Israel is a unique bellwether in the tech race between China and the US because of its unparalleled closeness to the US ecosystem

The article China’s quest for tech chutzpah goes through Israel’s Silicon Wadi was was written by Rami Blachman for TechNode.

China is determined to embrace Israel’s thriving tech hub of “Silicon Wadi,” concentrated mostly in the greater Tel Aviv region, and known for its abundance of deep tech startups and close ties to Silicon Valley.

Some in China also see Israel’s tech community as a gateway to better access to US contacts and deals, especially at a time when Chinese investors are being increasingly constrained by US regulators.

Many Israeli startup founders are paying attention, considering their next steps in a more complex world, in which the US path to scale is no longer the only game in town. Israel’s startup economy has been dependent on close ties to Silicon Valley over the past 25 years, a trend that is expected to continue and strengthen, yet collaboration with China is set to increase.

Much of these closer ties have been on display in recent months. Alibaba founder and CEO, Jack Ma, is leading China’s courtship of Israeli innovators: In his second Israel trip in 2018, Ma took part in the Innovation Conference organised by Prime Minister Benjamin Netanyahu in late October, where he heaped praise on his hosts, saying that “Israel knows that the most important resource is the human brain. Israel offers amazing experiences that few countries have—and that is the secret sauce of its magic and success.”

Ma’s trip comes on the heels of an Israel visit by Chinese Vice President, Wang Qishan, as guest of honor at the Innovation Conference. Wang, who is very close to China’s President Xi Jinping, was recently appointed the Chinese head of the China-Israel Joint Committee on Innovation Cooperation, an initiative established in May 2014 to bolster Israel-China cooperation in several domains related to innovation.

Also Read: Dashed hopes and expectations: Israeli startups view China with a wary eye

Earlier this month at the World Summit AI in Amsterdam, the head of Alibaba’s R&D center in Israel, Itamar Friedman, said that the company was hiring 40 Israeli engineers to develop the company’s next generation of smart retail technologies. The research revolves around some of the most advanced versions of artificial intelligence—automated machine learning (AutoML). Israeli newspapers report that Alibaba has leased office space that can accommodate a much larger team, fueling speculation about its greater designs for Israel.

Painful correction

Such developments come at a time of reshuffle and consolidation among China’s venture capital funds, which constitute one sector in China’s private fund industry alongside hedge funds and private equity. This painful correction, which started a few months ago, is due to, among other factors, falling stock markets and trade war, aggravated by the government’s raising of qualifications for the formation of funds and its debt deleveraging campaign.

The correction is benefiting the robust players, clearing away much of the noisy background and enabling them to tighten due diligence practices. Cross-border investment in promising foreign—particularly Israeli—startups by Chinese VC funds and corporations seems to be around the corner, as they seek to gain access to critical technologies overseas and to differentiate themselves domestically.

Meanwhile, Israel’s VC industry is humming along, maturing by some accounts. Israeli startup companies raised US$1.61 billion in new capital in the second quarter of 2018, a 27 per cent increase from a year earlier that brought the first-half 2018 total to a record US$3.2 billion, as reported Israel Venture Capital Research Center (IVC) and ZAG law firm in July. Israeli startups raised a record US$5.24 billion (in 620 deals) in 2017, up nine per cent from US$4.83 billion in 2016 (673 deals).

Strong tailwind from China’s government at all levels gives this trend an extra punch, as expressed by Zhou Wei, founder and CEO of XNode in Shanghai, a startup and corporate accelerator with a global reach: “Israel is one of the top priorities for Shanghai government this year.” Shanghai, like other local governments, takes its cue from Beijing officials that Israeli and other foreign startups possess key know-how necessary for China to fulfill its goals of becoming a “smart economy” and “smart society.”

Also Read: 2018 Taiwan-Israel Innotech Summit: Interview with LawGeex Marketing VP Shmuli Goldberg

Israel is a unique bellwether in the tech race between China and the US because of its unparalleled closeness to the US ecosystem. From the Chinese side Israel’s famed “startup nation” is viewed as a microcosm of Silicon Valley, with hundreds of disruptive deep tech companies that carry the desired Valley DNA.

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The article China’s quest for tech chutzpah goes through Israel’s Silicon Wadi first appeared on TechNode.

Image Credit: Adam Jang on Unsplash

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