Facing Western diplomatic and economic pressure, Israel looks east

Israel seeks to build on its burgeoning ties with India and China, but thinking the Asian giants can step in for Europe and the US on the diplomatic level is a mistake.

By LESLIE SUSSER
June 27, 2015 12:34
Israel China

Prime Minister Benjamin Netanyahu and China’s Vice Premier Liu Yandong sign an agreement in Jerusalem.. (photo credit: REUTERS)

FACING MOUNTING Western diplomatic and economic pressure, Israel has been assiduously cultivating ties with what it hopes will be the less judgmental Asian giants, China and India. In Prime Minister Benjamin Netanyahu’s view, the potential in Israel’s “pivot to Asia” is unlimited.

On the economic level, it has been impressive. With annual trade of over $11 billion, China is already Israel’s second largest single country trading partner after the US. With purchases of around $1 billion a year, India is the world’s largest consumer of Israeli military equipment.

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Despite the huge disparity in size and economic needs, Israel and the Asian giants have been able to find scores of mutually beneficial economic fits. Israeli hi-tech is of particular interest. China is looking to Israeli R&D to help produce innovative products; India seeks to manufacture sophisticated weaponry and civilian goods based on Israeli know-how.

But if Israel’s strategic planners think the Asian giants can step in for Europe and the US on the diplomatic level, they are making a huge mistake. Asia can help pick up economic slack created by European antipathies. But neither China nor India is likely to champion or defend Israel on the world stage. To maintain its international standing, Israel needs the support of what it itself acknowledges as the “moral majority” the US and Europe provide.

That will require a policy that convinces the world that Israel is serious about ending the occupation and achieving a two-state solution with the Palestinians. No amount of intimacy with the Asian giants will change that.

Politics aside, Israel cannot afford to be sidelined as China projects ever increasing economic power. In late March, Beijing officially unveiled plans for its hugely ambitious new “Silk Road” initiative first announced in 2013 as the “one road, one belt” project. The idea is to build overland a vast ultra-modern transit, trade and economic corridor stretching for 8,000 miles from Shanghai to Berlin, including high-speed trains, fast highways, energy pipelines and fiber optic networks, and to extend its reach by sea through a maritime lane linking China to the Persian Gulf and the Mediterranean through Central Asia and the Indian Ocean. Together, the land and sea belts will connect Asia, Europe and Africa in the world’s largest economic corridor, linking well over 4.4 billion people. It would be the most extensive infrastructure project in history, taking decades to complete and transforming the global economy.

Besides the enormous bilateral benefits, good ties with China could enable Israel to participate in building the huge Silk Road infrastructure and give it access to third countries in Asia it might not otherwise have had.

Netanyahu sees expanding ties with China as a top priority. When Beijing launched the new Asia International Infrastructure Bank to help finance the Silk Road scheme, 58 countries, including Israel, signed on as charter members, despite strong American objections. The US sees the AIIB as a potential rival to the Washington-based World Bank and International Monetary Fund, able to raise huge amounts of capital for investment in Asia and help China challenge America’s global hegemony. Nevertheless, most American allies, with the notable exception of Chinese rival Japan, joined the AIIB. Netanyahu signed Israel’s letter of application in late March. Netanyahu has also set up a special task force for promoting ties with China under his close economic adviser, Prof. Eugene Kandel, who heads the National Economic Council. One of its chief goals will be to complete negotiations with China on a Free Trade Agreement.

Over the past few years, Chinese companies have made major investments in a number of leading Israeli concerns – for example Bright Food in the giant Tnuva dairy conglomerate, JT Capital Fund in Clal Insurance and ChemChina in Makhteshim Agan, a world leader in agricultural chemicals. The Chinese are also heavily invested in Israeli Information Technology (IT), advanced medical equipment and cutting-edge agricultural technology.

Indeed, it is Israeli hi-tech and start-ups that are attracting special Chinese interest.

China, already by some distance the world’s largest manufacturing nation, is looking to produce new breakthrough products of its own and sees in Israel a prime source of innovative technology. Cooperation agreements worth hundreds of millions of dollars have been signed between Israeli and Chinese academic institutions and China will soon surpass the US as the main foreign investor in Israeli hi-tech and joint hi-tech ventures.

The scope of Chinese penetration has sparked a fierce debate over the extent they should be allowed to invest in Israeli companies or undertake national infrastructure projects like railways and ports. Opponents of heavy involvement argue that China’s wider Middle Eastern interests, for example Iranian and Saudi oil, could lead it as a future major Middle Eastern player to take anti-Israel positions, compromising national projects in which Chinese concerns have a share. The critics also insist that China is lax about protecting intellectual property rights and could appropriate crucial technologies from the Israeli firms they invest in or partner with.

The proponents of Chinese involvement argue the gains, especially in view of stepped up Palestinian efforts to isolate Israel, far outweigh the potential risks. Some suggest minimizing the risks by introducing a review process for all would-be foreign investors, setting clear parameters to protect Israeli interests.

Yet, important as it is in itself, the dramatic growth in trade is still far from providing an all-encompassing solution for Israeli exports, should access to the West be limited by boycott or other anti-Israeli measures. Israeli export traffic to the US and the EU amounts to around $36 billion dwarfing the $2.7 billion Israel currently exports to China.

Moreover, because of US restrictions, there is no military dimension to the Sino-Israeli relationship. In 2000 and 2005 the US forced Israel to cancel two lucrative deals with China – to supply strategically significant Phalcon early warning and control planes and to upgrade Harpy attack drones. Needless to say, the Chinese were not pleased. Israel was forced to pay compensation and lost its foothold in the huge Chinese military market.

India, on the contrary, is a very different story. The military dimension of the relationship is enormous. Ties warmed in 1999 when weapons Israel supplied helped India win the Kargil War against Pakistan. Then in 2004, when India announced a major military modernization program, Israel, along with Russia and the US, became one of three main arms suppliers. Of the $7 billion Israel exports annually, around $1-1.5 billion goes to India.

When Defense Minister Moshe Yaalon visited India in February, he announced that the previously hush-hush defense relationship was now “out of the closet.” While he was there attending the “Aero India” show in Bengaluru, the Indian industrial giant, Kalyani Group, announced a deal with Israel’s Rafael Advanced Defense Systems to develop and manufacture unspecified military hardware.

Other major military deals and projects include: 

• Joint development of missile defense systems: Israel Aerospace Industries (IAI) and the Indian state-owned Defense Research and Development Organization (DRDO) are close to finalizing a deal for jointly developing a surface-to-air missile defense system for the Indian army, with the bulk of production scheduled to take place in India. IAI and DRDO are already working on similar systems for the Indian navy and air force. Last September, India ordered 262 Barak 1 seaborne anti-aircraft missiles.

• Airborne Warning and Control Systems (AWACS): The two countries are finalizing a deal for the supply to India of two more airborne Phalcon warning and control systems mounted on Russian-made Ilyushin Il-76 transport planes. The Indian armed forces already have three.

• Anti-tank guided missiles: India recently acquired 321 Israeli-made Spike launchers and 8,356 missiles.

• Spy Drones and other UAVs: India has ordered another 16 Heron medium- altitude long-endurance UAVs. It already has about 100 various Israeli-made drones. Israeli-made UAVs played an important role in India’s victory over Pakistan in the 1999 Kargil conflict. IAI and India’s Alpha Design Technologies signed an agreement in February to team up on the production and marketing of mini-drones. The IAI’s Bird-Eye 400 and Bird-Eye 650 as well as other mini UAVs will be produced in India and jointly marketed.In addition, IAI and DRDO are working on unmanned helicopters launched from naval vessels.

• Radar: India has ordered two more aerostat radars, moored balloons used as radar platforms. It already has four. It also purchased the advanced Green Pine radar system used in the Arrow anti-missile missile system.

• Israel and India signed an intelligence sharing agreement in July 2014. Both are interested, inter alia, in radical Muslim groups active in Pakistan, and Afghanistan and Bagladesh..

The Israel-India relationship is underpinned by the warm friendship between Netanyahu and India’s Prime Minister Narendra Modi of the right-tending Bharatiya Janata Party. Modi was one of the few world leaders genuinely pleased by Netanyahu’s reelection in March. “Mazal tov, my friend Bibi,” he tweeted. Netanyahu was also the only world leader Modi met on the sidelines of the UN General Assembly last September, and later this year he plans to become the first Indian prime minister to visit Israel. During that visit, the two countries hope to be able to announce a free trade agreement, which experts say could double the current trade volume which stands at around $5 billion.

Soon after he came to power last May, Modi announced his “made in India” initiative, advocating partnerships between Indian and technologically advanced foreign firms, with production of the ensuing products to be based in India. Israel, with its military industry and civilian hi-tech, was a perfect match. A model for this type of Indo-Israeli cooperation was the merger in 2007 of Israel’s NaanDan and India’s Jain Irrigation to form NaanDan Jain, one of the world’s largest and most advanced irrigation technology firms. The two governments also provided funding to encourage Israeli companies to locate projects in India. Among those to do so include Check Point, Amdocs, Magic Software, Ness Technologies and Comverse. Other recent moves include:

• A buyout of Israel’s Panaya software solutions by Infosys, India’s second largest software exporter.

• Partnering of India’s Tech Mahindra IT and Israel’s Comverse to set up an R&D center in Or Yehuda.

• A joint venture between Indian IT solutions provider Rolta and Israel’s Meprolight, a global leader in electro-optics.

• A research partnership between the Indian generic drug-maker giant Sun Pharma and the Haifa Technion on the development of new cancer-fighting medication.

In addition, on the government to government level, the two countries have signed seven bilateral economics and R&D agreements, including one on joint space travel and satellite development. India launched Israeli intelligence gathering satellites in 2008 and 2009.

Nevertheless, despite their burgeoning ties with Israel, both India and China have major interests in the Muslim world. For example, to secure its oil supplies from Iran, India is ready to build a port at Chabahar, Iran’s closest and best access point to the Indian Ocean and only 50 miles from the mega port the Chinese are helping to develop at Gwadar in Pakistan for much the same reason.

Both India and China get most of their oil from the Gulf. Both see the continued flow of Middle Eastern oil as vital for national security. India’s biggest trading partner is the UAE. And the volume of both India and China’s trade with the Arab countries as a whole is around twenty times their trade with Israel. Both countries have traditionally voted in favor of Palestinian statehood. India also has to take into account a Muslim minority of over 160 million.

Bottom line: Both China and India hold unique economic opportunities for Israel it would be foolish to miss. But it would be equally foolish for Israeli decision- makers to entertain great diplomatic expectations.The Asian giants cannot provide an answer to mounting Western pressure in the form of diplomatic initiatives or BDS moves.

The diplomatic umbrella provided largely by the US and to some extent by Europe is irreplaceable. And more than by new PR campaigns, the best way to keep it open would be by sincere and serious commitment to ending the occupation.

This story first appeared in The Jerusalem Report


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