Jerusalem’s Orient Express: Israel looks East for new opportunities

Israeli trade and diplomacy are steadily shifting from West to East, as previously dormant Asian powers surge.

March 25, 2017 07:19
CHINESE AND ISRAELI officials meet at the Great Hall of the People on Monday in Beijing. Israeli bus

CHINESE AND ISRAELI officials meet at the Great Hall of the People on Monday in Beijing. Israeli businessmen who accompanied the delegation reportedly signed deals worth some NIS 7.3b. (photo credit: REUTERS)

‘The Celestial Empire possesses all things in prolific abundance and lacks no product within its borders,” boasted China’s Qianlong Emperor while rejecting as “barbarian manufactures” a British diplomatic delegation’s display of barometers, telescopes and guns.

It was one of history’s most fateful statements of conceit, as China’s self-imposed isolation condemned it to industrial inferiority, imperial decline and military defeat.

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It took nearly two centuries, but China has long reversed course, as Benjamin Netanyahu’s visit this week proved. A slew of governmental and private deals signed by ministers, business leaders and academic executives, while the prime minister met with President Xi Jinping and toured the Great Wall, underscored an increasingly rich, assertive and omnipresent China’s centrality for the Jewish state.

From its inception Israel understood China’s significance.

Jerusalem recognized the People’s Republic of China in 1950, despite Washington’s protestation, and in 1959 David Ben-Gurion told the Knesset that the international system’s dominance by the US and the USSR is “transient,” because the pair will in the future be replaced by China and India.

Israel therefore did its best to cultivate its Asian flank, but it proved a frustrating, Sisyphean struggle of more than 40 years.

Mao Zedong’s China placed itself firmly in the anti-Israel camp since the mid-1950s. India, as a co-founder of the Nonaligned Bloc, backed the Arab world in any diplomatic situation, and would not exchange ambassadors with the Jewish state. And Japan, while establishing diplomatic ties with Israel, surrendered to the Arab boycott, because its industry depended on Arab oil.

The end of the Cold War changed all this, as China, India and also Vietnam opened embassies in Tel Aviv, while Japan’s major conglomerates suddenly joined Subaru, until then the only Japanese automaker to sell cars to the Jewish state.

The economic dams had burst open, so much so that last year Israeli exports to Asia surpassed, for the first time, its exports to America, comprising a quarter of Israel’s overall exports.

Europe, with 28%, is still higher, but considering that less than a decade ago this 28% was 33%, it is clear that it is only a matter of a few years before Asia becomes Israeli exports’ lead destination.

Following the 1991 Gulf War, which convinced them that Israel is no longer at the heart of the Middle East conflict, Japanese investors began flocking to Israel, whose previously negligible exports to Japan now approach an annual $1 billion.

A similar, only much bigger and faster trend developed in relations with India, which invited Israeli firms to upgrade its agriculture and supply its military. Annual trade with India has already crossed $2b., and Israel has become the fourth-largest supplier of the Indian military, the world’s leading arms buyer.

Yet the most dramatic change happened in trade with China.

Originating in the Soviet invasion of Afghanistan, when an alarmed Beijing began buying Israeli arms, China now buys annually more than $3b. of Israeli exports.

Chinese goods, which last decade added up to a mere 0.6% of Israeli imports, are now more than 10%, at roughly $6b., which is more than three times the imports from Japan.

Having evolved from toys and textiles to TVs, smartphones and cars, Chinese imports were followed by takeovers of major Israeli brands, such as food producer Tnuva and cosmetics maker Ahava, and also by involvement in major construction projects, such as Tel Aviv’s subway and the Mount Carmel tunnels.

This is where trade arrived, as China journeyed from farm to factory, and its exports proceeded from industry to finance.

Now, however, as the post-Mao era of breakneck growth draws to a close, the Chinese want to lead their economy to a new phase, one that makes Israel even more relevant to them than it already was.

Chinese strategists now want China to invent.

REALIZING Israel’s reputation on this front, Beijing decided to tap into the Jewish state’s wellsprings of innovation.

It started four years ago, with an agreement between Tel Aviv and Tsinghua universities to open a joint research center for environmental technology. The following year the Technion- Israel Institute of Technology was solicited to build and operate a $130m. institute of technology in the southern city of Shantou. And last year, China’s biggest university, Jilin, signed a deal with Ben-Gurion University of the Negev to build a center of innovation and entrepreneurship, while Shanghai’s Normal University invited the University of Haifa to open on its campus a neurobiology and biomedicine program.

This academic hyperactivity has been accompanied with high-level political visits, like a delegation led by Vice Premier Liu Jindong, whose meeting with Netanyahu two years ago in Jerusalem was followed by a joint statement that Beijing and Jerusalem will open talks to establish a free trade zone.

The two, by now veteran acquaintances, met again last week in Beijing, promising to deepen the two countries’ cooperation in innovation.

The political implications of all this commercial and scientific commotion are profound.

JERUSALEM’S PIVOT to Asia has already produced a plethora of Israeli and Asian leaders’ high-profile visits in each other’s capitals.

A visit like President Reuven Rivlin’s to Vietnam this week while Netanyahu was in China hardly made headlines, having been preceded by much more dramatic events such as then-Chinese president Jiang Zemin’s five-day visit to Israel in 2000, or then-prime minister Ariel Sharon’s to India in 2003, or then-Japanese prime minister Junichiro Koizumi’s visit to Israel in 2006.

Israel’s assumption that Asia will eventually dominate its foreign affairs is unannounced but difficult to deny. One glaring sign of this reorientation is Israel’s decision to join, as a co-founder, China’s version of the World Bank, the Asia Infrastructure Investment Bank.

Washington didn’t like this move, but Jerusalem went ahead with it anyhow.

Surely, Israel’s pivot to Asia can only happen that fast.

Then-prime minister Ehud Barak’s decision 17 years ago to sell China $200m. worth of Israeli-upgraded spy planes remains a diplomatic trauma to this day. Facing a firm American protest, Barak sheepishly canceled the deal and also paid Beijing a $350m. cancellation fine.

Arms sales to China consequently plunged and have yet to recover, despite former chief of staff Lt.-Gen. (res.) Benny Gantz and his Chinese counterpart Gen. Chen Bingde’s mutual visits in 2012.

Even so, the Asian future that Ben-Gurion foresaw is already here, and is also a matter of consensus in Israel, as reflected by Matan Vilnai’s recently concluded five-year ambassadorship in Beijing, which worked well under three Likud governments despite his past as a cabinet minister for the Labor Party.

As trade with China, India, Korea and Japan grows exponentially, and with Israel-Chinese trade expected to double within a decade, there is reason to believe this geopolitical transition will ultimately impact the Middle East conflict, one way or another, especially if Europe’s fracturing will accelerate.

Asia’s Middle Eastern impact is difficult to predict, but several things can be said in this regard already now.

First, the Asians in general and the Chinese in particular are much less messianic about the Mideast conflict than the US and Europe. The Chinese people has no complexes about the Jews, and its government separates business from politics. For instance, in purchasing Ahava the Chinese ignored its soaps and deodorants’ emergence from the Dead Sea, parts of which the Palestinians claim.

Second, the Asian urge to tango with Israel is not only despite the Jewish state’s Middle Eastern predicament but also because of it, as India and China in recent years became victims of Islamist terrorism. Both powers now see in Israel’s anti-terrorism expertise much more value than they once saw in anti-Israeli sermons. Similarly, South Korea finds Israel useful in confronting its North Korean challenge, for instance in Seoul’s reported interest in purchasing the Iron Dome missile-defense system.

Yet the most important change in Asia’s attitude toward the Middle East lies in the collapse of oil’s diplomatic value.

What once was efficiently used to blackmail a power like Japan to minimize business with Israel can now be reversed, as the industrialized powers’ dependency on Mideast oil has given way to Middle Eastern producers’ dependency on their customers’ cash.

This transformation is particularly meaningful in Iran, which sends 42% of its oil exports to China, and a further 33% to Japan, India and Korea. If China decides to tell Tehran to stop rocking the Middle East, the mullahs will have to obey, and thus vindicate Ben-Gurion’s prophecy, and also the Qianlong Emperor’s assumption, about China’s place in the world.

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