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Int'l credit crunch shifts Israeli business focus in China
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07:42, April 20, 2009

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As the international credit crisis intensifies, Israeli business involvement in China is gradually shifting beyond the first tier markets along the coastline to address the needs of the country's more rural population inland.


Given the Chinese government's policy of "sticking to reform and opening-up and grasping developing opportunities," its 4-trillion-yuan (585 billion U.S. dollars) stimulus package and timely 8 percent growth target are expected not only to boost the economy but also to transform the mode of economic growth and readjust its economic structure in the long run.

Israeli investors believed that a shift in productivity is emerging from China's coastal southeast, which is home to a string of factory hubs, to the more rural areas in the west. Some said they had shifted their gaze to China's west which is buzzing with potential.

Amir Gal-Or, managing partner at Infinity Group, a private equity fund with offices in Israel, China and the United States, told Xinhua that his fund was merely reacting to the shift in the market as China adjusted its needs in the wake of the credit crisis.

"The driver (for a business initiative) comes from the Chinese side. We are looking at our added value and are adjusting to it," Gal-Or said.

With a presence in Suzhou, Shanghai and Hong Kong, Infinity planned to expand to new cities in search of different opportunities that would allow it to adjust to the changing market conditions and broaden its portfolio, he added.

"Considering the current trend you don't want to increase credit, you want to diversify it," Gal-Or said. "The credit crunch reminded everybody that you can't go on pumping funds in one area," Gal-Or said.

He said that a move into second tier cities would require a stronger focus on agriculture, while third and fourth tier cities also needed to be prepared through the creation and improvement of infrastructure.

"You want to reduce the risk of concentration. You want it to be balanced across the country," Gal-Or said, adding that the credit crunch had a balancing effect as it led to a migration of jobs away from the main center.

He also said that the fund chose destinations for expansion based on where it identified opportunities to add value and where they are welcomed.


The shift not only comes in the areas but also sectors. The change in China is very clear that the new focus is attached on agriculture, medical services as well as clean tech related projects in rural areas, second-and-third-tier cities in western China, Gal-Or said.

For example, his company, which had originally targeted businesses in the semiconductor and IT sectors, is currently working on two deals. One is in the water industry, involving water supply and waste treatment, with desalination being an eventual goal of the company, while the other deal is about medical device distribution.

Even though some Israeli investment funds fared less well in China, they still believed there are lots of potential sectors if the investors could calmly analyze before pushing the panic button.

GEAM funds, which focused on emerging markets and had assets in the retail jewelry industry in China, accrued heavy losses under the on-going global economic downturn. But its chief analyst Daniel Sueke said there is still plenty of investment opportunity in Chinese retail, and specifically in the jewelry sector.

"Retail has been growing at 20 percent for two to three years now, and within that the jewelry sector grew 40 percent last July. One month it was down because of the earthquake, he said.

"China is a populous nation and the gross domestic product grows 10 to 20 percent yearly. As the middle class grows, the population is becoming more wealthy and consumer habits has turned on luxurious products like jewelry," Sueke added.


According to Amos Yudan, president and chief executive of Commodan Far East, a commercial company with the goal of fostering business between China and Israel, local representation is fundamental to Israeli business success in China.

Yudan noted that Israeli ventures that failed in China due to two reasons, one is no strong enough local representative and office, and the other one is that products were not actually in demand in China.

He said that he did not expect the credit crisis to have much effect on Israeli companies that were focused on niche technologies. "I believe that it will not have a direct effect on what is going on in trade," Yudan told Xinhua.

"If the crisis doesn't worsen significantly it shouldn't have a big influence on exports of Israeli high-tech to China as these are not consumer goods.

"Israeli exports to China grew by 19 percent to 1.20 billion dollars in 2008 from 1.04 billion dollars in 2007. December 2008 also saw a 20 percent rise in exports from November, though exports dropped 20 percent from December 2007.

Yudan noted that the future of Israeli investments in China would depend on the impact of the global credit crunch as well as the effect of the stimulus package and any other economic reforms.

"No doubt about it there is a huge potential in China and Israel has a lot of technology needed in China in many fields, including agriculture, medicine, communications and so on," Yudan said.

"The problem is that future investments are seen as a one-way to bring money to China and the credit crunch has made Israeli investors' access to capital more problematic," he added.

Source: Xinhua

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