Israel will pay dearly for China's investments - opinion

The Jewish people didn’t come this far and pay a high price for our independence just to become a subject state of China. 

 China and Israel - Friends or foes? (photo credit: REUTERS)
China and Israel - Friends or foes?
(photo credit: REUTERS)

US President Joe Biden’s administration, like that of US president Donald Trump before it, has raised the issue of Chinese investments in Israel. The issue is not one of competition, but of US concern that China’s deepening relations with Israel’s economy will make the Jewish state vulnerable to Chinese espionage and foreign policy influence. 

Starting in the early 2000s, China has embarked on its Belt and Road Initiative. The initiative’s goals are to expand China’s world reach with infrastructure connectivity and financial integration. While this sounds innocuous enough, nothing should be taken at face value with the Chinese government. Included in the initiative has been financing of infrastructure projects in less developed countries, with the financing tied to the contracts being issued to Chinese companies (usually government owned). Since the Chinese companies have a monopoly on the contracts, the prices are generally inflated. Should the country default on the debt, it will find itself under undue Chinese influence as the country restructures its debt.

In Israel’s case, either a Chinese government owned company, Bright Food Group, outbids other bidders to buy control of an Israeli company, Tnuva, or a government-owned company low bids (below cost) to underbid local companies for infrastructure contracts. An example is the China Civil Engineering Construction Company, which has built the Gilon Tunnel and participated in building the Carmel Tunnel and the Tel Aviv Light Rail’s Red Line. Chinese companies – also government owned – have also won the contracts to manage Haifa Port, as well as the Ashdod and Eilat ports. The contracts are generally for 25 years. 

China now manages three of Israel’s four ports for the next quarter of a century. Chinese companies, again government owned, have also outbid Israeli and European companies on the supply of buses. All of these bids were suspiciously much lower than the competing bids. Essentially, the Chinese government is subsidizing these bids as a tactic to win the tenders. 

Former prime minister Benjamin Netanyahu’s government may have encouraged Chinese investments in Israel as a hedge against the Boycott, Divestment and Sanctions movement in the US and Europe, but these investments (and subsidies) are not free. The Belt and Road Initiative is intended to expand China’s world hegemony. Unlike today’s West (the US and EU), the Chinese do not hesitate to condition their economic relations on their foreign policy goals. Nor does China tolerate dissent, either domestic or foreign. Private investment in Israel by US and EU companies are not under the thumbs of their respective governments. While all Chinese investments, government and otherwise, are beholden to their government. 

China flag  (credit: WIKIMEDIA COMMONS/ECOW)China flag (credit: WIKIMEDIA COMMONS/ECOW)

That said, outright banning of Chinese investments in Israel and Chinese participation in government tenders would be politically and diplomatically problematic. Rather, a broader policy of banning government companies from participating in such projects would be more palatable. Other countries (i.e. the United Arab Emirates) have also used government-owned companies as vehicles for investing in Israel and would also be affected. It should be noted that when Bright Foods Group outbid other investors for Tnuva, the Foreign Ministry objected to the sale out of concern that any attempt to regulate the company (i.e. by the Israel Securities Authority) would become a diplomatic issue since Bright Foods is Chinese government owned. That concern would be the basis for barring government-owned companies from participating in local tenders.

Similarly, the World Trade Organization’s anti-dumping rules can be used to prohibit Chinese or other companies from winning domestic contracts with below-cost bids. Per the WTO’s Anti-Dumping Agreement: a product is to be considered as being dumped, i.e. introduced into the commerce of another country at less than its normal value, if the export price of the product exported from one country to another is less than the comparable price, in the ordinary course of trade, for the like product when destined for consumption in the exporting country. Companies will dump their products in another country in an effort to drive domestic competitors out of business. They do so by selling the products at below cost prices, which the domestic competitor cannot meet. Either the domestic company exits that particular market or goes bankrupt. While consumers may benefit from lower prices initially, once the domestic firms have been driven from the market, the foreign firm raises prices and gouges the domestic consumer. Similarly, when Chinese government-owned companies “dump” in the Israeli economy, we may temporarily benefit from this, but in the long-run we will pay dearly. 

Moreover, tensions between China and the US are high at the moment. Do we really want to put ourselves in the middle of their diplomatic rift when Israel is already in a vulnerable spot as far as the progressive arm of the Democratic Party is concerned? Pro-Israel advocates tout the “shared values” between Israel and the US as the reason behind America’s unflinching support for the Jewish state. Does that argument remain valid if we continue to remain enmeshed with China’s autocratic government?

Prime Minister Naftali Bennett’s government would do well to both ban government-owned companies from competing in Israel tenders (public and private) and to treat below-cost bids as dumping. The Jewish people didn’t come this far and pay a high price for our independence just to become a subject state of China. 

The writer is an industrial marketing and management lecturer at the Jerusalem College of Technology – Lev Academic Center and vice-chair of the Business Administration Department at Touro College Israel.