How to bring the Chinese to Israel

Published: JUNE 12, 2013 22:23

Netanyahu in China 370 (photo credit: REUTERS) — Netanyahu in China 370

(photo credit: REUTERS)

As someone who spent significant time on US-China bilateral commercial relations, I would like to suggest some lessons to the Israeli market.

Prime Minister Binyamin Netanyahu’s recent visit to China has raised the profile of the importance of the bilateral trade and investment between Israel and China. The Israeli government last week announced new governmental committees to increase commerce between the two nations. The symbiotic relations between these nations are clear, but veterans of bilateral trade and investment policy would tell you the barriers are significant.

As someone who spent significant time on US-China bilateral commercial relations, I would like to suggest some lessons to the Israeli market. Clearly, the cases are different, but certain common principles should be discussed.

Chinese investors find Western-style regulatory complexity intimidating. For example, in recent polls Chinese investors rank the United States as the toughest place to conduct business and US regulation as the second-most challenging factor driving an investment decision. With the natural openness of the US market, you wonder what drives such strong emotions. Since, in many respects, Israel has adopted the American approach to legislation, Israeli policy makers should pay significant attention to similar sentiments in the US if the goal is to design a regulatory framework that is attractive to Chinese investors.

• First, information management is critical in light of the size and complexity of the respective markets. Thus, Israeli officials and executives should have an accurate date to make informed decisions. Israel is not alone. The US and Chinese governments do not share the same view on the methods and numbers behind their bilateral foreign investment. Settling the US-China information gap would be helpful for the Israeli market as well.

• Second, too often potential Chinese buyers will find themselves competing against American and Western European entities. Israelis should avoid the historical embedded pro-Western bias and let the Chinese the feeling that this is a fair game.

• Third, few advisers in the Israeli market have experience representing Chinese investors in Israel. Consequently, and similar to the US experience despite the deeper experience there, the introduction process to the Israeli market is too fragmented, decentralized and inconsistent.

Israeli advisers should avoid over-promise and underdeliver because, in reality, Chinese investors do present unique opportunities and challenges, and unreliable experience could negatively impact interest on the Chinese side in the future.

The Israeli government should tailor existing promotion programs to the Chinese taste. A good example to look at is the SelectUSA program of the US Department of Commerce, where there is an attempt to coordinate promotion programs with intergovernmental regulatory and foreign investment review agencies. An official appointment of an ombudsman for Chinese affairs could help facilitate the Chinese penetrate potential governmental obstacles.

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• Fourth, Israel does not have a national review process of foreign investment. Foreign investment rules are fragmented and industry based. Since around 80 percent of Chinese outbound foreign investment is driven by stateowned entities, many of them are linked directly to the controlling political party, and many potential direct investments in strategically sensitive assets or companies in Israel may encounter political rejection and a nationalsecurity debate. A lack of a formal review process by an appropriate agency may cause delays, change transaction costs and pricing and reduce the stock price of a target company.

The US administration has improved its own review mechanism in recent years to increase its transparency and efficiency. Several cases have created the impression that the US government is not open and consistent on this matter, and Chinese investors have consistently complained.

This is still an unfolding saga. Chinese investors in Israel should understand in advance what is the process they are going to go through to assess and price a project properly. Moreover, if certain Israeli industries are practically not open to Chinese investors due to national-security or other concerns, the Israeli government should not be shy about it and announce this policy publicly to reduce costs, time and efforts on both the seller and buyer sides.

• Fifth, since China-Israel bilateral direct investment relations are relatively new, Israel should flag case studies and success stories. For example, the ChemChina-Machteshim Agan merger could serve as a starting point. Israeli officials and executives should have success stories to relate to.

• Finally, the Chinese investment process tends to be slower, step-by-step, building upon trust and relationships.

Israelis are looking for a quick exit and often perceive the trust-building process as unnecessary and burdensome.

This business cultural gap should be bridged by both public awareness, better education and mentorship.

The recent Israeli state visit to China and the macroeconomic shift toward Asia in general, and China in particular, have created a significant momentum. Yet, to capture the moment and increase Chinese investments in Israel, bold policies and honest public communication are required.

Those who think that this is the US-Israel experience all over again, just in Chinese, are unfortunately wrong.

Efraim Chalamish is an international economic law professor and adviser who works with governments and corporations on trade, investment, national security and energy projects and policies.