China's tech money heads for Israel as US welcome wanes

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 regulatory stance.

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 data shows. 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."

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.