Chinese companies looking to invest in promising technology are finding a warmer welcome for their cash in Israel as they are struggling to seal deals in the United States as regulatory scrutiny tightens.
The quarry for Chinese firms has become more elusive since late 2016 due to increased U.S. protectionism and a tougher regulatory stance even as they have long hunted in the United States for deals to develop their technological know-how and open up new markets.
With money flooding into the country’s buzzing internet, cyber-security and medical device start-ups, Chinese investment into Israel jumped more than tenfold to a record $16.5 billion last year.
Thomson Reuters data shows that just as the U.S. regulatory crackdown began to bite, these investments surged in the third quarter. The data also shows that a record $26.3 billion worth of previously announced deals from the United States was scrapped by the Chinese bidders in 2016.
Following the appointment of President Donald Trump, who has championed a protectionist agenda, the review of one target company, which he declined to name, had been frozen, said TCL Corp chairman Li Dongsheng told Reuters speaking on the sidelines of a Hong Kong conference last month.
Instead, Li’s phones-to-fridges group is scouting in Israel.
“I’m flying to Israel in May where we’ve selected more than 10 potential targets,” Li said. Smart manufacturing, new materials, big data and internet applications were the areas that were of interest to the group, he added.
Chen Shuang, CEL’s chief executive said that China Everbright Limited (CEL), the Hong Kong investment arm of state-owned China Everbright Group, is also looking to Israel.
“Our Israel-focused fund has already invested in four local firms there, and we plan to invest in another three to four within this year.”
A major stumbling block for China-linked deals has become the Committee on Foreign Investment in the United States (CFIUS), which screens for national security risks. After members of Congress raised security concerns, China-backed Canyon Bridge Capital Partners has struggled with its $1.3 billion takeover of Lattice Semiconductor.
“The review has always been rigorous, but now it will be even more so (due to) a combination of increasingly strategic transactions from China and a new administration worried about certain Chinese actions,” said Miriam Sapiro, a former deputy U.S. Trade Representative who served as a CFIUS member during the administration of former President Barack Obama.
sources familiar with the CFIUS process say that Chinese investment in sensitive tech there could also raise eyebrows, with Israel being a close U.S. ally.
“China’s international surge of state-driven investments in emerging technologies should put the United States and our allies on notice,” said Representative Robert Pittenger, a Republican from North Carolina who said he was campaigning to improve information sharing on the issue with U.S. allies.
On security grounds, the takeover of German chip equipment maker Aixtron by Fujian Grand Chip Investment Fund was blocked by the United States late last year.
It has not been all plain sailing for Chinese bidders even though Israeli Prime Minister Benjamin Netanyahu has touted Israel as a “perfect partner” for China in developing a range of life-changing technologies.
(Adapted from Reuters)