Why Israel Should Welcome Chinese Investment

And it should drop the racism while about it - while keeping in mind where everybody's interests lie.

We're late arriving at the party, but now we're there and milling about. China is the generous host, handing out favors in the form of billions of dollars in foreign investment, but the guests whisper to us to think twice before accepting the treats.

The host is a big spender whose offers seem too good to resist, but he is also a parvenu -- too ambitious, grasping, can't be trusted.

The accusations are just racist cant, we say to ourselves. It's not as if America and Europe got rich in their day by being warm and fuzzy. Why should China be any different?

But another part of us is just a little worried about getting too close to a country that is undeniably a rising power but whose attitudes are untested. Will China be a friend and partner, or a bully?

According to the China Global Investment Tracker, which measures the country's direct foreign investment and infrastructure contracts it has won around the world, the Chinese have poured more than $780 billion into everything from petroleum exploration and dam construction to movie theatre chains over the past nine years. Unless China's economy comes to a grinding halt, like Japan's did 25 years ago, this is just the beginning. China is already the world's second-largest economy and is running huge current account surpluses.

Yet, in spite of all the talk of the burgeoning Sino-Ziono relationship, Israel has managed to capture just 0.2% of that – less than half its weight in the global economy.

The real action – not where you'd think

Since 2005, Israel has attracted just two major investments from China – the $1.44 billion acquisition of a 60% stake in Makhteshim Agan (the agrochemicals maker since renamed Adama) by China National Chemical Corporation and a much smaller $240 million purchase of Alma Lasers by Focus International.

That is starting to change. Li Ka-shing, the Hong Kong billionaire presumably wowed by the return on his investment in the navigation app maker Waze, is reportedly now the largest foreign investor in Israeli high–tech. With a $130 million bequest from Li, the Technion-Israel Institute of Technology is developing an engineering campus with Shantou University in China's Guangdong Province.

Pitango, Israel's largest venture capital fund, raised a good chunk of the capital for its latest fund in China. Tel Aviv University and Tsinghua are building a nanotechnology research center. Last week WBP Venture Partners announced it was raising $50 million to invest in Israeli startups doing business in China.

Most of the attention has focused on the emerging marriage of Israeli innovative capacity and Chinese manufacturing, but the real action - strangely enough - has been in Old Economy sectors. Bright Food, a state-owned Chinese company, is eyeing Tnuva, Israel's biggest food maker and purveyor of its favorite brand of cottage cheese. Another Chinese group, headed by JT Capital Fund, awaits regulatory approved to buy roughly a third of Clal Insurance, one of Israel's biggest insurers.

The Chinese are the top contenders to build the giant Eilat railway project. Another Israel-China fund launched last week, Catalyst CEL, isn't interested in technology startups but in mature, medium-sized companies.

Not the brain, the body

Most of this business isn’t about buying a piece of Israeli brains but buying a piece of Israel Inc., which is a little hard to understand. Foreign investors usually shun the local market, which is small and crowded.

Yet there is much to be said in favor of welcoming the Chinese. As an up-and-coming world power almost inevitably destined to become more deeply involved in the Middle East, it is politically better to have them in our tent, even if their stake in the Arab world and Iran is many times bigger.

China is a huge and growing market but one that is terra incognita for Israeli business; having a Chinese partner makes access a lot easier. Also, unlike the United States and Europe, we're not competing head to head with the Chinese to manufacture big-ticket items like automobiles, aircraft, machinery and the like. We should be happy to share our know-how.

Dark thoughts on Bright Food

It's surprising then how much opposition Chinese involvement in Israeli business has aroused. Take the reaction to the prospect of Tnuva's sale to Bright Food.

Avishay Braverman, the Labor MK and economist, is urging the public to protest the sale. Ephraim Halevy, the former Mossad chief, warned that it endangered Israel's food security and might lead to the theft of our cottage cheese-making technology.

Others have worried that Bright Food will move production to China. Apax Partners, the British private equity fund that now controls Tnuva, is worried enough to be thinking about how to install safeguards to ensure that Tnuva remains under Israeli control even if most of the shares are owned by Bright Food.

Braverman and Halevy should know better. There is certainly cause for concern about China's spotty record on health and safety standards for food and drugs, but Tnuva will remain answerable to Israeli regulators, not Beijing's. It will certainly not put thousands of Tnuva employees and their suppliers on the street by transferring production to Guangdong for the simple reason that Tnuva's products are not the kind that can easily be made in distant factories and shipped cheaply to Israel.

The Chinese should have good reason to think there is an element of racism at work. No one objected when Apax bought control of Tnuva (even if there was some anti-British muttering about the high price of cottage cheese during the 2011 social-justice protests, as if true blue-and-white companies don't gouge their customers when they have a chance). Osem is owned by the Swiss company Nestle and Telma has been owned by Unilever, the Anglo-Dutch company, for years.

There other side of the China card, however, is equally wrong-headed. When Naftali Bennett talks about welcoming China with open arms so it can serve as a counterweight to America and Europe, he is talking nonsense. The United States is still our patron-in-chief and Europe our biggest trade partner, and will be for years alone is worth more to Israel than all the Chinese investment to date.

That is why we would be wise to treat China warmly but not too warmly. The most obvious thing is not to monkey with U.S. restrictions in exporting technology with military applications. It's a big burden for Israeli high-tech and Israel should try to ease the terms, but not try to get around them.

We're still a guest at the American party and the host is generous, too, but like the Chinese – he's looking out for himself first and foremost.

Reuters