Magazine article Washington Report on Middle East Affairs

Post-Phalcon and 9/11, China and Israel Get Back to Business

Magazine article Washington Report on Middle East Affairs

Post-Phalcon and 9/11, China and Israel Get Back to Business

Article excerpt

In Mao Zedong's day, there was little to be seen at Shenzhen but countryside. As plans advanced for Britain to hand Hong Kong back to China, however, and economic reform gathered pace, a new city shot up into the sky. It is at the heart of a great industrial zone that embraces the whole of the Pearl River delta, including the city of Guangzhou (Canton). The region's development was export-led: buy a China-made shirt, and there's a good chance that it came from this area. It is a center for the production of electrical goods and is now poised to become one of the global hubs of the information technology (IT) industry.

Israeli Science and Technology Minister Eliezer Sandberg visited the city around the end of March as a guest at a conference hosted by the local association of venture capital funds. Sandberg signed a number of cooperation agreements and toured the city with its deputy mayor, who told him that he'd give any Israeli funds coming to Shenzhen "as much space as they require." Two weeks later, as Oded Hermoni reported in the April 15 Haaretz, the minister discovered that an Israeli investment company had opened an office there.

The Haaretz story, "Israel's venture capital firms are bullish on China," described how Silicon Valley had lost its allure for Israeli venture capital funds, which recognize China's great potential. Israeli funds have initiated contacts with Chinese partners: one, Vertex, already has offices in Beijing, via its Singapore-based holding fund, International Vertex Group. Four others were reported to be considering opening China offices: JVP, Pitango, Giza, and Infinity-Clal.

Finding reliable local partners is vital to doing business in China. They know how to deal with problems of bureaucratic red tape, corruption and the requirements of the Chinese government. Numerous foreign investors in China have regarded their involvement in the booming economy as almost a license to print money, only to discover that the Chinese are determined to ensure that they gain as much benefit as possible from external investment.

Sandberg's visit to Shenzhen was but one indication of how business relations between Israel and China are being restored to their pre-July 2000 condition. That was when, under heavy pressure from Washington, Israel cancelled a deal to supply three AWACS early warning spy planes to China. The U.S. government reportedly was worried that the Phalcon system would increase Beijing's military clout vis-à-vis Taiwan, which it insists must, at some point, be reunified with China.

This is worth recalling, if only in passing, given the Senate investigations into the Sept. 11 attacks. It seems to have been forgotten by many observers just how much a significant segment of Congress (particularly the Republican right, later to become big fans of the war on Iraq) and the media was concerned with the supposed threat from China prior to the terrorist attacks on New York and Washington. Had the AWACS deal been concluded a year or so later than it was, and the ensuing mini-crisis with Washington been coming to a head around 9/11, the course of the Phalcon affair would have been very different. Wishing to mend fences with Beijing, the Bush administration most likely would have allowed the Phalcon deal to go ahead, and there would have been no disruption to the steady expansion of Israeli-Chinese trade and investment. The terrorist attacks led to a quick readjustment of Washington's priorities, and the confrontation with China for which some around the administration hankered suddenly became undesirable.

Especially before the establishment of diplomatic relations in 1992, an important part of the exchanges between Israel and China always has been the arms trade-which was the chief casualty of the Phalcon affair. Now China seems more than ready to return it to its old footing-even if, at the political level, Beijing maintains a critical position on Israel's violations of the Palestinians' national and human rights. …

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