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An official at the Israel Export Institute told Reuters that new data showed semiconductor exports to China jumped 80% last year to $2.6 billion. An industry source told Reuters that Intel Israel accounted for at least 80% of those sales.

The data will be welcome news for the Israeli government as it pushes for deeper ties with China and because semiconductors accounted for $3.9 billion of overall goods exports in 2018, according to the institute, a government agency.

The two countries have started negotiating a trade deal and technology is expected to be a major part of the discussions. Overall exports of Israeli goods to China, excluding diamonds, rose 50% to $4.7 billion, statistics.

In 2017, Intel announced a $5 billion investment to expand capacity in its Kiryat Gat plant in southern Israel, which makes some of the smallest and fastest chips in the world.

That year it also bought Israeli auto-focused chip and technology firm Mobileye for $15 billion. It said this year it would invest $11 billion in a new Israeli plant.

A spokesman for Intel said the firm exported $3.9 billion worth of goods from Israel last year, up from $3.6 billion in 2017. He declined to give further details of Intel's operations in Israel.

Chinese officials have said they are looking to develop a domestic chip market because Chinese companies import $270 billion of semiconductors each year. Israel has a reputation for exporting high-end chips.

Israel's export institute also said sales to China of inspection equipment for semiconductor manufacturing jumped 64% to $450 million last year.

That equipment is used to control and inspect manufacturing processes in semiconductor plants and is useful for China as its domestic chip manufacturing increases.

Companies in Israel making such equipment include Orbotech, which was just acquired by fellow semiconductor equipment maker KLA-Tencor of California for about $3.4 billion.

That deal was announced a year ago but was held up by Chinese regulators, who only gave their approval in February.

Pivot to Asia

China is now Israel's second largest export market for goods after the United States, having overtaken Britain last year.

Sales of semiconductors to the U.S. slipped 20% to $860 million, contributing to a 3% drop in goods exports. But at $10.9 billion, overall goods exports still dwarf those to China.

Israel has been pivoting its economy toward Asia in the past few years both because of perceived political hostility in some European countries and the fact that Asian markets are growing rapidly.

In recent years, Chinese-based airlines have started direct flights to Tel Aviv, the two countries signed a visa agreement and are working on the trade deal. Israel is also in talks for free trade agreements with Vietnam and South Korea.

Some analysts in China expect the ties to get stronger due to the tit-for-tat trade war between the United States, a major chip producer, and China.

"Because of the trade war, China and Israel's cooperation is closer than it has been before," said Gu Wenjun, chief analyst at ICWise, a semiconductor consultancy in Shanghai.

"Israel has the technology and China has the market. The space for cooperation is big."

Eyal Waldman, founder and CEO of Israeli chipmaker Mellanox, said his company was benefiting from China's policies.

"In China, they prefer to use Chinese silicon and then after that non-U.S. silicon and only if they don't have that then U.S. silicon, so we are benefiting from that," he told Reuters.

"We are seeing better growth in China."

Mellanox agreed this week to sell itself to California-based chipmaker Nvidia Corp for almost $7 billion. Intel lost the bidding war to Nvidia. Russell Ellwanger, the CEO of another major chip manufacturer TowerJazz, said his company's growth in China "is very, very strong."

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The company was considering selling a minority stake publicly, but Lieberman ordered a halt to the preparations after Defense Ministry officials expressed concerns that outside investors might become privy to highly classified information, the report said.

According to the report, the freeze will remain at least until senior ministry officials complete a detailed review of the potential implications and risks of offering IAI shares to the public.

The Defense Ministry declined to comment on the report. An IAI spokeswoman was not immediately available.

IAI Chief Financial Officer Eyal Younian told Reuters in March last year that to help finance planned acquisitions by the company, the government needed to move ahead soon with plans to sell a 20% stake in the company on the Tel Aviv Stock Exchange.

Younian said the company needed to issue bonds or borrow money from banks and pay interest of 3% to 4%. An IPO would raise new capital, minimizing the need to borrow.

IAI has annual sales of about $3.7 billion and a backlog of orders exceeding $9 billion.

The 64-year-old company, which helped pioneer the development of military drones and produces satellites, missiles and radar systems, is planning to acquire companies and set up subsidiaries in countries including India and the United States, where protectionist policies demand that defense spending increasingly benefit local industry.

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