age and economic displacement, e.g. their factories have gone elsewhere, leaving many people struggling with low wages and low expectations.

“China will reach a strategic inflection point in five years, in 2020. Its strategy is to seek higher efficiency, reducing its energyto- GDP ratio, and raise labor productivity.

China’s aim is to reach South Korea’s productivity level. This is ambitious. On top of this goal is innovation – creating “Invented in China” products and services.

TJR: Do you think they can pull this off? Tangen: “Did anyone believe they could grow at 8-10 percent for 30 years? No. This plan is not one they hatched overnight. They have worked on it for 10 years. China’s government works differently from those in the West. They can think and work long-term.

“China has implemented a massive anti-corruption campaign. One result has been that people are reluctant to stand out, to attract attention. This has dampened freedom of the press, and also innovation. The last thing the Chinese government wants is a thousand voices criticizing its policy. But in the future, there must be change.

“In terms of freedom of expression, China’s race to avert the middle-income trap and reform its economic and political power structure has left little tolerance for political dissent. In the future, if the government is successful in its reforms, a growing middle class will probably create pressure for reform, but not necessarily in the way we in the West expect.”

THE CHINESE government’s ability to move mountains, literally, is phenomenal, compared with many Western governments’ incompetence.

For instance, China is moving millions of people out of Beijing into more distant suburbs to mitigate terrible air pollution caused by buses and cars. As many as two million people who work in government offices will be moved to new satellite cities outside Beijing.

Some years ago, on an earlier visit to China, I visited the Capital Steel Co. in Beijing. I was told this smoky plant would be moved 150 kilometers outside Beijing, owing to pollution. And it was, in no time, including its 80,000 workers.

I’ve been teaching innovation in China for several years, as part of Technion’s initiative to establish the Guangdong Technion Israel Institute of Technology in the city of Shantou.

This city is the birthplace of billionaire Li Ka Shing, who is funding the project.

Over time, I’ve learned that we Israelis tend to be very impatient. We expect to come to China, hammer out a deal, sign a contract and head home – all in a week or two. That’s not how China works.

To sell Israel to China, first we must sell ourselves, build trust, friendship, relationships. In China, haste implies bad manners, bad intentions and bad business.

I’ve found that to get things done in China, you need to find capable people, bond with them, find a common vision, and build mutual understanding. I’ve made many wonderful friends in Shantou and find working with them to be highly fulfilling.

But there is no way I could or should have skipped that prolonged trust-building stage.

For Israel, the starting point for this “selling” process is highly auspicious. China is the only major world power that has never directly or indirectly harmed Jewish people.

Some of my close friends come from Polish Jewish families sheltered in Shanghai by the Chinese, including a top Technion professor.

He and his family would likely not have survived the Holocaust otherwise.

Culturally and psychologically, Israeli and Chinese entrepreneurs strongly complement each other. Research by Technion Prof.

Miriam Erez and her colleague Rikki Nouri, IDC Herzliya, showed that the urge to create, itself, does not differ across cultures between Israel, China, Hong Kong, etc.

However, they found that the sociocultural context of innovation and creativity does have a strong influence.

Israelis seek mainly novelty – radical breakthrough innovation in their creative projects, while Chinese seek pragmatic, useful innovations. The Israel-China combination of novelty and usefulness could prove to be a winning one.

Selling Israel to China could become actual sales or “exits” by Israeli start-ups and companies, and indeed already has with the sale of Tnuva, Makhteshim-Agan, and the pending sale of insurance company Phoenix to Chinese giants.

According to Gordon Orr, writing in consultant McKinsey’s latest monthly magazine, “China’s outbound investment will accelerate in 2016, with ‘One Belt, One Road’-related initiatives driving much of it. [China is building a hugely ambitious modern version of the ancient Silk Road, with rail and roads stretching from China to Europe, and ship and air traffic from China throughout Asia and Africa]… a growing share of the [Chinese] acquisitions will come from private-sector companies that aspire to global leadership. These companies are increasingly sophisticated buyers, conducting quality due diligence, working with traditional advisers, and focusing on countries where they think that warm political relations will make it easier to do deals.”

Conclusion: Israeli start-ups seeking Chinese support and capital will have to be on top of their game and respect Chinese perspicacity.

I deeply regret that Israel does not at present have a capable foreign minister (Prime Minister Netanyahu temporarily fills the post). Global business is closely linked with global geopolitics; yet, in Israel, nobody is running that store.

Tangen was active for years in Milwaukee, Wisconsin, city government and is well-connected politically. He shared with me his surprising take on the upcoming November 2016 US presidential election, which will be a crucial watershed event in global geopolitics, with repercussions for both Israel and China.

“Suppose Donald Trump squares off against Hillary Clinton,” he reasoned.

“The Republican Party establishment is furious with Trump, as he has broken the pact between conservative Caucasians and conservative Hispanics, vital for electing a Republican president. The American electorate, in the end, is not fond either of Trump or Hillary.

“THIS OPENS the door for a third-party independent candidate. If that person wins a plurality of votes, then by the constitution, the election could be decided in the House of Representatives, one vote for each of 50 states, and the House Republicans could well elect the independent candidate, not Trump!” Watch, then, Tangen counsels, for the rise of a dark-horse surprise independent candidate – which role former New York mayor Michael Bloomberg is apparently contemplating.

Napoleon famously cautioned the world not to waken China, the sleeping giant.

“When it awakens,” he said, “it will shake the world.” China has awakened. And its economy has helped drive the world forward. But now, as China’s economy slows, the world indeed is shaking.

In a diagram published in the UK business weekly The Economist, the economic center of gravity of the world is shown, with each nation’s Gross Domestic Product (GDP) replacing “weight.” For well over 1,500 years, China was the center of the world in economics and technology.

In the year 1,500 CE, a Chinese emperor, fearing that technology and open borders would destabilize his country, burned his fleet of ships and closed China’s borders.

Then, the First and Second Industrial Revolutions quickly moved the economic center of gravity out of China, which sank into poverty, to the UK and US.

But in 1950, a few months after the modern Chinese state was born, the economic center of the world began to move back toward China. Today? It is somewhere in northern Siberia, and rapidly moving back toward China, completing a 500-year full circle. The world’s GDP will grow only 2.7 percent this year, and grew just 2.4 percent in 2015 – China’s GDP growth will be six percent or more. This is why China may well soon be the center of the world again.

But in a 26-mile marathon, the last mile is often the hardest. China is in the last mile of its marathon. And it is proving to be the hardest. Sustaining six percent economic growth is proving very challenging. We all have a stake in China’s success, because China has replaced the US as the primary growth engine of the world economy.

There is serious cause for worry. Nobel Laureate Paul Krugman observes in The New York Times that “China faces the tricky task of transitioning to much lower growth without stumbling into recession” – and, he adds, without causing “global contagion,” delivering a “bad shock to the rest of the world.”

Few nations have completely reinvented themselves to become efficient hi-tech innovation-driven economies. Israel is one of them. China wants to become one.

That is the essence of how Israel is selling itself to China. If Israel does successfully sell its “secret sauce” recipe for innovation to China, then Israel, China and the world will benefit.



The writer is senior research fellow at the S. Neaman Institute, Technion and blogs at www.timnovate.wordpress.com

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