While Netanyahu Schmoozes in China, Lapid Takes the Heat Back Home

Events this week might morph into a beautiful arrangement for Israel's prime minister: Lapid will cut spending while Bibi worries about foreign investment.

BEIJING - The unveiling of Finance Minister Yair Lapid's painful fiscal program seems a good time for Prime Minister Benjamin Netanyahu to visit China – far from the fallout caused by the harsh economic measures, especially the planned tax hikes.

Netanyahu, who called himself the "super-minister of economics" in the last government when Yuval Steinitz was finance minister, doesn't hold this title now – certainly not during economic-decree season. But in China he's still trying to take care of what he calls "attaining national output percentages."

It may be a tough challenge penetrating the Chinese market and getting Chinese firms to invest in Israeli businesses and buy Israeli goods and technology, but it's certainly easier than defending the economic measures being imposed on Israelis, especially the middle class.

Netanyahu is trying to adapt to having a finance minister who is also a political rival, but at this stage he doesn't plan to challenge Lapid to a public brawl. Doing so could worsen the economy all by itself and signal to the rating agencies that something's amiss, leading to even tougher measures.

Among Netanyahu's people, criticism is being aimed at Lapid and the direction he's taking. Maybe they thought Lapid would confront Histadrut labor federation chief Ofer Eini, but that didn't happen. That's because Lapid doesn't want to dilute his power in heavy fighting. He quickly grasped that insisting on a drastic pay cut in the public sector and taxing continuing education funds would lead to fierce battles with the Histadrut and maybe also strikes.

Lapid's choice of a heavier tax regime doesn't mesh with Netanyahu's approach, which prefers streamlining the civil service before raising taxes. He'd like Lapid to pursue downsizing and cutbacks more than taxes, but at this stage he's backing him rather than putting up a fight.

Next week a major part of the economic program is slated for debate in the government: the defense cuts, which somehow once again will be conducted as war clouds loom on the northern front. Netanyahu will certainly claim it's a total coincidence, whether it is or not.

Every chance he gets on his visit to China the prime minister talks about Israel's security needs and the purpose of his trip: tapping into the Chinese market because it's good for Israel's economy and security. According to Netanyahu, Israel can't reach 5% growth without tapping into China.

Exporters operating here talk about the great difficulty doing business in China. Ofer Sachs, CEO of the Israel Export Institute, pointed out that 70% of Israel's exports to China are generated by Intel and Israel Chemicals, so all other Israeli companies combined export less than $1 billion to China. To put this in perspective, China's imports totaled $1.75 trillion in 2012, including $227 billion to Shanghai alone.

Of course, Israel's commercial ties with China only started in the early 1990s. But China has needs in many areas where Israel has an advantage, like advanced technology, medical equipment, sewage treatment and water desalinization.

It remains to be seen if the way can be paved for Israeli companies into the Chinese market, and Netanyahu would apparently have been willing to stay another few days to ensure that this happens – while leaving the decrees and cutbacks to other people.

For Netanyahu this could become a beautiful arrangement: Lapid will cut while he worries about foreign investment. This isn't the role of a super-minister of economics but of an economics foreign minister – while in the Finance Ministry sits somebody who really wanted to be foreign minister.

Government Press Office