Israel May Be Turning Away from Chinese Investment

July 19, 2022 | Sarah Zheng and Coco Liu
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Last week, a joint venture between an Indian and an Israeli company won a bid for the rights to manage Haifa’s seaport. The nearby container port, by contrast, will still be managed by a China-based firm. Yet the new deal may suggest a move away from large-scale Chinese economic entanglement in the Jewish state, which has been a matter of concern for the U.S. for some time—not without reason. Sarah Zheng and Coco Liu report on other evidence that something has changed:

Before 2018, China had been positioning itself as an important international partner for the Israeli tech industry, which sought capital and access to one of the world’s biggest markets. Chinese investors were far from its most vital sources of capital—they invested $424 million in Israeli startups in 2018, about 5 precent of the total investment into the sector—but their connections to Israel were deepening.

In retrospect, that may have been the high-water mark. Last year, Chinese capital accounted for only 1 precent of investment in Israeli startups, data from the IVC Research Center show. This could be a strategic disadvantage for Beijing, which has been grappling with growing hostility from the West.

Companies in Israel that once welcomed Chinese financiers, particularly in sensitive deep-tech sectors, are now hesitant to do business with them because of the potential political consequences in other markets. Under pressure from its U.S. and European backers, one supplier of electric-vehicle components this year abandoned plans to take Chinese capital in exchange for access to the world’s biggest EV market, according to a person with knowledge of the matter.

In part, Israeli startups may be getting pickier because they find it easier to attract investors than they have in the past, says Ehud Levy, a general partner at Canaan Partners Israel and also a partner at China’s Lenovo Capital. And even if it hasn’t yet succeeded in getting Israel to adopt its entire policy agenda, the U.S. has convinced many Israeli entrepreneurs of the need to choose sides.

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