Many consider China the world's industrial zone. Most gadgets spawned by the digital revolution are made in China, but cheap labor is no longer the country's main drawing card. And China itself has mushroomed into an enormous market for consumer products and services.

China's consumer power and production prowess haven't been enough to turn it into a technology powerhouse, but this barrier is falling. Large Chinese companies have lots of money to invest, and they've been doing so in infrastructure and natural-resource projects throughout the world. Now they're tackling technology. Chinese companies and investors are sniffing around Israeli high-tech, as recent transactions attest.

Israeli entrepreneurs realize the importance of Asian markets; all emerging markets, actually. But when seeking out investors, buyout suitors or strategic partners, they instinctively turn to North America or Europe. Multinational development centers operating in Israel are almost all under Western control – for now, anyway.

So Israel is increasingly emphasizing its trade relations with China. Economy Minister Naftali Bennett flew to China Saturday for his first official visit abroad. Bennett's choice was no coincidence. Prime Minister Benjamin Netanyahu preceded Bennett with his high-profile visit to China at the beginning of his new term.

Greater cooperation with China in high-tech R&D was highlighted in the Economic Arrangements Law that accompanied the latest budget. It reflected the government's new direction.

"Every year the volume of activity with China grows, and each success generates another wave of activity," says Chief Scientist Avi Hasson, who accompanied Bennett to China. He says that in 2013 China will be No. 1 in terms of the number of joint ventures with Israeli companies in programs run by the Chief Scientist's Office.

"Three years ago there was no activity whatsoever, and this year there will be more activity than with countries such as the United States, Italy and Germany. Not a week goes by that I don't host a Chinese delegation," Hasson says.

"In Israel, the Chinese are looking for technology and don't care much how they get it. They want to invest, buy the technology and collaborate . We're not a threat to the Chinese and make a natural partner. The Chinese are aware of the Israeli story and hold our abilities and culture in tremendous esteem," he adds.

"All told, China is much different than the United States, but in terms of the breadth and depth of ties, we aspire to all types of ties with China: Chinese investment in startups, Chinese venture-capital activity, and a presence by multinational corporations. We're very far from the U.S. level of activity in this area, but the pace in the past two years has been phenomenal."

At the end of April, Fosun Pharma, a subsidiary of the Fosun group, said it was buying a 95.6% stake in Israeli cosmetic- and medical-equipment maker Alma Lasers for $240 million. The deal is the first major exit for an Israeli startup bought by a Chinese company.

Fosun's chairman and CEO then visited Israel in June. They said the group plans to open an office to locate investment and joint-venture opportunities in medical equipment, pharmaceuticals and e-commerce. Fosun is also considering setting up an incubator for Israeli startups, a venture-capital fund for investing in Israeli high-tech companies, and a development center.

Chinese venture capital

For two years, Hong Kong billionaire Li Ka-shing, through his Horizon Ventures fund, has invested in some of the country's most promising startups. He was one of the investors who profited from Google's $1 billion acquisition of Waze.

More traditional Chinese investors are also discovering Israel. At the end of May, a delegation of Chinese venture-capital and private-equity investors showed up. The 12 Chinese venture capitalists met with Israeli institutions specializing in renewable energy, the environment, life sciences and agriculture. The visit could prove the basis for a bevy of investments and joint ventures.

Two weeks ago it emerged that the Tel Aviv-based accelerator Elevator finished raising about $10 million from Chinese institutions and private investors for seed-funding startups. The fund plans to invest $250,000 in each of about 20 companies.

Shuang Chen, CEO of the investment arm of state-owned China Everbright Group, arrived in March and said his firm plans to invest between $100 million and $200 million in Israel.

Tal Chen, the partner at accounting firm Deloitte Brightman Almagor Zohar responsible for high-tech, notes the efforts of Chinese powers like Huawei Technologies. "Like giant U.S. companies doing takeovers and investing in Israel, the Chinese giants understand the need to view Israel as a center for innovation and technology," he says.

The Chinese interest in Israeli high-tech focuses on technology and products that can be marketed, produced or developed in China. "We mostly see sophisticated investors with the ability to introduce the products into the Chinese market, a huge market," says Chen.

Alma Lasers, which develops, produces and markets medical and esthetic treatments based on laser, light and radio-wave systems, is good example of a Chinese investment in Israel.

"China has transformed from a country that only wanted to manufacture," says Rafi Amit, chairman of Israel-based Priortech. "In all their transactions they want to buy the intellectual property, not just production capacity. Their local development capabilities aren't bad either."

Priortech has developed a technology to create advanced platforms for electronic components. To that end, it set up a partnership called Access, with its expertise transferred to a plant in China. Priortech holds a 40% stake in Access, which last week won approval to list on the Shanghai Stock Exchange, the first Israeli-Chinese company to take this step. The company intends to raise $200 million in a stock offering.

Actually, the areas of Israeli technology that interest the Chinese aren't the ones that Israel is normally identified with. While the first development centers and takeovers by multinationals were in telecoms and microchips, the Chinese are looking to Israel for advances in medical equipment, cleantech, environmental and sustainable technology, food processing and agriculture.

Israeli knowledge gap

Working with Chinese partners is a cultural and managerial challenge for Israelis used to working with Western companies. "Entrepreneurs, investors and service providers without a China strategy have a problem," says Hasson.

"The main problem I see today is the very significant knowledge gap. Around a typical management table at an Israeli company or fund, almost everyone has lived in the United States, studied in the United States and has done business there. How many people know China? Very few . The main thing needed in the short term is to remove obstacles: more awareness and solving problems like translating, offices and accountants. The same barrier existed with the United States 30 years ago, but today we have experience there."

Hasson says that in China, in contrast to the view held by Israeli entrepreneurs, government participation is seen as an advantage.

"Government involvement plays a key role," he says. "It creates an umbrella that's very important for the Chinese and Israeli sides; for instance, in protecting intellectual property. If the chief scientist has examined the technology that makes a difference to the Chinese. It's much different than American DNA or ours. Government involvement in China is considered something positive, not negative."

The problem is finding business models," adds Yoav Chelouche, co-chairman of Israel Advanced Technology Industries and a partner in Aviv Venture Capital.

"Israeli companies have a problem selling in China, and there are concerns about copying, particularly for software companies. It's clear that the business models of Europe or the United States don't come into play. On the other hand, everything is huge, everything is done quickly, and there's plenty of willingness to invest in technology. We have to understand that they want the newest and the best."

The issue of intellectual property is what particularly worries companies weighing a joint venture with the Chinese. "The Chinese are more aware of the intellectual property issue," says Chelouche.

One company in which Aviv Venture Capital has a stake is now registering its first patent in China. "The Chinese are quite suspicious of foreign investors and historically lack of confidence in them," says Priortech's Amit. "It took us a lot of time to reach the stage of genuine trust. You need patience, an understanding of the culture. You need to understand what's really important. They think differently than us."