“We don’t want the Chinese Communist Party to have access to Israeli infrastructure, Israeli communication networks,” he said, “the kind of things that endanger the Israeli people and the ability of the U.S. to cooperate with Israel.”
Two weeks later, Israel’s government passed on a bid by the Hong Kong conglomerate CK Hutchison to build a $1.5 billion water desalination plant.
But despite the bow to U.S. warnings, Israel appears to be pressing ahead on other deals—highlighting a substantial gap in the positions of the two countries on whether commerce with China poses a security threat. Washington’s trade war with Beijing is making the tensions even more acute.
“Israel sees China as an opportunity,” said Michael Oren, a former Israeli ambassador to Washington. “For the United States, China is a threat—a three-pronged threat that’s strategic, commercial, and technological.”
For Israel, the opportunities abound. Chinese construction companies are expected to bid on upcoming infrastructure projects in Israel ranging from light rail to 5G telecommunications networks. And the Chinese are expected to invest billions of dollars in Israeli technology ventures in the coming years.
Already, Shanghai International Port Group is building a new container port in Haifa, which some U.S. officials believe could be used to conduct surveillance on the U.S. 6th Fleet whenever it ports at a nearby Navy base. Chinese companies are building another Israeli port in Ashdod and a light rail project through the greater Tel Aviv area, which will run a few hundred yards from the Israeli military headquarters. Meanwhile, Chinese companies invested some $400 million in Israeli start-ups in 2018 and $243 million in 2019, according to IVC Data and Insights.
So far, Israel’s concern about strategic threats has been more limited to foes in the region: namely, the so-called Shiite crescent that runs through Iran, Syria, and Lebanon. Even though China supports Iran, Beijing has never been viewed as a factor in the Middle East that could weigh against Israeli security interests.
“China has never been in Israeli threat assessments like Iran is. China’s not in the neighborhood, and Israel isn’t an Asia-specific power,” said Shira Efron, a fellow at the Institute for National Security Studies at Tel Aviv University. “Israel doesn’t have the China experts here that are embedded in the system the way they are in the U.S.”
The United States and Israel first squabbled over ties to China two decades ago, when Washington pressed Israel to cancel a deal to sell Phalcon intelligence surveillance aircraft to Beijing.
Though Israel agreed to back off, Prime Minister Benjamin Netanyahu’s state visit to Beijing in 2013 opened the door to more commerce. The same year, the Hong Kong billionaire Li Ka-shing contributed $130 million to Israel’s leading technology institute, Technion, for a collaboration that includes a joint campus at Shantou, a city of more than 5 million people located 230 miles northeast of Hong Kong.
“We have been promiscuous in our attitude [toward China on intellectual property]. For a couple hundred million dollars, the Chinese gained access to the Technion,” Oren said. The former ambassador recalls Obama administration officials warning Israel against giving the Haifa contract to the Chinese.
“They said to us, if the Chinese build Haifa, they would not let the 6th Fleet come and visit.”
The port construction is part of China’s Belt and Road Initiative to establish a network of infrastructure projects internationally that will embed Beijing in the channels of global trade and economic development.
Unlike many developing nations that have partnered with Beijing for Belt and Road ventures, Israel is not taking Chinese loans to help finance the projects—sidestepping the debt trap that has ensnared other countries. But Chinese companies have a reputation for competitive pricing on infrastructure projects and finishing on time, making their bids hard to turn down (though in the case of a recent water desalination plant tender, however, Israeli officials insisted that an Israeli-led bid was cheaper).
Under pressure from the United States, Israel announced late last year that it would form an oversight panel to scrutinize foreign investment into civilian companies—akin to the Committee on Foreign Investment in the United States, an American interagency body.
But scrutinizing foreign investment in Israeli technology start-ups was not included in the panel’s mandate. That decision reflects Israel’s overall approach to the issue: widen trade with China when possible and indulge American demands when necessary.
Yitzhak Shichor, a political scientist at Hebrew University who was in Beijing in 1992 when Israel and China established diplomatic relations, said Israel’s promise to the United States not to sell military hardware to China already constitutes a concession that harms the commercial relationship. Israel should convince the United States that China is not a strategic threat, he said.
“For Israel, China is very important economically. And it opened the door to Israeli relations with other Asian countries,” he said. “In my view, Israel can somehow provide a bridge between China and the United States.”
But with the U.S.-China trade war threatening to shift global commerce into two competing economic blocs, it will become increasingly harder for Israel to maneuver between them.
The United States remains Israel’s main strategic and trading partner. But Netanyahu has sought for years to diversify commercial ties beyond the United States and European Union—which together account for about two-thirds of the country’s foreign trade.
“It used to be you could do business with everybody,” said David Rosenberg, an economics columnist and editor at the Haaretz newspaper. “The U.S. and China didn’t care. It’s become obvious that there’s in fact a cold war on the global scene. It’s like in the old Cold War, you couldn’t be friends with Russia and friends with America. You had to choose sides.”
Though it’s the Israel-China infrastructure projects that most often grab headlines—experts say they expose Israel to remote cyberstrikes from China—many others believe that Chinese investment in Israeli technology represents an even more serious concern. The United States is increasingly trying to block China’s access to cyber-innovations, artificial intelligence, and digital health technologies.
“This is going to be a new long-term feature of the U.S.-Israel relationship,” said Daniel Shapiro, a former U.S. ambassador to Israel. “Israel adjusting to the strategic competitive relationship, while trying to sustain its close partnership and take advantage of opportunities with China.”
Israel needs to adopt a more comprehensive policy to address both U.S. sensitivities and its own national security considerations, said Efron. It would do well to look to U.S. allies like Canada and Australia, which have tightened their foreign investment oversight regimes.
“From the U.S. perspective, you’re trying to prevent China from accessing certain types of technology. But China is trying … to get it from your allies who happen to also have advanced technologies. It’s closing the door but keeping the windows open,” Efron said.
“The problem is that for a long time Israel said, ‘Okay, well, since we’ve not done anything that looks like defense, or something that looks like dual use with China, we’re in the clear zone.’ But that has changed because the nature of competition between the U.S. and China is so much broader.”
If pushed, Israel would certainly prioritize its relationship with the United States over its commercial ties with China. Israel gets billions of dollars in military aid from the United States every year, and the two allies share broad strategic, political, and cultural interests.
What’s more, analysts believe Israel could eventually come to view China as a threat to the region—much the way the United States views China around the world. Beijing’s military already has a presence at the mouth of the Red Sea in the Horn of Africa country of Djibouti. It also stands to play a role in filling the political vacuum in Syria.
“We don’t see China as a threat—yet,” Oren said. But in 10 years, that could change, he said.
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