September Edition 2019

14 15 Chinese Investment Continues to Grow The opportunities for Israeli companies are ‘almost endless’ Close ties brings challenges and risks As such, Chinese investment in Israel continues to grow. Over the past five years, according to an IVCResearch Center report, around USD 1.5 billion from China was invested in around 300 Israeli companies. IVC also reported that over the past two years the average number of direct Chinese investments in Israeli companies each quarter grew from 15 to 20. All in all, in 2018, Chinese investors have been involved in 12% of the financing round by Israeli start- ups, compared to 7.5-9% during 2015-2017. In 2018, the Chinese also participated in six of the 17 large financing rounds (USD 50 million or more), also a higher proportion than previously. “More Chinese investment is directed at Israeli tech start-ups (with around 80- 90 investments conducted annually), driven by both investing companies, as strategic investments, as well as by corporate funds, private equity and venture capital funds – such as Alibaba, Fosun, Horizons Ventures, CEIIF, Grit, Radiant and others,” adds Maor. “A large share of the large Israeli tech companies are already active in China and we now see a growing number of SME companies and even startupsmaking their way. The opportunities are almost endless. China is in many ways the new ‘land of unlimited opportunities.’ Themain sectors of interest for Chinese companies - for cooperation and investment alike - are advancedmanufacturing,microelectronics & IC, IOT solutions, medical device, smart and autonomous automotive, and agri- tech.” says Maor. Sungbo Shim , M anaging Partner in the Beijing office of Squire Patton Boggs (“SPB”) agrees. “Chinese companies are mainly attracted by the technologies in software, semiconductors, telecommunications, medical, agriculture, and financial sectors. These are viewed as the strongest areas and are expected to remain so for some years. Most Chinese companies invest in these sectors to get technologies to support their business in China and strengthen their patent portfolio to compete with their competitors.” Simon Weintraub , C o-head of the China practice at Yigal Arnon & Co., adds “Chinese companies for a long time have also been interested in Israeli healthcare innovation including medical devices and digital health companies. Most of our investment work representing Chinese companies investing in Israel have been in this space. Auto-tech and agri-tech are other areas that are very hot and of great interest to Chinese companies coming to Israel today. The agriculture and technology sectors had typically accounted for most of the total Chinese investment in Israel. In recent years, ChemChina acquired Adama, an Israeli crop protection company, for USD 2.8 billion. China Bright Food Group took over Israel’s Tnuva Food Industries. In the ever-evolving healthcare sector, Israeli cannabis company, iCAN: Israel-Cannabis is teaming up with a Thalys Medical Technology, a Chinese healthcare conglomerate, to focus on medical marijuana. China looks to Israel as a model in greentech, with Chinese telecom giant Huawei, typically known for smartphones, entering the Israeli solar power market to sell inverters, which help to convert solar power intoenergy for theelectricitygrid.China-basedconsumer electronicscompany Haier Group Corporation is dipping its toes in the Israeli petrochemical sector by partnering with Israeli oil refining and petrochemicals company, Bazan Group – and these are just the recent tip of the iceberg. While there are simmering tensions betweenChina and theU.S., Israel’s principal ally, there are opportunities for Israel, if companies do their homework. “Chinese investments in Silicon Valley have slowed down,” said Shim. “Chinese investments in high-tech start-ups in the U.S. face strict restrictions and are subject to approval under CFIUS (“Committee on Foreign Investment in the United States”). As a result, Chinese investors who previously focused on U.S. based technology companies have to look for targets elsewhere. Israel, with relatively lenient policy on foreign investments in high-tech companies, significantly lower costs of investment and operation than Silicon Valley, has become an attractive target for Chinese investors looking for cutting-edge technologies.” “Any Israeli company with a U.S. subsidiary and /or U.S. activities needs to be concerned about CFIUS today when considering an investment from a Chinese investor,”agreesWeintraub.“Wehaveseenpotential investmentsandacquisitions of Israeli companies fail as of late because following a CIFIUS analysis it was determined that there was a great risk that the U.S. regulators would veto such a transaction. This is a major concern today for our clients. There are structures that can be created to mitigate the risk, and this requires strong guidance and expertise.”