A legendary Israeli venture capitalist explains why anyone against cooperation with China is 'crazy'

Getty Images / Thomas Peter-PoolThe world’s development hinges on the US and China finding a way to co-exist.
  • The US and China are currently engaged in a trade war that could have ramifications for the entire global economy.
  • Israel, which has significant economic ties to both countries, is particularly vulnerable to a global trade war.
  • Legendary Israeli venture capitalist Erel Margalit told Business Insider that “the world’s development” hinges on China and the US finding a better way to coexist economically.
  • Margalit called economic development the most successful driver of social change in China, said it’s important that such development continues.

The US and China engaged in the first shots of a potential trade war last week when the Trump administration announced a 25% tariff worth $US34 billion on Chinese products, including televisions, aircraft parts, nuclear reactors, and vehicles.

China responded later that day with $US34 billion worth of tariffs of its own, primarily on agricultural products.

A full-blown global trade war could cost the world economy $US470 billion by 2020, according to an analysis by Bloomberg Economics.

Meanwhile, one country with significant ties to both countries’ economies is looking on nervously.

Israel is particularly exposed to a global trade war. The country exports 30% of its GDP in goods and services and derives significant investment and growth for its booming technology sector via the US and China.

The episode has left some Israeli businessmen, like legendary venture capitalist Erel Margalit, feeling caught in the middle.

“The Chinese and the Americans need to find a better way to coexist from an economic standpoint. It’s extremely important for the world’s development,” Margalit told Business Insider. “China is developing new business models today that are ahead of anyone else.”

Margalit is the founder of Jerusalem Venture Partners, one of the country’s oldest and most successful venture funds. The company has created and invested in over 120 companies in the US, Israel, and Europe. As of 2015, it also includes investment from Alibaba, China’s biggest tech company.

While Israeli tech has long relied on American investors, it has increasingly turned to China in recent years. China’s total investment in Israel tripled to $US16 billion last year.

“We believe that China will be the largest investor in the Israeli market in the technology sector. It will surpass the US,” Edouard Cukierman, the French-Israeli chairman of Cukierman Investments House and managing partner at Catalyst-CEL, told The Jerusalem Post in December. “For many years, the Israeli hi-tech industry has been supported and led by American investors. Companies aimed for NASDAQ or the US market for exits, for IPOs.”

The number of Chinese financial firms that invested in Israeli tech companies doubled from 18 in 2013 to 34 in 2017, but Chinese investment in venture capital funds has gone down over the same period.

As Margalit looks at the global economy, he said it’s important to continue building “new dimensions of cooperation” between China, the US, and other global economies. But, he said, it needs to be done in a way that respects intellectual property and is non-threatening. Anyone against that, he said, is “crazy.”

“The biggest social change in China is happening economically, not through Jeffersonian democracy,” Margalit said. “People need to understand it. It’s important for everybody that continues to happen.”

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