The Chinese government is targeting Israel's vehicle market. China has marked out the market, not because it is a critical export market that will impact China's vehicle manufacturers, but because it is seen as a bridgehead for exporting large numbers of vehicles to Europe along a "new silk road."
This is in the same way that ownership of Israel new Haifa port is seen as an important component in China's One Belt One Road (OBOR) plan, which aims to increase China's worldwide economic and political influence to Europe and Africa through port and railway infrastructures.
Although Israel's government gives away little information about the tightening of diplomatic and economic relations with China, especially during an era of trade tensions between the US and China, the Chinese media is more forthcoming on the subject.
For example, an editorial on December 18 published by the Chinese government news agency Xinhua said, "Israel plays a vital role in promoting the Chinese Silk Road initiative in the Middle East. Strengthening bilateral relations between China and Israel is of fundamental importance for the economic development of both countries, ensuring the welfare of both peoples and upgrading their security ... Under the BRI project, relations between the two countries maintain lively growth, even under the shadow cast by the worldwide trade war. China's Ministry of Commerce is actively promoting the establishment of pilot programs to establish Free Trade Areas between the two countries while speeding up progress on signing a Free Trade Agreement between them."
The signing of an overall free trade agreement between Israel and China and establishing a free trade zone would have a far reaching impact on trade between the two countries in many fields, and in particular the import to Israel of vehicles and spare parts. It would mean the cancellation of import duties, which are currently imposed on Chinese vehicles and spare parts for many of the Western brands imported from China. It would also provide a major incentive for Chinese manufacturers to export their cars to Israel.
Regardless of any potential free trade agreement, the Chinese government is already openly encouraging its vehicle manufacturers to speed up exports to countries along "the new silk road' with the ultimate big prize being Europe.
Vehicle exports are a source of national pride for China's President Xi Jinping in particular and the Chinese people in general. Car exports in Asia and Israel and eventually to Europe will also provide an alternative export channel in an era of trade tensions with the US. The new railway opened two years ago can carry cars across former Soviet Asia to Europe within 18 days. The railway, which makes the Suez Canal redundant, is currently being used by Volvo, which is owned by China's Geely and Chinese manufacturer SAIC. An additional route is being built via Haifa's new port, currently owned by a Chinese government company and Jordan, where China is upgrading the country's railway system. This would provide a sea-land route for cars to reach the Gulf which is already a growing market for Chinese cars.
Israel as a trial market for Chinese vehicles
A second reason that China's vehicle industry is looking to Israel is because the country is ideal for initial marketing and trials. Israel is a small but very diverse market, which is greatly sensitive to price, with European standards and no 'patriotic' obstacles designed to protect a local vehicle industry.
Israel's car customers are considered relatively sophisticated with clear Western preferences and this allows new manufacturers to try out here the suitability of their products for Europe. However, the market is also isolated enough to allow for any marketing and engineering failures to be swept under the carpet without do any damage to the brand in Europe. This has happened in the past to Chinese manufacturers who tried out their cars in the UK and Germany.
Another advantage of the Israeli car market is the welcome embracer that China has received from government bodies, which sometimes even support them with especially friendly regulations. An outstanding example of this is the new regulation allowing the import of electric vehicles under a 'special' standard with major easements compared with the European WVTA standard which makes for an expensive obstacle for many Chinese car manufacturers.
This regulation was one of the last marks left by Yisrael Katz before he left the Ministry of Transport. All this makes Israel an ideal 'beta site' for trying out new car models and a subsequent gateway to Europe.
Chinese electric cars are on the way
There is a growing stream of Chinese car manufacturers already entering Israel. All the vehicles being launched have two things in common: they are being launched in Israel long before their commercial launch in Europe, and all the manufacturers are owned, directly or indirectly by the Chinese government.
The first such government company is SAIC (which owns the UK's MG brand), which began marketing to Israel through the Lubinski Group nearly a decade ago. There are currently 5,000 SAIC vehicles on Israel's roads. The strategic breakthrough planned by SAIC for the next decade is the introduction of electric vehicles with the first model being the MG SZ SUV, which is being marketed aggressively. In addition to Israel, the model is only sold in Europe in Norway and the Netherlands.
Another even more outstanding example of the Chinese enthusiasm to export cars to Israel is GAC, China's fifth largest car manufacturer. GAC, which imports vehicles to Israel through George Horesh, will begin selling its electric SUV model in Israel in February. Israel will be a beta site for the vehicle, which currently has no presence in dealerships in Europe. GAC's vehicle will be launched in Israel under the new special Ministry of Transport standard, which does not comply with the full European standard. A degree of success in Israel will pave the way for a broader introduction into Europe.
A third such example is DFSK, a smaller semi-independent manufacturer, which has close ties with government vehicle manufacturer Dongfeng. DFSK currently has a very small presence in Israel through importer Telcar but from the second half of 2020, it will begin exporting to Israel electric cars with a full battery range of 400 kilometers while in 2021 it will begin exporting to Israel its more expensive Tesla clone. Here too Israel will be one of the first sites for the brand ahead of a more comprehensive launch in Europe.
Next stage: Competing in the truck market
The Chinese vehicles industry's inroads into Israel are not just restricted to cars. Chinese buses, with conventional and electric engines, have also been leading sales in this important market in recent years and now exports are also including trucks.
Importer China Motors, which leads the bus market with the Yotong brand, plans beginning to market Chinese JAC light trucks soon. An initial consignment of about 50 trucks has already been in Israel for several months.
And this is just the start. Recently, Taavura, owned by the Livnat family, was awarded the import franchise for China's heavy duty national truck brand Sinotruk, which so far has no official presence in Western markets. It is a huge company with global sales of about 350,000 trucks a year (2018), about 50% more than Western giants such as Volvo trucks. It incorporates a range of subsidiaries and brands, is active in exporting to dozens of emerging economies and has manufacturing collaborations with international producers, most notably Germany's MAN.
The company's main expertise is in heavy duty trucks for infrastructure works, but it also operates in lightweight trucks - an especially popular sector in Israel - and in the field of trucks with natural gas and electric fueled engines. This company is also receiving a huge export push from the Chinese government, and in May 2018, Sinotruk announced a new plan aimed at exporting almost 50% of its truck output by 2020, with a stated emphasis on international marketing through the "Silk Road Project".
Sinotruk's exports to Israel are currently defined as a "preliminary experimental pilot." However, taking into account the large market share of Taavura in Israel's heavy haulage and transport sector, and the sensitivity to price that exists in this segment and that Chinese-made trucks are far cheaper than their European counterparts, Sinotruk is likely to achieve here within a few years in the truck market, what Chinese buses have done in the public transport market.
All of these examples are just the start of what is expected to reach Israel along the new Silk road over the next two to three-years. The highway is already open. The foot is already on the accelerator and it is doubtful whether anyone, including the Americans, can apply the brakes.
