Over U.S. objections, Chinese firms step up their involvement in Israel

Israeli government officials estimate that in Israel alone, Chinese corporations have invested in or accessed projects worth nearly $15 billion.

July 13, 2019 21:00
Over U.S. objections, Chinese firms step up their involvement in Israel

Previous transportation minister Israel Katz and employees of the China Railway Engineering Corporation take part in an event in 2017 marking the beginning of underground construction work of the Tel Aviv light rail, using a Tunnel Boring Machine (TBM). (photo credit: BAZ RATNER/REUTERS)


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While the Israeli cabinet led by Prime Minister Benjamin Netanyahu continues hesitating over what course of action to take, Chinese companies continue to invest and infiltrate Israeli strategic infrastructures.
The Shin Bet (Israel Security Agency), the National Security Council (NSC) and US administrations have time and again expressed their concerns regarding this growing trend. Yet government ministers are finding it difficult to reach a decision.
At the end of last month, the Israel Electric Corporation (IEC) sold one of its power stations to a consortium of two Israeli firms that teamed up with a Chinese company in a partnership named “China Harbor.” The capacity of the Alon Tabor power station is 600 megawatts – 2 percent of total electricity production in Israel.
The Chinese-led group paid $500 million to win the tender, two times more than the estimated value of the bidding. The overpriced deal is typical of the modus operandi of Chinese corporations. Most of them, such as China Harbor, are controlled by the Communist government. They are ready to pay almost any price to win tenders of strategic sites they desire in the target countries, and thus prevent any real and fair competition.
The electricity deal has to be viewed in a broader context. It is part of laborious efforts by the Chinese government to purchase, invest and control strategic assets in a wide range of infrastructures – seaports, railroads, trains, airlines, energy, power stations, oil and other minerals – in many parts of the world including the Middle East and Israel. A report prepared by the Military Intelligence Directorate shows that Chinese investment in the Middle East since 2012 grew by 1,700%, totaling $800 billion in civilian and military sectors.
Israeli government officials estimate that in Israel alone, Chinese corporations have invested in or accessed projects worth nearly $15 billion. In the last 15 years, Chinese companies purchased or won tenders to Tnuva, Israel’s largest dairy producer; dug the Carmel tunnels; and built the Ashdod and Haifa seaports, as well as Tel Aviv’s light rail. They also eyed Israeli banks and insurance companies, but the deals didn’t materialize for various reasons.
Now on the agenda are Chinese attempts to win new contracts worth $10 billion, to build the second line of the Jerusalem Light Rail and the two additional lines (green and purple) of Tel Aviv’s light rail.
The leading company involved in bidding for the new tenders is CRRC, the largest Chinese firm in the infrastructure field, which is owned by the government and employs almost 200,000 workers.
CRRC and a few smaller Chinese companies are currently constructing Tel Aviv’s red line, which will be completed – if we believe former transportation minister Israel Katz (he has now been replaced by Bezalel Smotrich) – by October 2021. They dig the tunnels and will supply the rail cars and communication gear.
CRRC is also doing thriving business in Iran supplying cars to the subways in the cities Tehran, Isfahan, Tabriz and Mashhad. The Israeli law titled Combating Iran’s Nuclear Program, which became enforceable in 2012, clearly states criteria to prevent any foreign company that does business in Iran from operating in Israel. It should have prevented CRRC from participating in any work in Israel, yet the Israel government ignores its own law and permits CRRC to participate in the new biddings.
The Israeli security establishment is very concerned about two particular projects in which the Chinese companies are involved. One is Tel Aviv’s red line, which will pass very close to the Defense Ministry, General Staff and Shin Bet headquarters. Israel’s ability to ensure that no bugging devices are planted near such sensitive institutions is very limited.
The same concern applies to the new Haifa port, constructed by SIPG, which has also won the concession to operate it for 25 years. The new civilian port is very close to the Israel Navy’s major port that houses its fleet of missile boats and its super secret submarines, equipped, according to foreign reports, with nuclear missiles.
Typical of Israel’s bureaucratic mess and diplomatic entanglement, no serious discussions with the interested parties were held before SIPG won the contract. Now, despite the concern of the security establishment, it is too late. Cancelation of the Chinese contracts would cause delays, huge financial compensation and losses, and, most importantly, would lead to Chinese rage and perhaps even a vendetta that would hurt the Israeli economy.
Thus Israel finds itself between the Chinese hammer and the US anvil. The very friendly Trump administration is pressing Israel to reduce Chinese involvement in Israeli strategic sites, especially the Haifa port, which is frequented by US naval ships, as homage to and a gesture of support of the strategic alliance between the two nations.
American officials are also concerned about the possibility that Israeli cellular companies will purchase G5 technologies from Huawei – currently boycotted by the US – and other Chinese providers. Recently, US Undersecretary of Defense Jon Rodd met senior Israeli officials and warned that if Chinese G5 technologies enter Israel, it will not only be a self-inflicted security risk but also a danger to its allies, the US included.
It is no secret that in the last decade, the Shin Bet has exposed many attempts by Chinese intelligence to launch cyber warfare against top Israeli hi-tech companies including military and security manufacturers, such as IAI, Elbit and Rafael, which have strong ties to their major American counterparts.
Rodd explicitly talked about the “devouring economy” of the Chinese. But it seems that so far Israel does not understand the polite language of understatements and hints.
Nearly five months ago, the NSC drafted a set of recommendations for Netanyahu and the cabinet on how to deal with foreign investments. The NSC studied the experience and practice of other Western democracies – the US, UK, Germany, France, Canada, Australia – which suffer from the same problem of Chinese encroachment on their economies.
The NSC sets guidelines how to balance the need to improve the economy and make it more productive and efficient by attracting foreign investment and, at the same time, protect national security and strategic infrastructure assets and sites. The document, for obvious reasons, does not mention China by name, but uses more generic language to talk about “foreign investment and involvement” in general terms. Yet it is clear that it is aimed at the growing involvement of China in Israel.
Despite the cabinet deliberating the NSC document in three meetings, it has had difficulties reaching a decision.
“The issue of supervising foreign investments in Israel with aspects referring to national security was discussed a few times in the cabinet following a comprehensive study led by the National Security council,” a senior government source told me. “At the heart of the issue is the required balance between economic interests, the desire to maintain a free market, and encouraging investment and national security interests. The ministers were presented with reports about the practices adopted in other Western nations. The ministers asked for more information and alternatives suitable for Israel. A final and concluding session will take place in the next few months.”

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