Sino-Israeli Economic Ties Blossoming

By Gregory Noddin Poulin

December 01, 2014

With its impressive R&D, Israel is emerging as a small but pivotal partner for China.

A convergence of commercial interests have led the People’s Republic of China and the State of Israel to develop an increasingly integrated bilateral economic partnership that is poised to flourish over the next decade. Bilateral trade has experienced a 200-fold increase since diplomatic ties were formally established in 1992, surging from $50 million to $10 billion in 2013, with plans to double that figure in the next few years; leading Gao Yanping, China’s ambassador to Israel, to enthusiastically exclaim “Our relations are shining with new luster in the new era.”

Recent economic cooperation belies the long and complex trajectory modern Sino-Israeli relations have forged. Despite Israel being the first Middle Eastern state to formally recognize the newly formed People’s Republic of China in 1950, China would take forty-two years to officially reciprocate. Throughout the 1960s and 70s China touted its political and material support for Israel’s perpetual adversary, Palestine, as the first non-Arab government to extend diplomatic relations to the Palestinian Liberation Organization (PLO) in 1964.

During this period China played a critical role in supporting the Palestinian people with humanitarian aid as well as training and arming the militant faction of the PLO. Yasser Arafat, chairman of the PLO from 1969 until his death in 2004, noted the important role China played in backing the PLO movement, claiming that China was “the biggest influence in supporting our revolution and strengthening its perseverance.” However, the implementation of economic liberalization and market reforms in China beginning in the late 1970s proved to be the impetus for enhanced Sino-Israeli relations.

As bilateral cooperation quietly grew throughout the 1980s, China formally established diplomatic relations with Israel in 1992 and the two nations have since collaborated closely to cultivate economic ties. With a population of just eight million, and a labor force of less than half that at three and a half million, Israel might seem an odd partner for a behemoth like China and its 1.3 billion people. Despite the demographic dichotomies, the two nations are uniquely suited to be advantageous mercantile partners, with complementary economies. In its annual ranking of most innovative countries, Bloomberg News named Israel the world’s leading country for research and development (R&D) intensity and placed China first for manufacturing. Avi Hasson, Israel’s Chief Scientist noted the opportunity for collaboration these diverging strengths offered, “What China needs, we have to offer. We are good at innovation and technology transfer, and they can scale up manufacturing and beyond.”

Increasingly, China has turned to Israel to acquire the technology necessary to maximize agricultural output and efficiency, as well as to develop a proficient water purification and reclamation apparatus that can sustain the Middle Kingdom’s urbanization and economic expansion throughout the 21st century. As a nation that boasts 22 percent of the global population, but just seven percent of the world’s arable land, developing a sustainable agriculture sector to efficiently maximize output remains a pressing concern for China. A study published in the Proceedings of the National Academy of Sciences noted Chinese agriculture accounts for 65 percent of all water use in China, with significant waste due to inefficient farming practices. The report went on to conclude that “fast socioeconomic development, rapid urbanization and climate change, along with very limited water resources and arable land per capita” presented China with “major challenges to sustainable agriculture” and constitute a “grave situation” to China’s continued development. This condition has been exacerbated by rampant pollution, desertification that has besieged 30 percent of the country, and a massive urbanization movement in which some 10 million rural residents are relocating to China’s 850 cities annually. To address this growing concern, China and Israel signed a deal worth $300 million in 2012 to export Israeli water technology that will improve agricultural efficiency in China.

Highlighting how crucial this sector is to fostering Sino-Israeli relations, during a state visit to China in 2013, the first such trip by an Israeli prime minister since 2007, Israeli Prime Minister Benjamin Netanyahu pointed to Israel’s expertise in water reclamation, including desalination and purification techniques, and noted that Israel looked forward to sharing its technology with China. Netanyahu said the trip that included meetings with President Xi Jinping and Premier Li Keqiang to discuss expanding economic cooperation and bilateral trade was “very successful.” He concluded that Sino-Israeli strategic and economic cooperation has a bright future as “China is a global economic power and Israel is a global center of R&D, and I think we can complement each other to secure the market of tomorrow” thus formulating what the prime minister deemed to be a “perfect partnership.”

A year after Mr. Netanyahu’s visit, Chinese Vice Premier Liu Yandong made a similar trip to Jerusalem in May 2014 with nearly 400 Chinese government and business officials to forge new avenues of economic collaboration. One of the hallmarks of the trip was the signing of a bilateral agreement between Tel Aviv University (TAU) and Tsinghua University in Beijing to jointly invest $300 million to establish the XIN Center for scientific exchange and collaboration. According to officials from TAU, the center will “pursue strategic cooperation in research and teaching and serve as an international hub for scientific and technical innovation” while focusing on research and development projects in a variety of sectors including sustainable agriculture, solar power, water reclamation, and biotechnology.

The XIN Center and water technology agreements highlight a wider trend of increased partnership in the advanced technology and innovation fields that is set to unfold in the years to come. Shortly after arriving in Israel, Liu proclaimed “I am here to learn from the best practices of Israel in science, technology and innovation. And this is also a trip of promoting cooperation. It is truly our hope that we will be able to bring our cooperation in all fields to new heights.” Netanyahu echoed those sentiments, noting: “We have expanded our cooperation in many ways. China is Israel’s largest trading partner in Asia and fast becoming perhaps Israel’s largest trading partner period as we move into the future.”

This convergence of economic interests has served to greatly enhance bilateral Sino-Israeli diplomatic and cultural ties, while fostering a burgeoning commercial partnership that has positioned Israel as a small, yet pivotal, partner for China, a relationship that is poised to blossom in the years to come.

Gregory Noddin Poulin is a graduate student at Dartmouth College where he studies government and globalization. In addition to his studies, Mr. Poulin serves as a teaching assistant in the Religion and Jewish Studies Departments at Dartmouth.