China: Start Up Nation meets Buy Up Nation: How Israel can Play a Major Role in Making China an Innovation Giant

Last Updated: 15 April 2014
Article by Mark Schaub and Ray Black

More than any other country,China has greatly benefitted from globalization. In the last 25 years China has risen to become the world's workshop and a manufacturing giant.

However, there has been a small country that has undergone its own transformation in recent decades. Israel, a country in a "challenging" neighbourhood with a very limited domestic market, has become a technology innovation powerhouse. Indeed Google Chairman Eric Schmidt considers that "Israel has the most important high-tech centre in the world after the US."

These two very different yet very complimentary countries are likely to find great scope for collaboration in the coming decades. They are certainly now looking for it.

Innovation: China Needs It – Israel's Got It

China's leadership has realized that future sustainable growth will require the development of an innovation based economy. China's current Five Year Plan (2011-2015) and resolutions of the 18th Central Committee of the Communist Party of China recognize that innovation is a key Chinese strategic priority.

China has not been sitting on its hands in respect of technology. It is estimated that China currently spends approximately US $200 billion per year on research and development and that its annual expenditure has increased by at least 12% for the past 20 years. As China manages the transition from low-cost manufacturing base to an innovation driven economy it is likely to face similar bottlenecks that would have constrained its manufacturing growth during the 1990s manufacturing boom. However, this time China will not look abroad to secure supplies of iron or coal but rather to acquire innovative technology.

Manufacturing Goliath

Chinese companies have become world beaters in delivering quality manufactured products at a low cost. In many cases these products have rested upon proven technology developed elsewhere. To a large degree, foreign commentators have not recognized the production know-how and innovative strides Chinese manufacturers have made to reduce cost and mass produce product. But being the best at manufacturing a certain level of product at acceptable quality for the cheapest price is a policy that will not enable Chinese companies to meet the challenges of the next stage of global competition – in order to grow in the next phase, China will need to be a world class innovator as well as manufacturer.

Innovation is occurring in China but in many ways it is the innovation of the large. Major Chinese companies such as Huawei (the second largest global telecommunications equipment maker after Ericsson) are innovating whilst major multi-nationals such as Nokia, Proctor & Gamble, General Electric and many others have established R&D facilities in China. But these activities do not address the truly creative, innovative technology that Chinese companies crave. For a variety of reasons the craving for this type of technology is unlikely to be quenched in the short to mid term purely by domestic supply.

Enter Israel: Production Pygmy but Innovation Giant

Israel's credentials for high-quality innovation are clear. It is global number one per capita in:

  • Patent registrations
  • R&D spending
  • Number of start-ups

However, with a population of only 8 million and a ... challenging ... neighborhood, Israel is constrained from becoming a major manufacturing center. Traditionally, Israeli start-ups have looked to the US and to a lesser degree Europe as a source of funding or as a potential acquirer.

Start Up Nation Meet Buy Up Nation

  • "Follow the Money"

In recent years Chinese outbound investment has accelerated exponentially. China is rapidly becoming the 'buy-up nation'. China's provincial level SOEs and private enterprises are increasingly interested in acquiring overseas technology – Israel has the technology China needs.

  • "China is Enough"

Interestingly, many Chinese enterprises are willing to buy or license technology exclusively for China rather than requiring global rights. With a population of 1.35 billion, the world's second largest economy and a long "to do list", China as a market is large enough for the most ambitious of companies.

  • Political Support

The complimentary nature of China and Israel's economies has not gone unnoticed by either side. Israel's Chief Scientist has stated that Israel is 'good at innovation and technology transfer' and China 'can scale up manufacturing and beyond.' The Third Plenum was a hot topic at Israel's Business Conference on 8 December 2013.

Israel and China's political relationship has had its up and downs over the years. Israel recognized the People's Republic of China all the way back on 9 January 1950, but China only formally established diplomatic relations in 1992. For many years (until the late 1980s) Israeli passport holders could not even visit China. Despite this issue, there was co-operation on a variety of fronts (including military) in the background.

In recent times the political and economic relationships have never been better. The Chinese Government is actively taking actions to improve and boost economic relations. In 2013 China and Israel signed both export enhancement and trade agreements.

Hot Areas

Specific hot areas of China interest for Israeli technology includes:

  • Environmental " Medical devices " 3D printing
  • Agri-business " Pharma " Robotics
  • Solar energy " Online media " Cleantech
  • Security " 5G networks " Industrial tech
  • Defence

The Trend is Here ... kind of

Although there is movement in the level of Chinese investment into Israel it does seem likely that the amount of media attention does exaggerate the actual deal flow. The major deals which have taken place to date seem to have been in relatively mature companies and technologies such as AfiMilk milking technology, Hans Laser Technologies acquisition of Nextec Technologies, Fosun's acquisition of Alma Lasers, ChemChina's acquisition of Makhteshim Agan, and the possible acquisition of Tnuva Food Industries by Bright Food Group. It is possible that there are many more technology deals occurring below the radar but the more likely explanation is that the trend has not yet taken wing.

American Dream ... Israeli Dream ... China Reality

The definition of the American Dream as stated by James Truslow Adams in 1931 is "life should be better and richer and fuller for everyone, with opportunity for each according to ability or achievement". For many the Israeli Dream seems to be to work in a start up and be bought out by a US company. However, the Chinese reality in respect of buying a hi-tech start up is that after the cheque has cleared so have the employees. A major issue for Chinese investors in high-tech companies is to retain the overseas employees.

For this reason it is very likely that Chinese companies will either continue to buy mature Israeli companies or take strategic stakes or enter a joint venture in respect of immature technologies and/or strategic investments in venture capital funds. One example of Chinese companies strategically investing in immature technologies is the investment in WBP Venture Partners, a venture capital firm that is raising $50 million for investing in Israeli tech startups that are looking to break into China and particularly focusing on life sciences, medical devices, green technology, telecommunications, online media and industrial technologies.

Although many Israelis instinctively look to the US or Europe for their export markets, most Chinese companies are content (at least initially) to gaze inwards at the China market when considering Israeli technology. In many cases the Chinese company will be content with only exclusivity for China. Often China is the biggest market for a particular technology or its application.

IP Protection in China – Register Early, Pick the Right Partner

Invariably whenever the terms China and foreign technology come together, concerns as to IP protection are not far behind. Israeli hi-tech start ups have legitimate concerns as to protection of their intellectual property. Despite improvements in China, IP protection remains a major issue. Accordingly, Israeli companies are well advised to take steps to protect their technology in China (through patent registrations, protection of their business secrets and trade marks), and also to co-operate with the right Chinese partner. A long term Chinese partner is not just a partner in the technology transfer but also in the protection of such technology within China.

The Chinese leadership realizes that a transition from a low-cost manufacturing to an innovative high end product based economy will require China to clamp down on IP infringement. In this regard China has taken many steps, the most recent of which is the reform of the Trademark Law. However, the size, fragmentation of manufacturing and sheer volume of competition within China means that IP infringement will be an issue to deal with for some time going forward. Once China has its own IP to protect, though, the rate of progress should noticeably accelerate. Israel-China cooperation can also contribute to this development, as mutuality of interest will prevail.


Overall, a shidduch between a start-up nation with limited manufacturing resources and market opportunities and a buy-up manufacturing titan that lacks sufficient innovation makes sense.

Both Israel and China realize they are highly complementary and are placing emphasis on building a long term relationship. As Benjamin Netanyahu says, Israel and China are 'two ancient peoples with a glorious past, a difficult in-between period, and then soaring into the future.'

However, Israeli companies need to realize that Chinese buyers do not want to be a freier (sucker). Chinese investors will need to understand what they are buying and know that the talent that they buy will still be there after the transaction closes. Israeli companies will need to understand this too, and understand the Chinese decision making process. Potentially, the combination of Israeli know-how with Chinese manufacturing muscle is unbeatable. However, ultimate success will require efforts on both sides.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.