* Chinese capital looking to invest in promising tech deals
* Regulatory hurdles make Chinese deals in U.S. trickier
* Chinese investment in Israel jumps more than tenfold in
* Drawn to Israeli web, cybersecurity, medical device
By Julie Zhu and Tova Cohen
HONG KONG/TEL AVIV, May 11 Struggling to seal
deals in the United States as regulatory scrutiny tightens,
Chinese companies looking to invest in promising technology are
finding a warmer welcome for their cash in Israel.
Chinese firms have long hunted in the United States for
deals to develop their technological know-how and open up new
markets, but their quarry has become more elusive since late
2016 due to increased U.S. protectionism and a tougher
Last year, Chinese investment into Israel jumped more than
tenfold to a record $16.5 billion, with money flooding into the
country's buzzing internet, cyber-security and medical device
start-ups. These investments surged in the third quarter just as
the U.S. regulatory crackdown began to bite, Thomson Reuters
In contrast, Chinese bidders scrapped a record $26.3 billion
worth of previously announced deals from the United States in
2016, the data shows.
Speaking on the sidelines of a Hong Kong conference last
month, TCL Corp chairman Li Dongsheng told Reuters
the review of one target company, which he declined to name, had
been frozen following the appointment of President Donald Trump,
who has championed a protectionist agenda.
Li's phones-to-fridges group is scouting in Israel instead.
"I'm flying to Israel in May where we've selected more than
10 potential targets," Li said, adding the group was interested
in technology companies dealing in smart manufacturing, new
materials, big data and internet applications.
China Everbright Limited (CEL), the Hong Kong
investment arm of state-owned China Everbright Group, is also
looking to Israel, said Chen Shuang, CEL's chief executive.
"Our Israel-focused fund has already invested in four local
firms there, and we plan to invest in another three to four
within this year."
The Committee on Foreign Investment in the United States
(CFIUS), which screens for national security risks, has become a
major stumbling block for China-linked deals; China-backed
Canyon Bridge Capital Partners has struggled with its $1.3
billion takeover of Lattice Semiconductor after members
of Congress raised security concerns.
"The review has always been rigorous, but now it will be
even more so (due to) a combination of increasingly strategic
transactions from China and a new administration worried about
certain Chinese actions," said Miriam Sapiro, a former deputy
U.S. Trade Representative who served as a CFIUS member during
the administration of former President Barack Obama.
With Israel being a close U.S. ally, however, Chinese
investment in sensitive tech there could also raise eyebrows,
sources familiar with the CFIUS process say.
"China’s international surge of state-driven investments in
emerging technologies should put the United States and our
allies on notice," said Representative Robert Pittenger, a
Republican from North Carolina who said he was campaigning to
improve information sharing on the issue with U.S. allies.
Late last year, the United States blocked the takeover of
German chip equipment maker Aixtron by Fujian Grand Chip
Investment Fund on security grounds.
Though Israeli Prime Minister Benjamin Netanyahu has touted
Israel as a "perfect partner" for China in developing a range of
life-changing technologies, it has not been all plain sailing
for Chinese bidders.
The government has expressed concerns over the purchase of
key financial assets such as insurers, fretting over pension
cash. Fosun last year scrapped its plan to buy a controlling
stake in Israeli insurer Phoenix Holdings, saying conditions for
the $462 million deal were "not met".
Prior to 2016, China's few investments into Israel were
largely outside the high-tech space, from ChemChina's
acquisition of crop protection maker Adama to Bright Foods'
takeover of food company Tnuva.
That is now more than matched by deals in the tech start-up
space, from telecoms group Huawei's bid for
cyber-security firm HexaTier, to venture capital investments by
the likes of PingAn Ventures and China Broadband Capital into
IronSource, a company that offers business development and
distribution tools for mobile apps.
Tomer Bar-Zeev, chief executive of IronSource, said
strategic Chinese investors are attractive because they offer
Israeli firms a way in to the huge domestic Chinese market,
which is otherwise difficult to crack.
"Once we became a portfolio company of these Chinese
investors, they helped with opening doors in China ... where the
business community really relies on connections you build
For Chinese buyers, Israeli assets are not only more easily
accessible than in the United States, they are also often
cheaper, say lawyers and bankers.
Rising competition is, however, starting to push up prices,
helping Israeli private high-tech companies raise an all-time
high of $4.8 billion last year, up 11 percent from 2015,
according to the Israel Venture Capital Research Center and law
Traditionally, many Israeli tech firms have sold out at an
early stage to global giants like Cisco, IBM and Microsoft. But
now start-ups like IronSource, one of Israel's most valuable
private tech firms, are using the sharp rise in private
investment to pursue long-term growth.
"We are not worried to take Chinese money over U.S. money,"
said Bar-Zeev of IronSource. "If you can deliver, there are
(Reporting by Julie Zhu in Hong Kong, Tova Cohen in Tel Aviv
and Diane Bartz in Washington; Editing by Michelle Price and