Yuval Ben-Sadeh, Chairman of the Israel Chamber of Commerce in China and Founder of AST Clean Water Technologies, offers some home truths for foreign businesses operating in the Middle Kingdom
Yuval Ben-Sadeh keeps things simple. For the Chairman of the Israel Chamber of Commerce in China (IsCham), business is business, rules are rules and everything else is just talk. Why waste time arguing about Chinese policy toward foreign businesses when you could be spending that time working out how you’re going to adapt to it?
For Israeli companies, there is good reason to take this pragmatic approach. These are exciting times for the “Startup Nation,” which has found opportunities galore in China’s tech-hungry market.
When Ben-Sadeh first came to the Middle Kingdom to gauge the market potential for his company’s water treatment systems in 1999, Israel’s annual exports to China were in the tens of millions of dollars. This year, its exports are likely to surpass $10 billion.
In this interview with CKGSB Knowledge, he explains the key to success in China, and why there’s no need to worry about the future.
Q: The Israel-China relationship is usually described as becoming closer and closer due to the countries’ many shared interests. How does it feel to Israeli businesses on the ground in China?
A: First of all, it’s challenging. It’s a good feeling because we’re quite welcome here, and this gives us a kind of advantage when it comes to the “landing.” But then you immediately start to face the real business life in China, and you need to be prepared for it. If you learn [to deal with] it properly, it’s a great place to be because there are a lot of shared interests, as you said, and shared ideas about the development requirements for both countries.
Q: What do you mean by the “real business life in China”?
A: It’s mainly about a difference in cultures. Decision-making procedures in China are slower and longer, because it’s a bigger country. I’m not criticizing it: I think it should be like this. But small Israeli companies that come here need to adapt to these procedures. This means a small private company needs to learn to think like a government-run company: they need to learn how to act and how to have patience with the decision-making process. If they adapt to it, it works well.
Q: Trade and investment flows between Israel and China have increased substantially in the last few years. What have been the main factors driving this?
A: It’s very simple: mutual needs. Israel has a lot of ideas and development; China has a lot of needs. When the product meets the need, it’s a match. A lot of China’s needs are about its new era: it’s less about heavy industry; it’s more about sophisticated industries. Internet industries, artificial intelligence, internet applications, medical technologies… Israel has a lot of innovation-based businesses, so it’s a good match. Plus, China has the money to invest, which it is willing to spend to promote the real needs of China.
Q: How many Israeli businesses are currently operating in China?
A: It’s difficult to know because Israel is a very private market, so there is no real record, but it’s several hundred companies. By Israeli standards, it’s a huge amount.
Q: How much has this number increased over the last few years?
A: There hasn’t been a big increase, but there has been a big change in the topics [of trade and investment]. Before, there were more agriculture companies or companies that wanted to buy from China. Now, it’s more about high-tech companies coming into China. Before it was about [larger] companies, now it’s about a lot of small companies, startups and individuals that are coming to China.
Q: What are the major obstacles to Israeli businesses in China?
A: You’re talking from our side about small companies and private individuals that are coming to work in a very big system. But usually when you are talking about small companies, they need to get results in a relatively short period of time: after one year. In China, it might be after three years. You need to be prepared for it. But it’s an obstacle because a lot of companies don’t have the budget to act in this environment.
Q: How can businesses deal with this longer decision-making process?
A: Some can, some cannot. But you need to understand this reality. Some say, ‘oh, I’ll come and I’ll register straightaway,’ and we have to tell them, ‘slowly, slowly. Calculate your steps.’
Q: What role does IsCham play in helping Israeli businesses deal with these issues?
A: Our main role is, first, helping them to do a proper matchmaking and, second, education. We give them information about how it works, about the regulation in China, about what to do and what not to do.
Q: In Israel, the perception of Chinese investment appears much more positive than in other markets such as Europe and the US. Why do you think this is?
A: I think it’s like in all business: there are relations about power and influence, and about competition. If the US used to be the major investor in Israel and now there is a new player, China, obviously it raises issues. This is life.
Q: The Jerusalem Post recently predicted that China would soon overtake the US as the largest investor in Israel. Do you agree?
A: It’s not about if I agree or disagree; it’s about a situation that’s happening all over the world. Because China has bigger needs than the US. It’s very simple. It’s all about needs.
Q: If China does supplant the US as the major investor in Israel, will that affect Israel’s relationships with the two countries?
A: No, I still think the alliance with the US is based on different channels. I don’t think there will be too many contradictions. There are a few, but not so many.
Q: Israel has already signaled it plans to be fully involved in the Belt and Road Initiative by working with China to develop a port in Eilat. What role will Israel play in BRI?
A: There is [already] a port in Eilat; they will enlarge it. I’m not sure if Israel will be fully involved because it’s at the end of the “Road” [the 21st Maritime Silk Road linking East Asia, Africa and Europe]. But Israel has a lot of technologies that can contribute to this initiative, so it will be a good opportunity.
It will also have some limitations because the Belt and Road will cross from China to Israel, and in the middle there are some countries that don’t exactly like us. It will be complicated for China and for Israel.
Q: Tensions have been rising between the US and China regarding China’s push to rival the US in strategic technologies like semiconductors. Do these tensions also affect Israel?
A: Again, I think only in a minor way. Mainly [this is because] there are some technologies that were developed mutually between the US and Israel, and obviously the US has a say about this.
Q: Officials from the European Union and US often express concern that their companies are forced to transfer technology to China in order to do business here. How does Israel perceive this issue?
A: They are not forced [to transfer technology]. China says, ‘you want to work here; we want the technology. If you don’t want to come here, no problem.’ I don’t understand why people have a problem [with that attitude]. If you want to come to work here, these are our needs. If you don’t want to work here, fine.
Q: Other chambers of commerce in China have also raised fears that China is restricting market access for foreign businesses in certain industries as part of its Made in China 2025 strategy. What is the Israel Chamber’s view on this?
A: At the end of the day, economic forces are stronger than anything else. Before, you used to send convoys and ships with goods from one place to another because only this place could produce them and the other could not. These days, it’s different.
Manufacturing companies often operate facilities in Brazil, in Argentina, in the US. Why? Because it’s not logical to send your goods across the world. The same goes for China: when the quality [of Chinese-made goods] keeps improving all the time, what’s the logic of sending your products all the way from Israel to China?
By the way, several other countries are imposing import taxes in order to support their locally-made products: why can China not do the same?
[Made in China 2025] is an issue that you need to take into consideration, and you need to anticipate its effects. But generally, it’s not logical to ship your products anyway.
Q: Some are concerned that Made in China 2025 could make the playing field less level for foreign companies when they are competing for contracts against domestic firms in certain industries. What is your view?
A: Who doesn’t do it? Many other countries are doing this. So, why fear? I think it’s logical and OK [for China to promote onshore manufacturing], and I think businesses need to prepare for this.
If I manufacture something here in China, or if I bring it from Europe to here, the second product is on the spot 30% more expensive. So, why would you buy it? Why would the Chinese government spend money on a project and pay 30% more? If the product is much better, fine. But if it’s the same thing, why bother?
And by the way, what is President Trump doing now? Same thing. It’s business logic, that’s all.
Q: You have been running your own business—AST Clean Water Technologies—in China since 2009. How has your market changed over the past decade?
A: Before it was very easy to sell imported products. But today, the Chinese perceive their products as better, and the local products are excellent and even compete with us in other markets over the world. Now, there is a greater need for technology and know-how.
Q: Israel is often labeled the “Startup Nation.” Why has Israel been so successful in promoting innovation and high-tech startups?
A: Because Israel acknowledges that the basis for development is always: invent yourself, become new. Be at the forefront of technology. And because, in terms of all these accelerators and incubators, Israel was already doing this 30 years ago. The government was already financing them.
Q: So, it’s been very much a government-driven initiative?
A: Both: it’s come from both sides. It’s been the people who want to do it [set up new businesses], and the government understanding that it’s important for our development. And based on this, it’s grown. In Israel, there are about 2,800 startups registered every year. True, 90% don’t last more than one year, but that’s OK—this is the way with startups.
Q: How does China’s startup ecosystem compare to Israel’s today?
A: They are quite new to this, but they understand the need for it. They are pushing it quite hard, and they are learning and correcting all the time how to do it better. I think it will go on the right track. It will still take time: at the beginning, a lot of the incubators were lacking in technologies—the facilities existed but the technologies did not come. Now, things are changing and the projects are starting to come.
One of the things they’re still in the process of understanding is: what are the incentives for the technology companies to come over? They are learning and improving, and it’s starting to work.