Israel is both a participant in China’s Belt and Road Initiative and a recipient of high-tech investment from China, according to a RAND report.
Most countries are only one or the other: Typically, low- to middle-income countries are part of the BRI and higher-income countries receive high-tech investment. But Israel’s reputation as a startup powerhouse and its strategic position in the Middle East make both kinds of investment attractive to China.
This week we explore China’s developing relationship with Israel through the lens of infrastructure and technology investments.
China Has Invested Billions in Israel
The United States, historically one of Israel’s biggest backers, still tops the list of countries investing the most in Israel, with the Netherlands coming in second.
But China’s foreign direct investment in Israel has increased dramatically in the past few years, according to data from Israel’s National Bureau of Statistics — from $373 million in 2016 to more than $4 billion in 2018. And this data may obscure the full amount of China’s investment in Israel, as at least $10 billion of it came from offshore jurisdictions such as the Cayman Islands and the British Virgin Islands — common incorporation jurisdictions for Chinese companies.
By accepting more investment and deepening ties with China, Israel risks putting itself in the middle of the increasingly tense U.S.-China relationship. Chinese presence in Israeli ports and other infrastructure, for example, could give the U.S. military pause, and the possibility of a “backdoor” into Israeli technology could provoke bans on U.S. purchases of that technology.
China has been involved in several major infrastructure projects in Israel, including the construction of a new light rail system in Tel Aviv, two Mediterranean ports in Haifa and Ashdod and new tunnels to reduce congestion in Haifa.
Multiple Chinese companies won contracts to build and operate Tel Aviv’s light rail. The first line to be built — now expected to open in 2022 — was the Red Line. Competing state-owned firms China Railway Engineering Corp. and China Civil Engineering Construction Corp. won the contracts to bore tunnels for the western and eastern halves of the line, respectively.
The ports of Haifa and Ashdod, where Chinese state-owned companies are constructing and operating terminals, comprise two of Israel’s three international ports. Israeli newspaper Ha’aretz wrote that Shanghai International Port Group was the only bidder on the Haifa port project, and it will hold the contract to operate the port for 25 years starting in 2021.
One of China’s goals for its relationship with Israel is to use the country’s strategic location at the crossroads of Europe and Asia to increase trade connectivity. The two countries signed an agreement in 2012 for China to construct a new railway between Eilat, on the Red Sea, and Ashdod, on the Mediterranean. The railway would serve as a complement to the Suez Canal, through which about 10 percent of global trade passes. However, though millions have already been spent planning the project, it has stalled indefinitely.
China-funded infrastructure projects raise security concerns for Israel, not only because they allow China to keep a close watch in Israel — for example, the Tel Aviv light rail project is close to the headquarters of the Israeli Defense Forces — but also because some of the Chinese companies involved have been known to do business with Israel’s enemies. China Railway Engineering, which is constructing a portion of the Tel Aviv light rail, also has contracts to build railways in Iran.
Chinese companies have made notable investments across Israeli sectors, including agriculture, health, and technology.
According to RAND, the biggest portion of the investments, both in dollar amounts and number of companies, have been in technology, with more than $5.7 billion invested in at least 54 companies. Israel is known for its startup culture, which has produced many successful tech companies, such as Waze, Fiverr, Lemonade and Gett. China sees a synergy between its goals to advance its technologies and Israel’s high-tech startup ecosystem. Israel, for its part, can benefit from China’s huge market.
Many of China’s technology investments are in high-tech companies whose products have potential for military applications, such as AI, virtual and augmented reality, wearable exoskeletons and semiconductors.
The biggest transactions, however, come from state-owned enterprises acquiring or buying controlling stakes in massive Israeli companies, like ChemChina’s purchase of crop protection solution giant Adama.
|Chinese M&A, Investments and Joint Ventures in Israel|
|Year||Chinese Funders||Israeli Companies||Cost (millions)||Description|
|2016||Alpha consortium||Playtika||$4,400||A consortium of six Chinese funders, including online gaming firm Giant Interactive, a private equity firm founded by Alibaba’s Jack Ma, and Hony Capital, came together to acquire Israeli virtual casino gamemaker Playtika. Complications following the acquisition have prevented Playtika’s games from being incorporated into Giant’s portfolio, according to Caixin.|
|2014||Bright Food||Tnuva||$1,560||State-owned Bright Food acquired a majority stake (78%) in Israeli dairy company Tnuva, which was then Israel’s largest food company. Tnuva, which was founded nearly a century ago, specializes in producing kosher dairy products.|
|2010, 2016||ChemChina||Adama Agricultural Solutions, formerly Makhteshim-Agan||$1,440, $1,400||State-owned ChemChina spent nearly $3 billion acquiring and eventually listing Adama on the Shanghai Stock Exchange. In 2010, ChemChina bought 60% of Makhteshim-Agan, becoming the majority stakeholder in Israeli crop protection solutions company. In 2016, it purchased the remaining 40% and then re-sold it to Hubei Sanonda, a Chinese firm it controls, in August. The newly formed company was then listed on the Shanghai Stock Exchange.|
|2013||Fosun||Sisram Medical||$240||Sisram Medical, established by Fosun to acquire Israeli company Alma Lasers, makes medical lasers for cosmetic surgery. It is the first Israeli company to list in Hong Kong.|
|2011-2015||Horizons Ventures||Cortica, Waze, Core Photonics, Magisto, Windward, Onavo, Tipa, Nipendo, FeeX, Ginger Software, EverythingMe, Shine, Crosswise, Invi, Meteo-Logic, Wibbitz, Stevie, Desti, Preen.me, Meekan||$185+||Horizons Ventures, a firm founded on Li Ka Shing’s fortune, invested in 20 Israeli companies. Each pursues different areas of the technology sector, such as autonomous AI, GPS navigation, and smartphone cameras.|
|2017||Guangdong Midea||Servotronix||$170||Midea acquired a majority stake in Servotronix, which works in hardware-related sectors like industrial automation, renewable energy equipement, and semiconductor chips. Parent company Midea specializes in home appliances, HVAC, factory components, and industrial automation.|
|2016||Huawei||Toga Networks||$150||Toga Networks, founded in 2009, is a software and silicon chip development company. It refers to itself “essentially Huawei’s Israeli R&D center” on its website.|
|2015||Tencent, Renren||Singulariteam||$100||Singulariteam, an Israeli venture capital fund, closed its second fund, worth $102 million, in 2015, with limited partners including internet giant Tencent and Chinese social networking site Renren.|
|2018||Venus Medtech||Keystone Heart||$100||Venus Medtech, a Chinese cardiovascular medical device company, acquired Israeli company Keystone Heart. Keystone Heart designs cardiac medical devices.|
|2018||China Minsheng Financial||eToro||$100||The Hong Kong-based brokerage firm led a $100+ million investment round into the fintech startup and signed a strategic partnership with them to incorporate blockchain technology into CM Financial’s model. eToro was founded in 2007, making it an early player in the fintech and personal finance startup world. eToro previously received millions in funding from the large privately owned (and publicly listed) Chinese company Ping An Insurance in 2014.|
|2015||China Broadband Capital Partners, Ping An||IronSource||$85||IronSource, which attracted investments from China Broadband Capital and Ping An, is an advertising technology company.|
|2016-2018||MizMaa||Core Photonics, Aurora Labs, Anagog, Coronet, Epistema, PayKey, Orca AI, Protego, Twiggle, VayaVision, Armeron||$80.10||MizMaa is a Hong Kong-based firm that invests in Israeli technology companies. Founder Isaac Applbaum previously directed Israeli investments for California-based Lightspeed Venture Partners.|
|2016||Fosun||Ahava||$77||Fosun acquired Israeli company Ahava, which makes skincare products made from mud and minerals from the Dead Sea.|
|2018||Luenmei Quantum||Mantis Vision, Mantis Technologies||$55||Leunmei Quantum led a $55 million Series D funding round in Mantis Vision alongside Samsung Catalyst Fund. Mantis Vision is a 3D camera and scanning company. It operates a joint venture with Luenmei in China.|
|2017||BOE||Cnoga Medical||$50||BOE, an electronics company that makes IoT smart medicine products, among other things, acquired 23.81% of Cnoga, which makes noninvasive medical devices.|
|2015||Hefei Tianhui Incubator of Technologies||Oramed Pharmaceuticals||$50||Oramed signed a $50 million licensing and investment agreement to give Hefei Tianhui Incubator of Technologies rights to market the Israeli company’s oral insulin pill in China.|
|2017||BlueRun Ventures China||Airobotics||$32.5||Airobotics produces autonomous drones, initially for industrial purposes and, more recently, entering defense industries. BlueRun Ventures’ investments focus on emerging technologies across different sectors.|
|2018||Ping An Global Voyager Fund||Tyto Care||$25||Ping An led a $25 million investment round in medtech company Tyto Care, a telehealth company that offers remote visits with medical experts. The Global Voyager Fund is a Hong Kong-based fund from the Ping An conglomerate, designated to investments in medtech and fintech startups.|
|2017||AID Partners||GeneSort||$23||GeneSort, an Israeli cancer diagnostics company that tailors treatments to a person’s genetic makeup. AID Partners acquired the company in mid 2017.|
|2018||Timwell (based in Hong Kong)||ReWalk Robotics||$20||Timwell, a Hong Kong investment vehicle of RealCan Pharma, invested $20 million in ReWalk Robotics, an Israeli company that makes wearable exoskeletons for people with spinal cord injuries.|
|2014||Yongjin Group||Pitango||$20||Pitango is an Israeli VC firm. Yongjin, a financial company, reportedly put $15-20 million into the firm.|
|2016||Zhejiang Crystal-Optech||Lumus||$15||Zhejiang Crystal-Optech and Singapore’s Vorizon Technology invested $15 million in 2016 and another $12 million in a follow-up deal in Lumus, an Israeli augmented reality company.|
|2017||Fosun||BondIT||$14.25||Fosun, a Chinese conglomerate, invested $14.25 in Israeli fintech company BondIT, becoming a major shareholder of the company.|
|2015||GoCapital||Cnoga Medical||$12.5||Go Capital, a China-Israel fund, invested $12.5 million in Cnoga, a medical devices company that made the first non-invasive device to measure blood sugar.|
|2013||Xiaomi||Pebbles Interfaces||$11||Smartphone maker Xiaomi invested $11 million in Pebbles Interfaces, a compter vision company that has since been acquired by Oculus.|
Data: AEI, RAND
Hannah Reale contributed research.
Emma Bingham is a Boston-based editor for The Wire. Previously, she was editor in chief of The Tech at the Massachusetts Institute of Technology. @emmapbingham