Israel-China Ties: The ‘Sticking Point’ With the US?

This post, written on July 11, 2019, was updated by HonestReporting staff on May 19, 2020.

Israel-China ties were on the agenda when Secretary of State Mike Pompeo visited Israel last week. Pompeo flew half-way around the world in his first trip abroad since the coronavirus to discuss peace efforts, Iran and cooperating against COVID-19.

Washington’s hostility towards Beijing is well known, as the Trump administration threatens to cut funds to the World Health Organization, calling a “puppet of China.” The White House has further infuriated the Chinese by blacklisting Huawei, arguing that the telecommunications firm is an extension of the Chinese state and helps the government steal secrets through its hardware and mobile networks.

Why would Israel’s relationship with China be of such importance that it would even lead to verbal sparring at their joint media appearance?

At first glance, Israel and China don’t seem like natural allies. China’s population is 160 times larger than Israel’s, and Israel’s geographic size pales in comparison to China’s. The two countries have distinct histories, cultures, and religions, and their indigenous populations come from areas thousands of miles apart. There are major political obstacles too: The US, China’s greatest competitor, is also Israel’s strongest ally.

Nevertheless, Israel-China ties have grown substantially over the last few decades, centering around mutually beneficial economic exchanges.

As China has risen almost unchallenged as the economic powerhouse of the East, it has pushed forward with an aggressive, imperialist expansion plan. Through China’s Belt and Road Initiative, the country has put its full weight behind spreading its economic influence across Asia and into Europe, constructing a vast network of land and sea routes. It has already brought Pakistan, Sri Lanka, and many African nations under its sway, and it’s clear that the government has been eyeing Israel as its next target.

However, this has thrust Israel into the middle of the world’s most prominent great power rivalry, creating a complicated triangle of relations between Israel, the US, and China. Since the fall of the Soviet Union, the US has worked tirelessly to maintain its status as the global hegemon and contain China’s rise to power.

So far, Israeli leadership has been able to walk a fine line between the two countries, but it’s playing a dangerous game that may backfire terribly. With growing concern from the US, the question of whether Israel will fall under the wing of China’s growing influence or remain a loyal enclave of US-oriented foreign policy in the Middle East remains up in the air.

Time will tell. However, the short but eventful history of Israel-China ties can at least explain how Jerusalem ended up in this situation.

Israel-China Ties: A Quick Takeoff

The first signs of ties emerged in 1979 when Saul Eisenberg, a Jewish businessman, set up a secret meeting between the two countries. The gathering resulted in the transfer of defense technology from Israel to China, and by 1992, the countries had established a formalized relationship.

The more important take-off in Israel-China ties has happened within the last few decades, with the two countries strengthening their connections through a multitude of bilateral trade agreements. In 2016, Chinese exports to Israel were an astounding 625 times greater than in 1992, rising from $12.8 million to $8 billion. In the same time frame, Israel’s exports to China jumped by over 70-fold, from $38.7 million to $3 billion.

Chinese companies are investing in and even buying out Israeli companies, such as Tnuva dairy products company and ADAMA Agricultural Solutions. Because Israel is an innovation hub, most of China’s investment has targeted Israel’s tech sector, a golden opportunity that China has jumped at to modernize its rapidly growing economy and, possibly, its military prowess.

Recently, Chinese companies bought out parts of the Haifa and Ashdod ports. In Haifa, a Chinese state-owned enterprise received a 25 year contract to operate a container terminal at the port. Chinese companies are also bidding to help fund the light rail construction in Tel Aviv along with other projects around the country. These ports and rail networks in Israel can stand as critical nodes of China’s Belt and Road Initiative, securing Chinese access to the Mediterranean Sea.

Arthur Herman, senior fellow at the Hudson Institute, gives another example of how investing in Israeli transportation infrastructure is so strategic for China:

One outstanding example of Chinese capital helping to meet Israeli needs while also serving larger Chinese interests is Beijing’s involvement in the so-called “Red-Med” project, a 300-kilometer rail line linking the port city of Ashkelon, just fifteen miles south of Ashdod, to the Red Sea. The Israeli government, which has deemed “Red-Med” economically essential to the country’s future, responded enthusiastically to China’s offer to provide experienced labor and an approximately $2-billion investment. From China’s perspective, however, “Red-Med” forms only one node, albeit an important one, in the network of high-speed rail lines it intends to build across Southeast Asia, Africa, and the Middle East as well as in China itself.

The Red-Med project, along with the Haifa port, the Tel Aviv light rail, and many other investment opportunities don’t just benefit China.

Israel has placed its bets on China, opening its arms to investment projects and economic interdependence with the world’s fastest growing major economy. In just one 2017 visit to China, Netanyahu signed 10 bilateral trade agreements with the Chinese government. Moreover, in May of 2019, China hosted over 100 Israeli startups and thousands of Chinese investors at a business event in the Shandong Province.

China’s foreign investment benefits Israel massively. It decreases the price of construction projects in Israel and opens up a large pools of available capital. Israeli cooperation with China also diversifies its trading portfolio.

Israel-China economic ties have trickled down to academic, cultural, and tourist exchanges as well.

In January of 2015, China and Israel signed the “China-Israel Innovation Cooperation Three-Year Action Plan,” establishing an alliance between Chinese and Israeli universities to expedite cooperation over research and development. Technion and Shantou University, Tel Aviv University and Tsinghua University, and University of Haifa and East China Normal University have all teamed up to build labs and branches of the Israeli universities in China.

Tourism is also on the rise. In just three years, Chinese visitors to Israel jumped almost 300 percent, from 32,400 in 2014 to 123,900 in 2017. By 2018, Israel had finalized direct flights from Ben Gurion airport to four different cities in China.

Yet in Beijing, growing economic ties haven’t fostered much Israel-friendly political change.

Beijing is also expanding defense relations with Iran, Israel’s number one enemy. Meanwhile, Israel’s defense ties and arms sales to India, a rival to China, complicate the situation. Furthermore, China steadfastly votes against Israel in UN decisions, and refuses to permit Chinese workers to work in West Bank settlements.

These are but a few examples of China’s contradicting geopolitical and economic interests.

China’s desire to establish a foothold in the Middle East raises the same security issues the US started to deal with over a decade ago. How should Israel manage its ties with China, a new great power seeking to disrupt the current world order for its own benefit?

Security Concerns

The caveat to the mutually beneficial business activity is certain security risks.

Chinese assets in Israel may be dual-use, meaning they can be used in business but also have military applications. Because many companies in China are either state-owned or comply with the government, they may be required to hand over sensitive user data or technology that could modernize China’s military, an outcome the US government fears.

America’s apprehensions of Israel-China ties go back a few decades. In the late 1990s, the Clinton administration pressured Israel to cancel the sale of a Phalconn airborne early warning  and control system to China. Similar pressure in 2004 forced Israel to cancel the sale of Harpy surveillance aircraft leading to a Jerusalem-Beijing rift that took years to mend.

Security risks have also arisen in the telecommunications field. The Chinese company Huawei has already bought two Israeli companies and is now eyeing building 5G telecommunications infrastructure in Israel. Because this may give Chinese companies a backdoor into valuable and user information, US President Donald Trump has declared that US-Israel ties may take a hit if Huawei carries out its plans.

While the US has established the Committee on Foreign Investment in the United States (CFIUS), Israel currently has no body to examine foreign investment and exports out of the country for possible security risks.

Espionage?

A second concern is that a Chinese presence in Israel can be used for spying.

The Haifa port, is one notable example. Here, the US Sixth Fleet and many IDF submarines often dock. Once China begins operating part of the port in 2021, it could set up cameras, gain access to radio and cellular networks, and, consequently, monitor US military activities and ship movements.

This puts US-Israel military ties in a tough situation. While the decision to allow Chinese presence in Haifa will boost Israel’s economic development, it shows Israel is prioritizing growth over collective security with the US.

American policymakers are skeptical of this choice. The US Senate’s National Defense Authorization Act for 2020 reflects these sentiments, bringing up “serious security concerns” about the Haifa Port deal with China. With the threat of Chinese surveillance, the US Navy may opt to avoid Haifa altogether.

But others argue there is no need to worry. Yigal Maor, director-general at the Transportation Ministry’s Administration of Shipping and Ports, believes China’s presence in Haifa poses little to no threat, pointing out that that China already has a presence in ports across the Western world, including a large terminal in Seattle.

Allaying fears of Chinese spying, Maor asserted that the Chinese would only have control of about 10 percent of the entire port’s operations, and 98 percent of the workers at the port would be Israeli. The Chinese, he says, are just shareholders of the company.

Caught Between Great Powers

Either way, as Israel’s engagement with China has grown, their relationship has become the one major “sticking point” with the United States.

In April of 2019, Trump put his fist down, making it clear to Prime Minister Benjamin Netanyahu that if he did not retract on Israel-China ties, the US would pull back on some current areas of security cooperation. A few months before, Secretary of State Mike Pompeo also warned Israel that the intelligence sharing would be threatened if Israel did not implement a screening process for Chinese investments, one similar to CFIUS in the United States.

These concerns have pushed Israel right into the middle of the US’s great power rivalry with China. Israel has attempted to walk the tightrope, delicately balancing its economic ties with China and security ties with its biggest ally, the US.

So far, the Israeli government has successfully held the middle ground between the two countries. It has banned the sale of numerous military products to China, but permits most technology and infrastructure investment with little to no oversight.

It’s a dilemma faced not just by Israel but by other US allies who have opened up to trade with China.

Related Reading: News on China’s Acquisition of the Haifa Port

Looking Ahead

US security concerns are not reason enough to break the current Israeli-Chinese relationship. The economic benefits are too high for Israel to backtrack. Rather, concerns should motivate Israel to proceed with caution, ensuring future exports and foreign investment deals are safe and better monitored.

To guarantee Israel can continue striking a balance between the two powers, the 2019 RAND report on Israel-China ties offers suggestions for a path forward between Israel and the United States:

Coordination should be expanded to other areas, aside from defense, and involve other ministries and agencies. The engagements between Washington and Jerusalem should include China as a regular item in discussions and policy decisions. Israel and the United States also should ensure regular information-sharing and joint monitoring of the nature and extent of Chinese investments and economic activities in Israel and in the broader Middle East (including in the Red Sea and east Mediterranean). This is especially important as growing voices in Israel call for developing a process to scrutinize Chinese economic practices more closely.

Overall, Israel should certainly improve its screening processes and initiate greater dialogue with US intelligence officials over Chinese investments. Growing security concerns may prompt US leadership to harden on its threat to break security ties with Israel. However, as long as Israel’s economic partnership with China continues blossoming safely, it will be able to resist pressure to pick a side in the US-China rivalry.

Israel’s current balancing act between the two is a major foreign policy success, maintaining a triangle of relationships that will continue to benefit the small, but powerful, Middle Eastern state.

This article was originally written by Tyler Kutler and published 11 July 2019, It was updated by HR Staff on 19 May 2020.