China’s Hand in Israel

November 14, 2019

by: Nathan Williams, Director of Marketing and Communications

In Chinese tradition, the pig with its characteristically fat face and big ears is a mark of prosperity. It is appropriate then that as the Chinese year of the pig draws to a close, the world must take note of the prosperity and spectacular economic ascent of the People’s Republic of China. How exactly China will exert its growing worldwide economic influence is yet to be fully comprehended. Nonetheless, what is clear is that the State of Israel has not been spared from the gaze of the Land of the Red Dragon. 

The Boom

Economic reforms that started in 1978 and continued into the new century enabled China to dominate global manufacturing to become “the world’s factory.” China now boasts the second-largest economy in the world. The vast amounts of capital generated by this economic boom have seen the rise of the Chinese billionaire, a growing middle class and massive foreign investment. From natural resource acquisition to infrastructure development and agriculture, China has through a series of direct investments and overseas lending become the largest creditor in the history of the modern financial establishment. With an innovative approach to economic and geopolitical strategy, China is targeting ongoing economic success.

One of these strategies is known as “Made in China 2025.” In 2015, Chinese Premier Li Keqiang presented a plan to shift the Chinese economy away from its dependence on the world’s hunger for cheap Chinese goods. China’s policy and investment focus is now diverted to acquiring and manufacturing advanced technology, which will propel it toward becoming a global high tech superpower. Another strategy is the Belt and Road Initiative (BRI), which is a reinvention of the ancient Silk Road: a trade route to ensure efficient distribution of Chinese goods to Asia, Africa and Europe. Through its multibillion dollar investment in road, port and rail infrastructure projects in more than 60 nations along the BRI trade route, China is ensuring its sustained growth.

Ulterior Alliance

As China forges ahead with these strategic economic-industrial policies, the start-up nation has come into the limelight as a strategic piece in Beijing’s technological and trade advancement. A recent report by the Israel-based IVC Research Center confirmed that 300 Israeli companies have benefited from around US $1.5 billion in Chinese investment over the past five years. In an interview with CNBC, Steven Schoenfeld of BlueStar Indexes said that “Chinese investment in Israel is broadly distributed across every major disruptive tech sector.” Schoenfeld is referring to Israel’s advancements in high tech fields like cybersecurity, autonomous vehicles, agro-biotechnology and artificial intelligence.

Schoenfeld further explained to CNBC that Israel is strategically located on the BRI route, and China’s investments in Israel confirm this. Chinese companies are expected to win the bids for significant infrastructure construction projects in Israel, one being the creation of a railroad link between the Red Sea resort town of Eilat and the Mediterranean port city of Ashdod. Starting in 2021, a Chinese company will commence its 25-year management rights to a private seaport in Israel’s largest international port in Haifa. China’s appetite in Israel extends even further. The largest Israeli dairy supplier, Tnuva, has been bought by China’s Bright Food (Group) Co., Ltd. for 4.78 billion shekels (US $1.35 billion). Chinese companies are also proposing to build new power plants and are attempting to acquire two Israeli insurance companies, Phoenix and Clal, both of which hold a large majority of Israel’s pensions and savings.

Dangerous Balancing Act

Israel’s blossoming relationship with China has spurred warning cries from its largest ally: the United States of America. The Trump administration has since 2018 implemented numerous import tariffs against China in an ongoing economic conflict. Furthermore, the US has become increasingly wary about the access that Chinese firms have to critical knowledge and technological innovations. Technology designed for commercial use could potentially have a military application, and militarized technology could land up in the hands of the Chinese Communist Party—and then on to Iran. US security officials are concerned that Chinese companies that have access to the latest Israeli advancements in cyber technology and artificial intelligence pose a significant threat. US officials have warned Israel that the increased investment by China in high tech fields could negatively influence intelligence ties between the two allies.

Warnings are also coming from within Israel’s state security structure. In an article in the Wall Street Journal, Ephraim Halevy, former director of the Mossad (Israeli intelligence agency), said that Israel is lethargic in its ability to recognize the threat of increased Chinese investment. The chief of the Shin Bet (Israeli internal security organization), Nadav Argaman, told Israel’s Channel 10 news that in his opinion, “Israeli law is lagging behind security needs in terms of supervision of investments by foreign countries, and this may be dangerous. Legislation is needed.” Although the Israeli government is still courting Chinese investment, they have taken the cue from US counterparts in establishing a regulatory cross-agency body in Israel to overseas foreign investment in potentially sensitive fields. This new body will operate alongside the existing office within the Israeli Ministry of Defense, which already oversees requests for the export of military weapons or technology.

The State of Israel and every other nation that accepts the seemingly unlimited capital investment originating from the People’s Republic should be mindful of the architects of its grand geopolitical-economic strategy: the Communist Party of China. In typical clandestine fashion, the Communist Party wields significant sway within the hierarchy of Chinese companies, which according to the United States is a cause for concern. Whether or not China’s strategies of extensive foreign investment, “Made in China” and the BRI trade route are simply means for economic development or something more nefarious remains to be seen. What is clear is that China is positioned to exert a global influence not seen since the height of British colonialism.

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