Jerusalem/Beijing: At one of the largest tech conferences in Israel’s history, about 10,000 investors roamed start-up booths, learned how artificial intelligence can help treat neuro-disorders and visited a doctor’s office of the future.

The venue was a February summit hosted by OurCrowd, the Jerusalem-based crowdfunding investment platform. Almost one in five visitors hailed from Asia, where China spends more than $100 billion a year on prescription medicines.

As the government pushes for more innovation in health care, Chinese investors—already prolific supporters of US biotechnology and medical-device firms—are turning to Israel, where company valuations are lower and entrepreneurs are hungry for new markets.

“We see a lot of great opportunity," said Kelvin Yu, managing director of Hong Kong-based Enter Venture Partners, who has invested personally in some Israeli med-tech companies. “We want to get Chinese companies to use Israeli technology and commercialize it in China, a win-win for all parties."

Military origins

At the futuristic doctor’s office, participants had their blood glucose checked by Dario Health Corp.—a start-up whose pocket-size metre helps manage diabetes—then mapped their neural activity with EIMindA and got a telehealth physical over the Internet.

“The convergence of artificial intelligence and high tech is transforming health care," said Morris Laster, an OurCrowd MedTech venture partner. “It’s a huge revolution."

Many Israeli health-care technologies have their origins in the military. Memic Medical Ltd., for example, took technology for guiding drones and adapted it to an internal laparoscopic surgical robotic system, which is controlled via arms outside the body.

Benjamin Chang, also a managing director at Enter, said he met during the conference with Zebra Medical Vision Ltd, which uses machine learning to teach computers to read and diagnose imaging data. He says Israeli innovation can help lower the Chinese government’s medical costs.

In its latest five-year plan, Beijing “is setting targets, saying they want more medical technology manufactured in China versus imported," said Landon Lack, founder of China MedConnect, a cross-border medical device company. Investing in Israeli technology that can be produced and marketed in China is one way to boost the innovation economy at home.

Giant market

China is the world’s second-largest pharmaceutical market, but lags the US and other developed markets in innovation. Among the top 12 countries contributing to global pharmaceutical research and development in 2015, China accounted for just 4%, while almost half came from the US, according to a 2016 report by industry groups.

Beijing has said it wants to build homegrown health-care champions, and a government push for innovative drugs has spurred a rush of money into the industry. Life-science venture-capital and private-equity funds were expected to invest almost $11 billion in China in 2017, up from $5 billion in 2016, according to ChinaBio Consulting. The relationship with Israel, while growing, remains small.

Chang’s office invests in Israel through OurCrowd, which helps it vet companies. The platform admits only accredited investors—banks, financial institutions and high-net-worth individuals—and says it’s seen an uptick in interest from China in recent years, particularly in the health sector.

More than half of the $240 million raised by OurCrowd last year came from Asia, considerably more than in past years, according to the company. The med-tech conference sparked commitments for large Asian investments, OurCrowd chief executive officer Jon Medved said, declining to elaborate.

“The winds were blowing in from the east at the summit, both in terms of investor base as well as market focus for start-ups," Medved said.

Room to grow

About 20% of OurCrowd’s portfolio of companies is in health care, managing partner Denes Ban said.

Chinese investment in Israeli’s technology sector makes up only about 12% of the annual collection, leaving a lot of room for growth, according to data from IVC Research Center, which monitors the local industry.

Ties are likely to be enhanced by Israeli culture, which is creative but operates in a small domestic market, forcing it to look abroad.

“American startups have an enormous domestic market and local partners to select from, which simply isn’t the case in Israel," said Dorian Barak, managing partner of investment advisory Indigo Global and chairman of Kuang Chi Group’s Global Innovation Fund. As a result, Israelis tend to be more willing to license technology, form joint ventures to commercialize technology and grant exclusive distribution rights to Asian partners, he said.

The result is an Israel-China technology relationship that’s becoming “mainstream and serious," OurCrowd CEO Medved said. “I look at this as a love affair and a romance: In the beginning it was really hot and people were doing impulsive things and not thinking long-term, and now they’re looking at going steady and beyond." Bloomberg