China-Israel relations: A move forward with uncertainty

China and Israel have expanded their relations in the past two decades, and have developed a mutually beneficial partnership that benefits both countries financially. In the past three years, however, Tel Aviv has responded to security concerns of the United States, and trade with China has declined. Benjamin Netanyahu, who was sworn in as Israeli Prime Minister on December 29, 2022, has signaled that his government wants to continue opening up Israel for trade with China while continuing to protect national interests, but he will still have to balance economic policy with U.S. influence.[1]

This article will analyze three areas of concern when it comes to dealings between the two countries: the intensification of competition between China and the United States; security issues and threats of attacks on Israel’s critical infrastructure and technology; and strategic and political threats.

Israel and China: A brief history

Israel officially recognized the People’s Republic of China (PRC) in 1950, becoming only the seventh non-communist country — and the first in the Middle East — to do so. Despite this diplomatic largesse, China engaged in anti-Israel rhetoric and gave financial aid to the Palestine Liberation Organization as their foreign policy at the time was mainly focused on “third-world countries” in the Arab world. At the same time, the U.S. discouraged Israel from trying to establish diplomatic relations with the PRC in the wake of the Korean War.[2]

In 1971, the United Nations, with Israel’s support, accepted China as a member instead of Taiwan. Later that decade, and throughout the 1980s, China began ideological separation from the Soviet Union, asserting its own interpretation of Marxism-Leninism, which included political differences. The PRC started official diplomatic relations in 1979 with the U.S., and unofficial military relations with Israel. Yitzhak Shichor, a professor of political science and Asian studies at the University of Haifa, believes that Israel began selling arms and military technology to China in the 1980s. The U.S, who wanted a strong China to be able to combat the Soviet Union, its Cold War enemy, allegedly encouraged Israel’s arms sales and might even have initiated them.

Informal Sino-Israeli ties began soon after in agriculture, science, tourism, and communications. The foreign ministers of both countries would talk at the UN General Assembly.[3] In 1987, Prime Minister Shimon Peres appointed Amos Yudan to set up Israel’s first official government-owned company to establish and foster commercial activities between companies in China and Israel. The company, Copeco Ltd., was active until 1992. Before the establishment of full diplomatic relations, Israel and China established representative offices in Beijing and Tel Aviv, which functioned as de facto embassies. The Israeli office was formally known as the Liaison Office of the Israel Academy of Sciences and Humanities. This was opened in June 1990. China was similarly represented by a branch of the China International Travel Service, which also opened in 1990.[4]

Israel and China established official diplomatic ties in January 1992, and in 2000 Jiang Zemin made history as the first Chinese President to visit Israel. Four Israeli presidents and three prime ministers, including most recently Prime Minister Benjamin Netanyahu in March 2017, have made diplomatic and trade visits to Beijing.[5]

Since the early 2000s, China and Israel have rapidly expanded their ties, not only diplomatically but in trade, investment, construction, education, science, and tourism. China’s main interests in Israel are partnerships with Israeli technology startups, and investing in critical infrastructure as part of the PRC’s Belt and Road Initiative (BRI), which was launched by Beijing in 2013 to develop China’s trade infrastructure in Europe and Africa and now includes more than 130 countries. Israel wants to develop its diplomatic and economic relations with the world’s fastest-growing major economy, and expanding trade with Beijing allows Tel Aviv an opportunity to leverage Chinese capital and diversify away from their primary trade partners, the U.S. and Europe.[6]

Security threats

Between 2007 and 2020, China invested $19 billion in Israel, including $9 billion in technology.[7] In the first three quarters of 2018 alone, Israeli tech startups received $325 million in Chinese investment.[8] China understands that the Israeli tech companies they partner with have connections to high-level companies in the European Union and the U.S. This represents an opportunity for Beijing to indirectly influence the American political-economic scene through their Israeli partners, who have wider influence in the U.S.

China has also invested $6 billion in Israeli infrastructure and has served as contractor for several key Israeli infrastructure projects such as the construction of the first light rail in Tel Aviv by the China Railway Tunnel Group Company, who won a bid of close to $810 million in May 2015.[9] One such project, the construction of a new port in the northern hub city of Haifa in two phases by Shanghai International Port Company (SIPG) in 2015,[10] is part of the BRI. Israeli authorities value Chinese companies, who have earned a reputation for offering reasonable prices, speed, and quality work, and award them more tenders than any other country (See Figures 1, 2, 3).

Figure 1. Bids on tenders by Chinese companies, by type of infrastructure

Source: Galia Lavi, “China and National Infrastructure in Israel: Past the Peak,” Strategic Assessment 25, no. 2 (2022): p. 114, http://bitly.ws/yPEt.

Figure 2. Number of tenders, bids, and winners by Chinese companies

Source: Galia Lavi, “China and National Infrastructure in Israel: Past the Peak,” Strategic Assessment 25, no. 2 (2022): p. 110, http://bitly.ws/yPEt.

Figure 3. The number of participants and winners of Chinese companies in comparison with other countries

Source: Galia Lavi, “China and National Infrastructure in Israel: Past the Peak,” Strategic Assessment 25, no. 2 (2022): p. 108, http://bitly.ws/yPEt.

Experts and security officials have deemed the widespread presence of Chinese companies in critical infrastructure and participation in Israeli tech startups a security risk. “The Chinese influence in Israel is particularly dangerous in everything connected to strategic infrastructure and investments in large companies in the economy,” Nadav Argaman, the head of Israel’s domestic security agency, Shin Bet, said at a closed lecture at Tel Aviv University. In his opinion, legislation was needed to supervise Chinese investment in Israel.[11]

In addition to security concerns, the Israel Builders Association (IBA) warned that China has taken over the infrastructure market in Israel since all Chinese companies operating in Israel are a single “holding group” owned by the Chinese government. Israel’s High Court of Justice refuted this claim, but according to the IBA, “the Chinese government competes unfairly in the infrastructure market and endangers hundreds of Israeli companies, which employ tens of thousands of workers.”[12]

The risk of allowing China access to Israel’s infrastructure came into greater focus when Israel was the victim of its first Chinese cyberattack in August 2021. According to the international cybersecurity firm FireEye, Chinese hackers successfully accessed computers belonging to the Israeli government and tech companies between 2019-2020. A report by FireEye revealed that the targets included state bodies as well as private organizations in the fields of shipping, technology, telecommunications, defense, academia, and information technology.[13]

“Their goal isn’t necessarily always to steal intellectual property,” said Sanaz Yashar, who led FireEye’s investigation. “It’s possible that they’re actually looking for business information. In the Chinese view, it’s legitimate to attack a company while negotiating with it, so they will know how to price the deal properly.” There was insufficient evidence to link the cyberattack to the Chinese government, and FireEye’s report did not create much of a stir in Israel;[14] however, Israeli authorities have tried to restrict Chinese companies from involvement in infrastructure and technology projects since the episode. The Chinese firm Hutchison, for example, was denied a permit to buy the mobile operator Partner, and the government might have intervened behind the scenes to thwart the sale of the Phoenix insurance company to the Chinese firm Fosun.[15]

Transregional element

Just as relations between Israel and China have grown in the last two decades, so, too, has U.S. concern about the partnership. Washington fears that the sophisticated military technologies that they have given Israel for decades might get transferred to Beijing, given that China invests in the very Israeli technology companies that conduct defense projects in parallel with the U.S.

Former U.S. President Donald Trump’s administration first warned of these potential security risks, with Secretary of State Mike Pompeo telling Israel’s Channel 13 in March 2019 that “China’s investment in Israel could undermine intelligence-sharing and other cooperation [between the U.S. and Israel].”[16] Pompeo even threatened to cut off cooperation with Israel: “If certain systems go in certain places, then America’s efforts to work alongside [Israel] will be more difficult, and in some cases, we won’t be able to do so.”

Although Tel Aviv has good relations with Beijing, it is not willing to alienate the U.S. in favor of China under any circumstances. If forced to choose between the world powers, Israel would not hesitate to side with the U.S., even though it would jeopardize their economic partnerships with China. Perhaps for this reason, Israel joined with the U.S. on October 30, 2021, to condemn China for its inhumane treatment of the Uyghurs at the UN Third Committee, which discusses human rights.[17]

Washington is highly suspicious of China’s access to Israel’s sensitive infrastructure, and U.S. authorities strongly discouraged using SIPG for the construction of the Haifa port. The U.S. Navy’s Sixth Fleet, which sometimes docks at Haifa, was one of the first to raise alarms about Chinese surveillance there. “The Chinese port operator will be able to monitor closely U.S. ship movements,” former U.S. Chief of Naval Operations Gary Roughead said in 2018.[18] Although the port opened, Israeli officials were forced to revise many projects to respond to U.S. concerns. Under pressure from the Trump administration, Israel announced on May 26, 2020, that it had chosen a local company IDE Technologies instead of a Chinese firm to build and operate Sorek 2, a massive new water desalination plant.[19]

The Biden administration has also expressed its concern about the relationship between China and Israel. Before former prime minister Naftali Bennett left for his first meeting with President Joe Biden on August 27, 2021, it was reported that the Israeli government took U.S. concerns about relations with China very seriously, seeing them as a national security issue. In July 2022, Biden and former prime minister Yair Lapid published a joint declaration on establishing a strategic dialogue on advanced technologies, headed by the U.S. and Israeli National Security Advisers Jake Sullivan and Eyal Hulata. On October 12, 2022, the outgoing Israeli government decided to strengthen the advisory mechanism for foreign investments. The U.S. ambassador to Israel, Tom Nides, said that the administration had also reached an understanding with Israel on trade with China, with Israel agreeing to tighten supervision over the sale of local technology to China. Senior officials in Washington have recently expressed appreciation for Israel’s considerable progress in this area, pointing to the notable change under the outgoing government and looking forward to a continuation of this progress under Netanyahu’s administration.[20]

If the future Israeli government ignores the warnings of the U.S. government, Biden will probably take Pompeo’s warning one step farther and reduce or cut off cooperation on certain technologies and political and military communications. This is Israel’s nightmare. The restrictions Israel imposed on China decreased the number of Israeli companies exporting to China by 15% to 480 companies in the last six years.[21] Israel will try to find a middle way between the two sides by continuing its policy of loyalty to Washington amid the U.S.-China rivalry, even if the overall relations between Israel and China are damaged in the process.

“I enthusiastically opened Israel up for trade with China and economic enterprises with China,” Prime Minister Netanyahu said in August 2022. “I suppose I’ll continue to do that. But matters of national security are also uppermost in our minds, as they are in the minds of others. We’ll continue to work with China, but we’ll also protect our national interests.”[22]

What’s next: Is China a regional threat?

An important factor in determining the foreign policy towards another country is whether that country is perceived as a security threat. Tel Aviv does not consider Beijing a regional threat; however, there are signs that there could be a clash of interests between Israel and China in the future, especially given China’s increased presence in the region and their ambitious plans including the BRI.

China has maintained its military presence in the Horn of Africa in Djibouti and at the nearest location to the entrance to the Red Sea, the same place where Israel has tried to increase its military strength and presence in the past years. In Syria, China supports the government of Bashar al-Assad and along with Russia and Iran supports the territorial integrity of Syria. Beijing signed an economic cooperation agreement with Syria in March 2020, and on January 12, 2022, they signed a memorandum of understanding for Syria to join the BRI.[23]

Meanwhile, Russia has agreed to allow Israel to continuously conduct air attacks against Iranian forces and its proxies in Syria.[24] Iranian militias have a string of bases in western Homs province, near the Lebanese border and to the east, and Israel has sought to disrupt Iran’s air supply lines so they cannot send weapons to their allies in Syria and Lebanon, including Lebanon’s Iran-backed Hezbollah.[25] On November 13, 2022, for example, Israeli missiles hit a major air base in Shayrat that was recently used by the Iranian air force.

Adding to tensions between China and Israel is Beijing’s support for Iran, Israel’s biggest enemy. China, a permanent member of the Security Council, backs Iran at the UN and other international forums, accepted Iran as a member in the Shanghai Cooperation Organization, and signed a 25-year strategic cooperation agreement with Tehran.[26] Chinese President Xi Jinping also said in December 2022 that China firmly supports the Palestinian people’s cause and their efforts to restore their national rights.[27]

Some analysts believe Israel could eventually view China as a threat to the region, much the way the U.S. views China around the world. Currently, Israel does not threaten China, who is now focused more on economic goals and not political ambitions. China’s policy in the Middle East is based on neutrality and communication with all parties. Israel’s policy may change in the future if China gains power and has conflicting interests with Middle East countries. “We don’t see China as a threat — yet,” Michael Oren, a former Israeli ambassador to Washington said. “But in 10 years, that could change.”[28]

Conclusion

Israel and China have had mutually beneficial relations that have been partially affected by U.S. pressure and security concerns in the last few years. The return of Netanyahu could revive the relationship. Netanyahu previously described Israel’s relationship with China, especially in the technology sector, as a “marriage made in heaven,” and in his new memoir, Bibi: My Story, he said: “Like most Western leaders, I walked a fine line with China. On the one hand, I wanted to open the enormous Chinese market to Israel and also lure Chinese investments to Israel… On the other, I was totally frank about setting clear limitations on what types of technologies we would share with China, stopping when it came to military and intelligence fields. This was our solemn commitment to our great ally the United States.”[29]

His biggest problem is the deteriorating relations between the U.S. and China. In the last few months, events such as the fall of a Chinese balloon on U.S. territory, the visit to Taiwan of the Speaker of the U.S. House of Representatives, Nancy Pelosi, China’s possible sale of arms to Russia in the Ukraine war, and the recent reports by the U.S. intelligence services that the Covid-19 virus came from a laboratory in Wuhan have ramped up tensions between the U.S. and China.

If relations between China and the U.S. become more hostile, Netanyahu will have a serious problem in establishing a good relationship with China, but if he can address the concerns of the U.S., the Israeli Prime Minister will be able to strike a balance that will help all three sides: Israel, China and the U.S.

References

[1] Bari Weiss, “Bibi’s Back: A Conversation with Israel’s new Prime Minister,” The Free Press, November 30, 2022, https://www.thefp.com/p/bibis-back-a-conversation-with-israels

[2] Jordyn Haime, “ ‘The Honeymoon is Over’: Israel and China at 30 Years,” The China Project, May 20,  2022, http://bitly.ws/yPC9.

[3] Galia Lavi, “Interview with Prof. Yitzhak Shichor: American Interests Affect the Changes in Israel-China Relation,” INSS, August 8, 2022, http://bitly.ws/yPCs.

[4] “Israel’s International Relations: Israel-China Relations,” Jewish Virtual library, http://bitly.ws/yPCJ.

[5] Ibid.

[6] Shira Efron, Howard J. Shatz, Arthur Chan et.al, The Evolving Israel-China Relationship, (Santa Monica: RAND Corporation, 2019), http://bitly.ws/yPD5.

[7] Adnan Abu Amer, “Israel’s Growing Links with China Concern Washington,” The Middle East Monitor, August 23, 2021, https://cutt.ly/H2DdakZ.

[8] Shira Efron, Karen Schwindt, and Emily Haskel, Chinese Investment in Israeli Technology and Infrastructure: Security Implications for Israel and the United States (Santa Monica: RAND Corporation, 2020), http://bitly.ws/yPE9.

[9] “China-Israel Business Cooperation, Intercultural Exchanges Heating up,” The State Council Information Office – The People’s Republic of China, June 12, 2017, http://bitly.ws/yPDn.

[10] “China Infrastructure Helps Israel’s Haifa New Port Project Construction,” Seetao, August 24, 2022, http://bitly.ws/yPDa.

[11] “US Concerned over China’s Rising Investments in Israel,” Asharq Al-Awsat, January 11, 2019, http://bitly.ws/yPEg.

[12] Galia Lavi, “China and National Infrastructure in Israel: Past the Peak,” Strategic Assessment, vol. 25, no. 2 (2022): p. 107, http://bitly.ws/yPEt.

[13] “China Operatives Hack Israel Government, Tech Companies,” Middle East Monitor, August 11, 2021, https://cutt.ly/52DfNPH.

[14] Alexander Martin, “Chinese Cyber Spies ‘Posed as Iranians While Targeting Israeli Government,’ ” Sky News, August 10, 2021, http://bitly.ws/yPEZ.

[15] Amitai Ziv, “In First Massive Cyberattack, China Targets Israel,” Haaretz, August 10, 2021, http://bitly.ws/yPEU.

[16] “Pompeo Issues Stark Warning to Israel over China Ties,” Asharq Al-Awsat, March 23, 2019, http://bitly.ws/yPF6.

[17] Tovah Lazaroff, “Israel Joins 50 Nations in Condemning China's Imprisonment of Uyghurs,” Jerusalem Post, November 1, 2022, http://bitly.ws/yPFc.

[18] Danny Zaken, “Chinese-Operated Port Opens in Israel Despite American Concerns,” Al-Monitor, September 9,  2021, http://bitly.ws/yPFi.

[19] Rina Bassist, “China Loses Bid to Build $1.5 Billion Desalination Plant in Israel,” Al-Monitor, May 26, 2020, http://bitly.ws/yPFr.

[20] Assaf Orion, “What Is the New Israeli Government’s China Policy?” Jerusalem Post, 3 January 2023, http://bitly.ws/yPFy.

[21] Tal Schneider, “After Years of Blooming Trade, Some See Israel-China Relationship Start to Sour,” Times of Israel, August 3, 2022, http://bitly.ws/yPFH.

[22] Ibid.

[23] “China in Syria: Aid and Trade Now, Influence and Industry Later?” Center for Operational Analysis and Research, July 11, 2022, http://bitly.ws/yPFQ.

[24] Patrick Wintour, “Israel Has Launched Countless Strikes in Syria. What’s New Is Russia’s Response,” The Guardian, April 9, 2018, http://bitly.ws/yPG7.

[25] Suleiman Al-Khalidi, “Israel Strikes Air Base in Central Syria, Killing Two Servicemen, Syrian Military Says,” Reuters, November 13, 2022, shorturl.at/fno45.

[26] Ghazal Vaisi, “The 25-Year Iran-China Agreement, Endangering 2,500 Years of Heritage,” Middle East Institute, March 1, 2022, http://bitly.ws/yPGd.

[27] “China Supports Palestinian’s Just Cause of Restoring Legitimate National Rights: Xi,” Tasnim News Agency, December 9, 2022, http://bitly.ws/yPGq.

[28] Joshua Mitnick, “Why the U.S. Can’t Get Israel to Break Up with China,” Foreign Policy, June 16, 2020, http://bitly.ws/yPGx.

[29] Assaf Orion, “Whither the China Policy of the Sixth Netanyahu Government?” INSS, January 5, 2023, http://bitly.ws/yPGG.