Author’s Note:

The author of this article is a member of the Ministry of Justice’s “National Pool of 1,000 Foreign-Related Lawyers”. With nearly 30 years of deep expertise in cross-border investment and trade-related legal services, the author has accumulated extensive practical experience and strategic resources specifically within the China-Israel corridor. This article serves as the opening chapter of a specialized series on China-Israel trade compliance, providing a high-level overview of emerging risks and response strategies. In subsequent installments, the author will provide granular legal dissections of the specific nodes mentioned herein.

As we move into 2026, the profound evolution of the global geopolitical landscape and the rise of technological sovereignty have pushed China-Israel economic cooperation into “uncharted waters”. The trade model is shifting from being purely technology-driven to being “compliance-first”. With the implementation of the 2026 revision of China’s Foreign Trade Law and the structural adjustments in Israel’s export control system, enterprises must find new certainty within a complex legal web.

I. The China Perspective: New Frontiers in Security Reviews and Data Outbound

1. Substantive Reviews Under the 2026 Foreign Trade Law

The Foreign Trade Law, effective March 1, 2026, represents more than a legislative update; it is a shift in regulatory logic.

· Normalization of National Security Reviews: The law strengthens scrutiny over trade involving critical infrastructure, food security, and energy. Collaborative projects, such as agricultural water-saving technologies or smart grid upgrades, now require pre-signing assessments to evaluate their impact on national supply chain security.

· Precision Enforcement on Dual-Use Items: Controls in 2026 extend beyond finished goods to components and foundational software. Exports of advanced manufacturing equipment to Israel must provide documentation that penetrates to the “ultimate end-user”.

2. “Green Lights” and “Red Lines” for Cross-Border Data Flows

As the Data Security Law enters full enforcement in 2026, data flows must follow a strict logic:

· Healthcare & Biometrics: Clinical data collected in China by Israeli digital health firms must, in principle, be stored locally. Any outbound transfer requires a security assessment by the Cyberspace Administration of China (CAC).

· Industrial Internet: Operational data involving China’s industrial backbone is classified as “Important Data”, and its transmission via uncertified encrypted channels is strictly prohibited.

1. Strategic Opportunities in Encryption Control Relief

In March 2026, Israel will officially revoke its 1974 Control of Encryption Items Order, significantly lowering trade barriers in civilian technology.

· Consumer Electronics Advantage: Smart home and IoT devices with complex algorithms no longer require tedious permits from the Defense Export Control Agency (DECA), accelerating time-to-market in China.

· Shift in Regulatory Focus: While barriers are lower for consumer goods, controls on core encryption prototypes remain stringent, shifting the focus from “product entry” to “flow monitoring”.

2. Restrictions on Offshore R&D and IP Protection

The Israel Innovation Authority (IIA) has tightened restrictions on the relocation of government-funded projects.

· Separation of Manufacturing and R&D: While production lines may be established in China, core Intellectual Property (IP) must remain in Israel. Transfers of technology may trigger high “Exit Fees” under 2026 standards.

1. Compliance by Design: Engage legal teams from both jurisdictions during the project initiation phase to embed data and technology transfer paths into the design, rather than fixing them post-signing.

2. Dynamic Policy Radar: Utilize AI tools to monitor real-time updates to China’s Export Control Lists and Israel’s DECA Defense Export Lists.

3. Local Storage & Differentiated Licensing: Adopt a “Tech Licensing + Local Operations” model for sensitive tech. Localize non-core tech in China while accessing core patents through secure, remote interfaces to balance efficiency with security.

Economic cooperation in 2026 remains a landscape where opportunity is hidden within challenge. Compliance is no longer an “extra cost” on a financial statement; it is the lifeline for survival in this specialized arena.

As the opening of this series, this article establishes a macro-coordinate system for compliance. In an era where tech sovereignty is paramount, the logic has shifted from “passive defense” to “active strategic planning”. By identifying the security “red lines” of the new Foreign Trade Law and leveraging the relief in Israeli encryption controls, enterprises can secure a first-mover advantage.

Compliance lives in the granularity of detail. The topics touched upon here—national security reviews, data flows, and dual-use items—can each determine the success of a cross-border project. In subsequent articles, the author will deep-dive into the legal practicalities of agricultural technology IP, medical device market entry, and smart grid compliance.

To assist enterprises in self-assessment, we have attached the “2026 China-Israel Trade Compliance Checklist”. This tool distills the latest policy shifts into an actionable framework to help leaders build their first “digital firewall”.

Appendix: 2026 China-Israel Trade Compliance Checklist

Part One:

Export Controls and Technology Classification (For Hardware and Software Transactions)

Part Two:

Data Security and Intellectual Property (For R&D Cooperation and Digital Trade)

Part Three:

Supply Chain Security and ESG (For Production and Financial Settlement)

Expert Insight: Special Focus in 2026

1.  March 21st is a watershed moment: Before this date, Israel’s cryptocurrency exports will remain strictly controlled under the old regulations; after this date, the process for B2C consumer products will be significantly simplified.

2. “End user” is the core of auditing: In 2026, Chinese customs’ review of precision equipment exported from Israel will shift from “paper declaration” to “verification of technical parameters”. Please be sure to retain the original technical specifications for future reference.

3.  Thorough due diligence: It is recommended that companies conduct a thorough shuttle scan of their partners’ equity structures at least once a year to prevent compliance violations caused by changes in the other party’s shareholders.