Israel caught in the middle of growing US-China tensions - analysis

Why the US is so concerned about Chinese investments in Israeli technology and infrastructure and the security risks they pose.

Chinese President Xi Jinping and Israeli Prime Minister Benjamin Netanyahu shake hands ahead of their talks at Diaoyutai State Guesthouse in Beijing, China March 21, 2017 (photo credit: ETIENNE OLIVEAU/POOL/REUTERS)
Chinese President Xi Jinping and Israeli Prime Minister Benjamin Netanyahu shake hands ahead of their talks at Diaoyutai State Guesthouse in Beijing, China March 21, 2017
(photo credit: ETIENNE OLIVEAU/POOL/REUTERS)
When US Secretary of State Mike Pompeo arrives in Jerusalem on Wednesday, there will be a long list of topics on the agenda, many of which are issues on which Israel and the Trump administration currently see eye-to-eye, like settlement annexation and Iran.
But there’s one matter that’s sure to come up, which is more contentious than the others: Growing Chinese investments in Israel.
Friction between the US and China has been on the rise for years – after all, US President Donald Trump announced a trade war on China in 2018 – but it has gotten much worse in the wake of COVID-19, with the sides trading barbs and blaming one another.
This adds up to bad news for Israel, leaving it caught between two countries with which it has extensive ties.
The US has warily eyed Chinese investments and infrastructure projects across Israel as potential security risks for years. Both Trump and Pompeo warned last year that if Israel does not curb its ties with China, security cooperation and intelligence sharing with the US could be limited.
Read part II, "US-China ties have hit another low point in the wake of coronavirus">>
The best-known point of contention between the US and Israel is a new terminal in the Haifa Port, partially constructed and to be operated by a Chinese company next year.
More recently, there has been growing attention paid to Sorek 2, which will be the world’s largest desalination plant. Hutchison Water International, a subsidiary of a Hong Kong-based company, is one of the two finalists for the tender to operate the plant. On Tuesday, Channel 13 reported that Prime Minister Benjamin Netanyahu ordered the committee on foreign investments to reassess the tender, due to American pressure.
US Ambassador David Friedman told The Jerusalem Post last week that “the last thing we want is any limitation on how the US can do business or cooperate in Israel.
“For two countries as close to each other as Israel and the US, when they cooperate and exchange intelligence and other secrets for their mutual protection on such a robust level, both countries need to be really careful about exposing that level of cooperation to a foreign power that may have a different agenda,” he said.
Friedman warned that China uses its investments and infrastructure projects to “infiltrate” countries.
“They crept up on the entire world in a benign but dangerous way. They didn’t do it with rockets and tanks; they did it with cheap labor projects,” he added, saying that “these [Chinese] companies have the ability to flick various switches and gain access to the most sensitive communications.”
Israel-China trade grew by 402% in the past decade, reaching about $14 billion in 2018, making China Israel’s third-largest trading partner.
Beijing’s Belt and Road Initiative, launched in 2013, set a goal for China to take part in infrastructure projects around the world. In 2015, China’s leadership also launched “Made in China 2025,” meant to turn the country into a global high-tech manufacturing leader. Israel fits into both of those objectives.
Israel’s motivation, beyond getting much-needed capital, is to diversify its export markets and sources of investment by plugging into the world’s fastest-growing economy. There are major advocates of a stronger relationship with China in Israel’s government, going all the way up to Prime Minister Benjamin Netanyahu.
Visiting Beijing in 2017, Netanyahu told Chinese President Xi Jinping that China should “assume its rightful place… on the world stage,” and said Israel is “your perfect junior partner for that effort.” He added that China-Israel trade “is a marriage made in heaven.”
RAND, a prominent think-tank funded partly by the US government, published a comprehensive report last month, sponsored by the Office of the US Secretary of Defense, titled “Chinese Investment in Israeli Technology and Infrastructure: Security Implications for Israel and the United States.”
According to the report, the US should be most troubled by Chinese investment in Israeli technologies that could give China a military and economic edge, but it also warned against too much foreign investment in Israel’s vital infrastructure, which, if damaged, could lead to substantial economic, social and environmental losses, and even casualties.
The RAND report identifies 11 companies that should raise concerns for Israel or the US, involved in major transportation infrastructure projects worth over $4b. – expanding the Ashdod Port, building and operating the new Haifa Port terminal and the Tel Aviv light rail, digging the Carmel Tunnels in Haifa and potentially, a railway line between Eilat and the Mediterranean Sea – or investing in “dual-use” commercial technologies that could have military or intelligence functions.
One of the risks is that most of the Chinese companies in question have strong links to the Chines e government, military or Chinese Communist Party. For example, China Communications Construction Company and its subsidiaries, like China Harbor Engineering Company, worked with the Chinese armed forces and the Ashdod Port, plus the proposed Eilat rail line. Chinese tech companies like Huawei and ZTE that have invested in Israel “have come under significant scrutiny in the US for their less-than-transparent connections to the Chinese government and military,” the report states.
Chinese investments and construction activities could pose cybersecurity and intelligence threats. Huawei, Xiaomi, ZTE and other investors in Israel sell products known to have security vulnerabilities. Chinese companies have shown an interest in dual-use technologies, in areas like artificial intelligence, satellite communications and cybersecurity. Israel limits export of dual-use items, but it has identified many of these technologies as commercial, despite their security risks. RAND raised concerns about cyber-espionage, saying that technological information can be “used by China to bolster its own cyber defenses or reverse-engineered to ID software vulnerabilities.”
But concern about spying is not limited to the tech sphere. The report posits that physical proximity is a potential risk and that human intelligence-gathering efforts will probably grow as more Chinese personnel is sent abroad. For example, if a US Navy ship comes into the Haifa Port, as the 6th Fleet does at least once a year, Chinese operatives could try to identify its electronic warfare capabilities, the signatures it emits or what radars are on board.
The RAND report also pointed to incompatibility between Israeli and Chinese interests in the Middle East, particularly Beijing’s close ties with Tehran. China has supplied hundreds of millions of dollars in weapons to Iran since 2000, has cooperated with Iran’s missile and nuclear programs and opposes military action against the Islamic Republic. Of the companies working in Israel, ZTE and China Railway Tunnel Group also did business with Iran.
China’s foreign policies go against Israel’s interests in other ways as well. China does not recognize Hezbollah as a terrorist group, and Israel has advocating for countries to do so. China also votes against Israel at the UN.
Then, there’s concern for the US-Israel relationship. The US is the lynchpin of Israeli foreign policy, and those close ties are one of Israel’s greatest strategic assets. A threat to security and intelligence cooperation between Israel and the US is a serious one.
In addition, getting on the wrong side of the trade war with China could also be problematic, as a Trump administration official signaled. The official said Trump was “dead on” about China’s trade deficit with the US in his 2016 presidential campaign.
“Israel can use domestic labor or labor from the US or another ally,” the US official said. “In the long run, we’ll be there for Israel, and China won’t.”
The second and final part in this series will report why US warnings are likely to increase, and how Israel needs to institute better oversight to allay American concerns – and for its own security.