Trump’s freeze on China exposes Israeli tech firms to a chill

As Chinese investment in Israel surges amid US trade tensions, Beijing warns against interference from any ‘third party’

By Gwen Ackerman and Ivan Levingston  /  Bloomberg

Sun, Feb 03, 2019 - Page 7

Igal Rotem’s fastest-growing market is China, while most of the investors in his online banking service are in the US. That puts the Israeli executive at the crux of a geopolitical power play beyond his control.

Israel’s technology industry has traditionally depended on US investors and the US market, but it is bracing for possible fallout from US President Donald Trump’s showdown with China.

For Rotem and the CEOs of Israeli companies like his, the risk is that they end up on the wrong end of US efforts to curb technology sales to China, especially innovation that might give Beijing an edge over Washington.

“I’m concerned,” said Rotem, whose start-up Credorax enables global payment service providers like China’s WeChat Pay to enter the lucrative European e-commerce market. “We need to position ourselves as a pure tech company that is not taking any political position.”

Technology investment from China grew threefold in the first three quarters of last year, as increased scrutiny spurred Chinese investors and companies to shift attention to Israel from the US. That is potentially awkward for Israeli Prime Minister Benjamin Netanyahu, for whom any rift with the US over China could be embarrassing as he fights elections in April.

As recently as October last year, Netanyahu hailed “a natural partnership” with China as he hosted Chinese Vice President Wang Qishan (王岐山) at a meeting of the Israel-China Joint Committee on Innovation Cooperation.

Citing the “very powerful” combination of Israeli technology and innovation with China’s “industry, expertise, innovation and markets,” he added: “We want to expand it for the benefit of both our peoples.”

Growing pressure from the US might put those plans on hold.

During a visit to Israel last month, US National Security Adviser John Bolton was due to raise concerns about China technology penetration, in particular through Huawei Technologies and ZTE, as well as Chinese investment in the port of Haifa that has hosted the US Sixth Fleet.

US Deputy Secretary of Energy Dan Brouillette separately raised the prospect of Israel creating a body similar to the Committee on Foreign Investment in the US to better scrutinize China investment.

The flurry of US interventions in Israel has drawn a rebuke from China, and adds to tensions spurred by Trump’s trade conflict and the standoff over Huawei.

“Israel is just one of many moves the US government is taking to pressure its allies not to use China’s technology over concerns for national security,” said Wang Dong (王棟), an international relations professor at Peking University and secretary-general of the Pangoal Institution, a Beijing-based research group.

“China and Israel have very good bilateral relations and I don’t think that should be politicized,” he added.

Yet, even before the recent US visits, Israeli officials were expressing concern over the lack of oversight on foreign investment outside defense or security deals.

Massive Chinese investment could pose a danger to national security, the Times of Israel on Jan. 10 quoted security service Shin Bet head Nadav Argaman as saying.

Opposition Labor Party legislator Omer Barlev authored a bill to ensure stricter monitoring of foreign direct investment.

The move is not specifically directed at China, but Barlev said that once in control of Haifa’s port, China could decide to close it in wartime without asking Israel.

Barlev aims to push the legislation through the Israeli Knesset, or parliament, after the elections.

Netanyahu, running a campaign amid concern that Israeli Attorney General Avishai Mandelblit could recommend his indictment on alleged corruption charges at any moment, has thus far refrained from public comment on US-China trade tensions, or on the consequent pressure on Israel to reconsider how it does trade with China.

However, recent developments have not gone unnoticed in Beijing.

China has asked Israel for clarification over a series of statements, including that of, NewsIsrael13 reported last week.

The prime minister’s office and the Israeli Ministry of Foreign Affairs declined to comment.

“Regarding China and Israel, our trade is, in essence, win-win cooperation between two independent sovereign states,” Chinese Ambassador to Israel Zhan Yongxin (詹永新) said by e-mail. “It should not be interfered with by a third party.”

The US might have competitive reasons to try to curb Israel’s burgeoning ties with China, and in any case, so far there is little change on the ground.

Regardless, the tensions are swinging Israeli attitudes toward China from open embrace to wariness, said Yair Geva, head of the high-tech department at the Herzog, Fox and Neeman law firm in Tel Aviv.

“I’ve definitely seen cases recently where Israeli tech companies decided not to pursue investments from China, because they felt this could jeopardize their US activities, or because their US-based shareholders were concerned about engaging with Chinese institutions,” Geva said.

The overall stakes might not be that high. Of the US$685 million raised by Israeli technology firms in the third quarter of last year, only US$174 million, or 25 percent, was from China, IVC Research Center said.

“The Chinese role in Israeli tech is way overblown,” Bessemer Venture Partners Adam Fisher said. “It hasn’t put a dent in the market and if it disappeared, it wouldn’t affect the Israeli high-tech economy.”

Still, the lure of the vast Asian market is strong and China is simply too big to ignore — even as the US warns allies of potential pitfalls.

Jon Medved, CEO of the crowdfunding investment platform OurCrowd, expects 1,000 Chinese participants at his annual conference in Jerusalem in March.

“There is a real story here about Israel opening up to the east, and it can’t be stopped,” Medved said.

“How we manage these newly found friendships without disturbing our core relationship with the US is going to require fancy footwork,” Medved added.