5 business insights and trends on China - Israel relations in the year of the Ox
"We believe that China will promote the discussion regarding the free trade agreement with Israel this year"
1. International Collaboration: As part of China’s aim to promote international collaboration, we believe that China will promote the discussion regarding the free trade agreement with Israel this year and also promote other technological cooperation agreements with Israel. As part of the international collaboration plan, China already signed a RCEP (Regional Comprehensive Economic Partnership) free trade agreement with the Asia-Pacific nations to enhance global trade collaboration through the establishment of one the biggest free trade zones in the world. China also signed the CAI trade agreement (China – EU) to promote mutual investment between Europe and China.
2. Stabilizing the Chinese economy and focus on quality economic growth: As China will be one of the only markets in the world that will grow this year, we believe that more and more Israeli companies will try to take advantage of the opportunity. China’s annual growth is relatively big and the World Bank expects China to grow positively by 7.9% in 2021, despite the Covid-19 global pandemic crisis. China plans to stabilize its economy by reducing the financial leverage taken by many companies and reducing financial risks for the purpose of eradicating poverty and reaching quality growth. The corporate social credit system, that uses databases on companies (and individuals) and gives rankings, provides transparency, and may help combating issues of threats, safety and scams. That is one of the reasons China recently jumped from 78th place to 46th place in one year, in terms of ease of doing business.
3. Encouraging local consumption, self-production and new technologies: China’s goals are to acquire and import international technologies into China via the Go Global Policy. China’s transferring technologies through encouraging subsidies and investments by Chinese companies in China and by encouraging technological innovation through subsidies and grants to companies that employ tech talents and register Intellectual Property in China. Due to these aforesaid policies, we believe more Israeli companies will establish a local entity in China.
4. The bond market: The opening of the bond market for the first time to foreign investors may result in a significant increase in the exposure Israeli financial entities to the Chinese market. The expectations are for a handsome return of 3% per year (higher than the U.S.). As for the outcomes, the forecast constitutes transparency for investors (because the FTSE RUSSELL index includes China and is considered a leading body in compiling bond indices). An additional factor is the weakening of the dollar alongside the strengthening of the Chinese currency, which may attract new investors. An open bond market in China is expected to reduce deficits from the global economic crisis brought upon by Covid-19 and to bring foreign capital into China.
5. The Arab World – China – Israel triangle: China’s presence in the Middle East is aimed to implement the "Belt and Road" plan, and the tightening of relations between Israel and the countries in the Persian Gulf may remove certain concerns that have been raised regarding the establishment of business relations with Israeli companies and create bigger and various business opportunities. Business activities under the plan can be leveraged, with an emphasis on Israeli technologies’ presence in infrastructure projects in various countries along the route of the "Belt and Road". A future regional free trade agreement between China, the Arab states and Israel, may result in expanding direct foreign investment as well as exports. The normalization today brings upon an environment that could make Israel an integral part of a common regional market with a significant presence.
The column was writeen by Adv. Tehila Levy Lati, Partner and Ravid Rom, Intern, China and East Asia Desk, at Sullivan & Worcester LLP