China sues Israeli government for denying light rail tender 'under US pressure'

A conglomerate of Israeli and Chinese companies has sued the government in the Tel Aviv District Court for denying their bid for the giant Tel Aviv light rail project, claiming it was based on illegal US pressure.

In January, the government announced that it had granted the tender to the French firm Alstom and that Israeli companies Dan and Electra won the Green Line tender, while Israeli firm Shafir and the Spanish company CAF are set to build the Purple Line.

The announcement by NTA Metropolitan Mass Transit System Ltd., the government-funded company responsible for the planning and construction of the Tel Aviv light rail, was a major win for Washington over Beijing in a multi-year battle over influence regarding Israeli infrastructure.

Both the Biden and Trump administrations have vehemently pressured Jerusalem to deny bids by Chinese companies to build critical infrastructure projects, especially in communications and technological areas.

An ongoing trade and technology war between the two global powers has led to heightened American concerns that the Chinese would use infrastructure projects in Israel as a back door to spy on US interests.

Chinese president Xi Jinping speaks at a meeting marking the 110th anniversary of the Xinhai Revolution, at the Great Hall of the People in Beijing, earlier this month. (credit: CARLOS GARCIA RAWLINS/REUTERS)

At one point, the Trump administration even threatened to end the US Navy’s use of the new Haifa port due to China’s involvement in its development and operation.

But Jerusalem has been worried about alienating Beijing, and the January decision was the first time that Israel toed the new US line and risked such a major break with China after more than a decade of Chinese companies getting deeper and deeper into Israeli infrastructure and ports projects.

The plaintiffs include the China Railway Construction Company, which the Biden administration banned from receiving any US investment – due to suspected ties to the Chinese defense industry – the Israeli company Urbanics and other Israeli and Chinese firms. The World Bank sanctioned the CRCC in 2019, following fraud allegations.

In the lawsuit, the plaintiffs demand that Israel approve its bids, given that they offered the lowest prices.

One of its subsidiaries, the China Civil Engineering Construction Corp., dug the Gilon Tunnel in the North in 2014 at a cost of about $200 million, worked as a subcontractor on the Carmel Tunnel project for about $150m. in 2010, and has been working on the Tel Aviv Light Rail’s Red Line to the tune of $500m. in recent years.

The 39 km., 63-station Green Line is meant to run from Rishon Lezion through Holon, central Tel Aviv and Tel Aviv University to western Herzliya. It will include four underground stations; the target year to begin operations is 2026.

The Purple Line will run from Tel Aviv’s Carmel Market eastward, with one route going to Kiryat Ono and Bar-Ilan University and the other to Yehud. Planned to be 27 km. long with 45 stations, it is also set to start running in 2026.

CRCC HAS a history of “dumping,” a common practice by companies taking part in China’s initiative to expand its infrastructure construction around the world, by which they bid for a tender at a loss, in order to win.

Their bid for the Tel Aviv Green and Purple Lines was significantly lower than the others, and NTA began an investigation in August 2021 of how it could actually provide the necessary services at such a low price.

NTA has experience with this practice, as Chinese company CRGT has gone well over budget in building the Tel Aviv Light Rail’s Red Line.

Officially, NTA said it rejected CCRC’s bid on this basis: that it was a misleadingly low bid.

In the lawsuit, the plaintiffs flagged a variety of statements by former Shin Bet (Israel Security Agency) director Nadav Argaman, Israeli political officials and US officials indicating that Jerusalem would deny CCRC’s bid based on America’s request.

However, if the Biden administration has framed the issue in terms of avoiding China spying on both Israel and the US, the plaintiffs alleged that this was a charade by Washington to try to unfairly gain an economic advantage in competing with Beijing.

According to the plaintiffs, standard contract law does not permit the government to discriminate against Chinese companies simply because the US requests such an outcome.

Further, they say that statements by Argaman and others that Chinese companies could be “dangerous” to Israel if they are allowed to continue to build its infrastructure are not based on objective evidence but a subjective desire to please the US, regardless of questions of contract law and fairness.

Despite these claims, it is unlikely that an Israeli court would override the government, and especially security advice from the Shin Bet, simply based on the claims of the plaintiffs that assertions that they are “dangerous” are a façade for American commercial considerations. Israeli courts tend to defer to the government and the defense establishment in judging whether or not an issue is a national security threat.

At the same time, it is possible that the court may hold hearings on the issue and demand more details from the government regarding whether China is dangerous in this area.

Even the act of holding such hearings could lead the government to either reevaluate its decision or alter its process for making future decisions to make the criteria for ignoring a lower bid by a Chinese company clearer and more transparent.

As long as the Trump administration saw the potential for working out a deal with China over trade and technology issues, there were also louder defenders of Beijing in the Israeli cyber establishment, and a minority even in the defense establishment.

But in recent years, Jerusalem has made it clear that if it has to choose a side, it is on the American one.

Israel would just prefer to avoid conflict wherever possible.

Lahav Harkov contributed to this story.