Cause for concern? Chinese investment and Israel's national security

Beijing’s growing involvement in Israel’s economy is breeding a specter of concerns.

Transportation Minister Israel Katz and employees of China Railway Engineering Corporation join hands in an event marking the beginning of underground construction work of the light rail in Tel Aviv, 2018 (photo credit: BAZ RATNER/REUTERS)
Transportation Minister Israel Katz and employees of China Railway Engineering Corporation join hands in an event marking the beginning of underground construction work of the light rail in Tel Aviv, 2018
(photo credit: BAZ RATNER/REUTERS)
Over the last few years, former Mossad head Ephraim Halevy has warned of the danger that the growing involvement of Chinese companies in Israel poses to its national security.
Many mocked his warnings, including Transportation and Intelligence Minister Israel Katz, but now it seems that Halevy’s insights may have been prescient after all.
Four MKs led by Ofer Shelach from the Yesh Atid party have requested to address the Foreign Affairs and Security Committee regarding “the entry of Chinese elements to Israel’s strategic spheres.”
The matter is a highly sensitive one: How to navigate Israel’s desire to attract foreign investment, including from China, with the need to protect itself from foreign control of critical infrastructure, national assets, and security and defense systems.
In the last decade, dozens of Chinese companies have entered the Israeli market as sole or sub-contractors or suppliers in major transportation, infrastructure, agriculture and food projects, including the 2014 purchase of a controlling share in Tnuva, the flagship of the Israeli dairy industry.
The Chinese have also been involved in constructing the Mount Carmel tunnels, the Acre-Carmiel railway, Tel Aviv’s light rail transit system, privatized ports in Haifa and Ashdod, the Tel Aviv-Jerusalem railway and possibly the proposed Tel Aviv-Eilat railway, as well as two water desalination sites. The estimated value of all these projects is $25 billion.
Not surprisingly, the Chinese “invasion” is worrisome for many who fear the loss of jobs and businesses. But Shelach, who investigated the phenomenon, says that though he is aware of the economic concerns of some Israeli companies, “my main concern [of such an invasion] is the security and strategic ramifications to our state.” He adds, “We are avoiding a serious public discourse to understand the full scope of the possibility that Chinese companies will eventually control chunks of our economy.”
According to Shelach, Israel needs a “comprehensive policy,” particularly with regard to China, otherwise each ministry “determines its own approach and policy.”
Indeed, the Finance Ministry has blocked attempts by Chinese firms to purchase Clal and Phoenix, two of the nation’s major pension funds. The reason: the fear that hundreds of billions of dollars and the future of a million or more Israelis would be at the mercy of the Chinese government.
The Defense Ministry has also acted of its own accord, preventing Chinese companies from bidding on tenders for the IDF and the intelligence community.
Israel was the first Western nation to provide China with armaments, in the mid- ’70s. But in the ’90s, the Clinton administration used the threat of a fallout to coerce Israel to cancel a major deal that would have provided China with a sophisticated airborne early warning system. Israel had to return the $350 million advance to the Chinese government.
An approach of caution and suspicion toward the Asian giant is shared by several Western nations. After years of oversight, the US formed an inspection body in the Treasury Department known as the Committee on Foreign Investment in the United States to monitor foreign investments. The committee has the power to cancel deals with foreign entities, which plan to purchase assets that are designated as important to national security.
The EU, Germany, France and Italy hope to advance similar initiatives. Germany has already passed a bill that enables the government to prevent a foreign company from controlling more than 25 percent in what is defined as “essential infrastructure,” i.e., software, security power stations, energy, water and electrical supplies, hospital and transportation. Similar laws have been adopted by Canada and Australia.
Chinese efforts to penetrate Israel need to be understood in a global context.
“The Beijing regime aspires to position China as the leading world power,” says Dr. Harel Menashri, head of the cyber department at the Holon Institute of Technology and a former official in the Shin Bet (Israel Security Agency). “[It is] taking advantage of the void created by the ‘disappearance’ of the US leadership in the world.”
According to Menashri, China’s actions are motivated mainly by economic and commercial needs by manipulating weaknesses in world markets and states.
“Israeli leaders have to understand that there is no real private sector in China,” he says. “Though many companies defined themselves as ‘private,’ practically all of them are directly or indirectly controlled by the centralized government, which is ruled by the Communist Party. All Chinese businessmen, investors and companies play along the party lines and its prevailing spirit.”
There is an even more delicate issue when it comes to China: espionage activities, carried out mainly by cyber warfare, and exercised by an army of hundreds of thousands of hackers run by the army intelligence.
The aim is to steal information, know-how and technologies from Western governments, corporations and research institutes, Israel included, for the interests of China’s government, economy and businesses.
“The method of the Chinese intelligence organ is known in the West as a ‘vacuum cleaner’ – to suck everything and then to sort it out,” says Menashri. “Israel is part of this Chinese global effort because of its advanced hi-tech industry and intimate relations with the US and EU.”
Chinese intelligence is interested in obtaining Israeli political, military, scientific and economic data. Despite its sophisticated state-of-the art cyber defense, Israel has not been immune to Chinese hacking.
It was reported that Chinese hackers penetrated Israeli defense manufacturers and stole secrets from its most advanced weaponry systems, including the Arrow 3 and Iron Dome anti-rocket and missile defense systems.
In an interview with The Jerusalem Report, Halevy emphasizes that he favors the entry of Chinese companies into the Israeli market but “they should not be allowed to operate or have access to the security realm or areas close to it, as well as vital sectors to the economy, such as insurance and banking.”
Halevy and Menashri both highlight another problematic aspect of China’s foreign and economic policy, which potentially poses a threat to Israel’s security interests: its close relationship with Iran.
Unfortunately, Menashri says, Israeli leaders are either not aware or turn a blind eye to the danger that China could control and influence large sectors of the Israeli economy, which would not necessarily benefit Israeli society.
Halevy suggests that Israel pass laws similar to those in other Western nations that limit the involvement of foreign companies in vital domestic areas.
In the past, the Israeli government has intervened to prevent majority control by foreign investors in national assets, such as El Al airlines or Bezeq telecommunications, and dubious Russian oligarchs suspected of involvement in criminal activity. There is no reason it will not do so again regarding China. And indeed, the Justice Ministry and the security establishment are contemplating the adoption of a policy that will identify and define vital assets – state or private – that will be off limits to foreign, especially Chinese, interests.