Bilateral trade between Hong Kong and Israel reached US$2.33 billion last year, according to figures from Israel's Ministry of Trade, Industry and Labour.

'Exports [from Israel to Hong Kong] should continue to do well. We think the momentum is very strong and we should see new highs in 2006,' said Miron Mushkat, chairman of the Israeli Chamber of Commerce in Hong Kong.

Israel is Hong Kong's second-largest export market in the Middle East after the United Arab Emirates. The territory's exports to Israel include toys, watches, clothing, footwear, optical products, machinery and mechanical equipment.

In the past two decades, Israel's economy has undergone a radical shift towards more hi-tech industries.

This has led to a flood of advanced technology products, including telecoms, computer software and hardware, biotechnology, and safety and security systems.

'From a structural perspective, it is valid to argue that Israel's economy has become very driven by high technology and technology-intensive sectors,' Dr Mushkat said.

Israeli agriculture also fell under the technology-intensive umbrella because of its high productivity gains, he said.

Last year, hi-tech products accounted for 46 per cent of Israel's industrial exports.

In line with this trend, an increasing number of Israeli companies setting up operations in Hong Kong are hi-tech firms.

Of some 80 Israeli companies with a presence in Hong Kong, most are in such fields as telecommunications, software and IT, aerospace, internet technology, biotechnology, medical devices and venture capital funds.

Hong Kong serves as a regional headquarters base and a stepping stone into the mainland and other parts of Asia for many Israeli firms.

'Many choose to locate here because of Hong Kong's role as a leading trade and financial centre,' Dr Mushkat said. 'Hong Kong is a platform with a good institutional infrastructure and where communications facilities are highly developed.'

Agreements signed between Israel and Hong Kong include double taxation exemption, investment protection and an industrial research and development co-operation framework agreement.

China has been targeted by the Israeli government as one of three countries (the others are India and South Korea) with the greatest potential for export growth.

'An objective is to go to places with high population growth, consumption and corporate spending. The corporate strategy is to diversify but to diversify to areas where there are large markets and high growth,' Dr Mushkat said.

Israel's exports to the mainland consolidated and fell slightly in the first eight months of last year, following a robust year in 2004 when exports totalled US$765 million, a 30 per cent increase over the previous year. Exports in 2003 were up 42 per cent over 2002.

'I see a great deal of dynamism [in Israel's trade with China] and I see Hong Kong playing the role of a facilitator. Israel's exports to the region are enjoying healthy growth on a multi-year basis,' he said.

An Israel Trade Centre in Beijing was opened recently to provide a base for Israeli companies hoping to do business in China.

An Israeli liaison office has been opened in Shenzhen in Guangdong province, and other offices are being planned for Dalian in Liaoning province in northern China.

A report in Israel Asia Trade 2006 said that the Israeli government was close to signing new agreements with the central government that would call upon Israel to recognise China as a 'market economy', while China would designate Israel as an 'Approved Tourist Destination' and a preferred investment country in rural telephony and water technology.

Avraham Israeli, executive (environmental technologies) of the Israel Export & International Co-operation Institute (IEICI), who is in town after visiting Beijing to meet company representatives to promote Israel's technologies in potable water and energy production, said pilot projects had begun between Israeli solar energy producers and the mainland.

'We have started the first pilot project in Nanjing, and the second one will be in Shandong. Already, there is a demand for the Nanjing project to expand,' he said.

The project is a collaboration between the Weizmann Institute of Science and a company in Nanjing.

'It serves to prove the economic benefits the technology can bring.'

Mr Israeli said he hoped that recognition for technologies provided by Israeli companies would increase and bring more opportunities for co-operation.

With strong consumption and exports helping Israel's economy to grow by about 5.2 per cent last year, the economic outlook remains favourable for this year and further expansion of 3.9 per cent is expected.

'Exports should continue doing well and the domestic economy is also performing well.'

With additional reporting

by Reggie Ho