This Industrial Chinese City Is Looking To Israel To Help Transform Into An Innovation Hub

Israel and China have long had the makings of a strong rapport. Since diplomatic relations were established in 1992, China has become Israel’s largest trading partner in Asia and the third-largest in the world, with mutual trade estimated at $11 billion as of 2016, according to the Israeli Foreign Ministry. Ties also extend into academia, cultural programs and exchanges, and tourism, but Sino-Israeli business activity has been buzzing over the past decade as China’s interest in the startup nation’s technological know-how and innovation ecosystem has grown, and as Israeli entrepreneurs increasingly eye the huge potential in Chinese markets.

Relations are set to deepen further as China undertakes its “Belt And Road Initiative,” an ambitious project unveiled in 2013 by Chinese President Xi Jin-Ping to expand land and sea trade routes across Asia to the Middle East and Europe through massive infrastructure investment. Israel is of strategic importance in the initiative as a stable, advanced economy in the Middle East seeking to boost its trade potential on a global scale. Chinese companies are already invested in Israel’s infrastructure sector, with one, China Harbor, building a new port in Ashdod, and the Shanghai International Port Group winning a tender to operate a new port in Haifa for the next 25 years.

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Meanwhile, Chinese strategic investments in Israeli startups developing breakthrough tech capabilities have risen steadily, reaching $600 million in 2017, up significantly from $500 million just two years ago according to a February report by the Israel-based IVC Research Center, and Chinese multinationals have been setting up shop in the “Start-Up Nation,” including telecommunications giant Huawei which launched a local R&D center .

Amid the escalating trade conflict between the US and China, Israel has been very receptive to these investments given its lack of a significant domestic market and its view of Chinese companies as potential partners.

Recognizing the potential, Chinese municipalities are opening trade offices in Israel to tap directly into business and trade opportunities. The city of Dongguan in Guangdong Province in southern China is one of a handful of municipalities to do so, launching operations this past January to promote business ties in the private sector and seek opportunities in the public sphere.

The inception of the Dongguan Economic and Trade Office in Israel is a part of the city’s municipal plan to adjust its economy to become more international and innovation-based, according to the office’s deputy director Eric (Qian) Wang, a Chinese government official.

In a June interview with NoCamels, Mr. Wang said Dongguan hopes to achieve this feat by attracting international companies to partner with the city to develop an ecosystem for tech development. Dongguan also opted to establish a trade office in San Francisco and send trade representatives to Dubai, Johannesburg, Tokyo, and Vancouver.

Wang describes Dongguan, with a population of 8.2 million, as “an industrial manufacturing hub seeking to transform into an innovation economy,” marking a shift from “made in China to ‘innovated’ in China.”

Dongguan at night. Courtesy

According to the Dongguan trade office, due to its strategic location on the South China Sea, Dongguan and its neighboring cities, Shenzhen, Guangzhou and Hong Kong – referred to as the Greater Bay area – will play a significant role in developing, manufacturing and distributing Chinese technology. As part of the Belt and Road initiative, China is looking to transform the region into the world’s largest commercial zone. And as the country’s largest southern port center, it will serve as an important link to sea ports across Asia and Europe.

Wang says Dongguan is “in Tel Aviv looking for opportunities and partnerships with Israeli entrepreneurs,” hailing the country’s reputation as an innovation hub. Israel’s leadership in life sciences, IoT (internet of things), smart logistics and advanced manufacturing aligns with Dongguan’s interest to develop these sectors, he adds.

In particular, he indicates that the office will be responsible for educating Israelis on Dongguan’s business environment, serving as a potential entry point for Israeli companies into South China, introducing business contacts of Chinese providers, arranging visit programs, and advising on logistical and cultural adjustments to the city.

One of the biggest known obstacles in the Sino-Israeli business relationship is the cultural gap. Israeli entrepreneurs find the Chinese market very complex and the business practices less familiar than what they are accustomed to in the US or Europe, where there is also less of a language barrier.

At a Tel Aviv conference earlier this year for Chinese investors and business leaders, the Israeli CEO of the Cukierman & Co. Investment House who has been living in China for the past three years told the audience that the Chinese business “process is not always rational” to Israelis. Chinese panelists at the event urged Israeli companies to slow things down and acquire local knowledge before trying to sell their products or test their tech in the region.

Wang tells NoCamels that the Dongguan office seeks to help both sides navigate these cultural gaps and educate both sides on the practices of the other. Describing his time in Israel so far as an “adventure,” he says he has found “the Israeli thought process to be very eye opening.”

Israelis, he says, “must understand that China is a different culture, and they need to adapt [their products or services] to the market. It’s not the same as the US or in Europe.” One key way to develop a business relationship is to “build trust [and] not discuss business or money right at the beginning,” Wang says.

One of the companies advising Wang and the Dongguan trade office is the Tel Aviv office of Kuang-Chi, a Shenzhen-based global Chinese conglomerate which is already invested in three Israeli startups as part of a $50 million Global Community of Innovation (GCI) Fund. The Tel Aviv site serves as the global innovation hub for the company and is headed by Dorian Barak, a prominent venture capitalist, who is also the co-founder of Indigo Global, an Israeli VC firm that works extensively with China.

Barak tells NoCamels that Israelis often run into difficulties in China while trying to negotiate its political bureaucracy and set up local companies, which is where offices such as Dongguan’s in Tel Aviv come in handy. Dongguan has also developed the Songshan Lake Tech District, which contains the Sino Israel Industrial Park, a zone dedicated to Israeli companies in Dongguan.

Dorian Barak and Eric Wang. Courtesy

Sam Chester, also with Kuang-Chi in Tel Aviv, explains that Songshan Lake “is a provincial-level high-tech industrial development zone approved by the central government, and includes nation R&D centers, high-tech parks sponsored by international companies, and many specific incubators for international and national tech companies” dedicated to water tech, smart cities, artificial intelligence and medical technology.

Barak says Dongguan, “has a strong desire to expand abroad. There is a thirst there for innovation and for Israeli technology.” But it’s the “more established Israeli companies that are going to thrive in China.”

Donguan, specifically, “is for large-scale industry, [it’s a] leader in manufacturing cellphones, hardware, and so on, it’s for making real things,” he explains, highlighting that one in five of all smartphones are manufactured in the city.

Barak says that given the city’s attributes, Kuang-Chi has already shifted part of its operations to Dongguan. The city’s location in the Greater Bay Area – the southeastern Chinese region surrounding the Pearl River Delta – has allowed it to develop a well-connected transportation infrastructure with surrounding cities including Hong Kong, Guangzhou and Shenzhen, which in turn allows the city to reduce transit costs and complement its strengths in manufacturing with Hong Kong’s advanced service and financial sectors and Guangzhou’s large population and market, highlights Barak.

Moreover, Dongguan boasts an educated labor force and has strong support from the national government which provides the city with a strong foundation to become a base for innovation, he says.

As for the trade office, Chester says it has witnessed “strong measurable success, following a dedicated strategy, divided between six months of marketing and then six months of execution.”

During the first period, the office was introduced to Israeli leaders in government, companies, incubators and academia. One of the first companies Wang spoke to is Freightos, the Jerusalem-based digital shipping company. Now, the team is shifting toward execution, which includes business follow-ups, hosting Dongguan representatives in Israel, and organizing Israeli delegations to visit China.

China and Israel major developments

Although Israel and China established ties over two decades ago, diplomatic and, especially, trade relations picked up pace in 2013 after a high-profile visit to China by Israeli Prime Minister Benjamin Netanyahu. During the trip, Netanyahu praised China for its “forward-looking leaders with great vision, great clarity and great openness,” and called for “seiz[ing] the future using our respective advantages,” China as a “leading global power in so many fields,” and Israel as a “global center of technology.”

Both countries then launched the Israel-China Innovation Committee and the Israel-China Economic Task Force and there has been ongoing talk of setting up a free trade zone between the two. Israel also has six trade offices across China.

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Meanwhile, since 2014, at least seven Chinese multinational corporations have opened innovation and R&D centers in Israel, according to Start-up Nation Central, including Huawei, which also bought Israeli cybersecurity startup Hexatier for a reported $42 million in 2016.

The Asian giant has also tapped into Israeli higher education by establishing partnerships with top Israeli universities that cater to the future of innovation in the Middle East. Late last year, one of Israel’s most prestigious universities, the Technion-Israel Institute of Technology, inaugurated a branch in the Chinese city of Shantou, Guangdong province, with financial backing from the private foundation of Hong Kong business giant Li Ka-Shing.

The new campus of the Guangdong Technion Israel Institute of Technology. Courtesy

And this year alone saw a flurry of activity, including business conferences, the launch of the Israel–China Accelerator in Beijing, the announcement of Beijing’s Zhongguancun Science Park, dubbed China’s Silicon Valley, that it would be opening a liaison office in Tel Aviv, and of course, the welcoming first visit to Israel of Chinese business giant Jack Ma, the founder and chairman of Chinese e-commerce multinational Alibaba, who also has a number of strategic investments in Israeli companies.