Written by Sharone Tobias.

Beijing’s focus on technological independence, sovereignty, and development as a core national security concern stretches back decades. Since his inauguration in 2012, Xi Jinping has renewed focus on technology as a means to greater economic development, national security, and Chinese power worldwide. Among Xi’s new initiatives is the Small Leading Group on Cybersecurity and Internet Management, chaired by Xi himself, a group that covers everything from preventing cyber attacks on Chinese infrastructure to promoting “harmonious” dialogue online—an especially important task in the wake of Edward Snowden’s revelations of NSA activity in China and beyond. Xi delivered a major speech on science and technology last summer that gave a new urgency to indigenous innovation, saying that “only if core technologies are in our own hands can we truly hold the initiative in competition and development.”

Beijing’s focus on economic development, innovation, and high-tech requires an outward, as well as inward, focus. The country eased its regulations on outbound investment in 2014, leading to enormous flows of Chinese cash into foreign companies and start-up ventures, with one beneficiary in particular: Israel. It’s no surprise that Chinese investors have focused on Israel, the “start up nation”, with the highest number of start ups per capita of any country in the world and the highest absolute number outside of Silicon Valley. Israel is especially known for its high-tech sector, with thousands of well-regarded companies focusing on cybersecurity, defense, agriculture, biotechnology and pharmaceuticals—all of which have found eager investors in China.

China isn’t the only Asian country to have discovered Israel’s gold mine—Rakuten, a Japanese Internet company, acquired Israeli Whastapp competitor Viber for $900 million last year, and Japan and Israel recently launched a cybersecurity dialogue and an investment plan to bolster bilateral trade ties. But China’s investments are significant, and say much about its vision for both its economic development and its foreign policy strategy.

According to official Israel numbers, Israeli exports to China have grown from a little over $1 billion in 2009 to roughly $3.5 billion in 2014; China is expected to surpass the United States as Israel’s biggest partner in joint government-backed projects within a few years. Asia is Israel’s second-largest export destination after Europe, recently surpassing the United States. Chinese investment in Israel is estimated to have grown from zero to $4 billion over the last three years, and two-way trade reached $10.8 billion in 2013.

A major part of this development is Chinese private investment in Israeli companies, especially in the high-tech sector. The China National Chemical Corporation bought Israeli pesticides manufacturer ADAMA Agricultural Solutions Ltd. for $2.4 billion in 2011. One of China’s biggest and best-known technology companies, Baidu, is also keen on investments. Baidu CEO Robin Li met with Israel’s economy minister Naftali Bennet, and a delegation of Baidu executives visited Israel last year. Venture capital funds have shown great interest: for example, Ping An Ventures, a major Chinese venture capital fund, has made investments in eight Israeli companies.

China has also invested in Israel through official state means. State-owned Bright Food Group Co bought a majority stake in Tnuva, the iconic Israeli dairy company, in a deal worth $960 million and controversial because of Tnuva’s status as one of Israel’s most iconic companies—the sale would be akin to buying Kraft Foods in the United States. Tel Aviv University and Tsinghua University launched a $300 million joint center for innovative research and education, focusing on nanotechnology. State-owned Bright Food Group Co bought a majority stake in Tnuva, the iconic Israeli dairy company, in a deal work $960 million. And technology and innovation was one of the main topics of conversation during the two separate visits of Prime Minister Benjamin Netanyahu then-President Shimon Peres to Beijing.

There are political reasons for which Israel makes a good investment. Relations between the United States and China have disintegrated in the field of information technology and cybersecurity. The United States has expressed concerns about the safety of Huawei and other Chinese information technology companies, and last summer indicted five high-level members of the Chinese People’s Liberation Army on counts of cyber espionage after their alleged infiltration into American steel companies. For its part, China argues that the United States has inserted “back doors” into computers and other hardware bound for China, and collects massive amounts of data on Chinese citizens, citing NSA documents leaked by Edward Snowden as evidence. Israel is a country with less political baggage and almost as much opportunity to invest in major technological ventures.

To be sure, the relationship between Israel and China is not without its hiccups: Between 2011 and 2012, hackers thought to be working out of China stole information from several contractors who had worked on Israel’s famous Iron Dome system, and an Israeli start up developed techniques to get around the Great Firewall of China. Israel has also been hindered from selling major arms to China by the United States; it was once China’s second-largest supplier. But those events are minor compared with the great enthusiasm with which Israeli and Chinese leaders embrace cooperation and trade.

Much has been made of China’s foray into Middle Eastern diplomacy, with its release of a Palestinian-Israeli peace plan in 2013. But since then, China has said little of its plans for peace in Israel, while China’s private, state-owned, academic, and diplomatic institutions have increased their involvement in Israel’s high-tech sector exponentially. China has historically put economics and business first in its foreign policy in the Middle East. All evidence says that is unlikely to change so long as Israel provides a good source of investment and cooperation for China’s technological goals.

Sharone Tobias is a cyber intelligence associate at Bat Blue Networks, and until recently was a research associate for Asia Studies at the Council on Foreign Relations. She is a graduate of Columbia University’s School of International and Public Affairs. Image credit: CC by Robert/Flickr.

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