How China drove a wedge between America and Israel

Two weeks ago, CIA director William Burns – who has rather a lot on his plate just now – had a quiet word in the Israeli prime minister’s ear about Chinese investment in the Jewish state.

It was the latest and most urgent of America’s attempts to prevent Israel from slipping further towards the Beijing dragon’s maw, an issue which has increasingly threatened to drive a wedge between the two allies.

It’s no secret that in recent years, Uncle Sam has found himself asleep at the wheel while China has been pushing ahead in the global race. Four decades of pursuing a policy of friendship towards Beijing had simply opened the door to exploitation. With political, economic, academic and cultural spheres united under a nationalist agenda, China has been quietly rolling out a strategy for dominance. Now there is concern in Washington that Beijing has been targeting Jerusalem, seeking to narrow America’s Middle East footprint, undermine its alliances and aggravate its domestic politics.

In the last two decades, there have been more than 460 Chinese investments and mergers and acquisitions in Israel, totalling tens of billions of dollars. Today, there are up to 45 new deals annually. It will come as no surprise that these deals focus on infrastructure and technology – two key areas of security sensitivity.

The most controversial of these was the Haifa Port development, which was awarded to a Chinese state-backed investor, Shanghai International Port Group, in 2015. Haifa is the biggest port in Israel, and a critical future transportation hub. It is also the place where the Sixth Fleet of the US Navy docks.

Washington feared that this would provide an opening for Chinese surveillance of the eastern Mediterranean. The Netanyahu administration, which spearheaded the pro-China policy, calmed American tempers with an investment screening mechanism. But this was largely a fig-leaf. Israel continued to court Chinese money.

In March 2017, Benjamin Netanyahu and Chinese President Xi Jinping jointly announced the ‘comprehensive innovation partnership treaty’. Its title was carefully worded – using ‘innovation’ rather than ‘strategic’ – to highlight that this was purely about business. But as Netanyahu hugged China closer, the Israeli national security establishment looked on with increasing concern.

For obvious reasons, the Jewish state’s policy-making has always been rooted in security above economics. There were fears that with China on the scene, these priorities were becoming blurred.

Ten months after the Chinese-Israeli treaty was announced, the Trump administration released its national security strategy. China was at the top of the list of threats. The country was described as a strategic ‘competitor’ whose ‘repressive vision’ and economic aggression aimed to undermine America. The stage was set.

Meanwhile, Chinese-Israeli collaboration was continuing apace. In addition to the Tel Aviv Light Rail (Dankal) initiative and the Carmel tunnels, a set of subterranean toll roads, in Haifa, Chinese firms have been linked to Israel’s desalination plants, agriculture projects, 5G infrastructure and railways. And even this was the tip of the iceberg. We haven’t even started on tech.

Israel’s world-leading technology innovation has become a honeypot for Beijing. Today, Chinese money can be found in Israel’s computer chips and semi-conductors, life sciences and medical innovations, information technology, software, and internet and communication capabilities. These are all areas of high security sensitivity, many with direct military applications.

It is beyond doubt that the more that Israel takes Chinese cash, the greater Beijing’s influence in Israel’s corridors of power (where the Knesset’s ‘Israel-China Parliamentary Friendship League’ continues to thrive).

Taken together, the US under Biden believes it is witnessing a Chinese strategy to stifle a key American ally, using it to boost its own military and technological might in the great global power game, and thumbing its nose at Washington in the process.

From an Israeli point of view, however, panic stations are a long way off. Jerusalem’s attitude towards China has always been deeply pragmatic. Israel was the first Middle Eastern country to recognise the People’s Republic in 1950. There have been some thrills and chills along the way, but 2022 will mark the 30^th anniversary of the establishment of diplomatic ties between the two states, which took place after the fall of the Soviet Union.

More than a decade ago, Netanyahu identified China as rising market. Developing a trading relationship made sense. The country does not have a serious problem with anti-Semitism and is not innately partisan when it comes to Middle Eastern politics. So long as Chinese hands were kept away from sensitive security apparatus, he thought, the flow of yuan could revitalise important parts of the economy. It was, as supporters of the policy put it, a ‘win-win’.

But Washington has become increasingly vocal in its alarm. In February, the Jewish Institute for National Security of America published a report saying that Israel had become a ‘target of China’s geo-economic exploitation’. And in April, former US ambassador Daniel Shapiro called on Israel to pull back. ‘There has been an increasing US expectation that allies like Israel will take these US concerns into account, even if that means limiting certain opportunities,’ he said.

Economic disadvantage, however, is a high price to pay for loyalty to an ally. The Chinese know this. And the Americans have come to know it, too.

Last year, the Trump administration found a solution: the Abraham Accords. This string of peace deals, the most important of which was with the UAE, presented Gulf capital as an alternative to Chinese cash, merging it powerfully with Israeli technology and global markets.

The effects are starting to take effect. Today, opposite the controversial Chinese port in Haifa, another, US-friendly harbour is being privatised. Among the leading bidders are the Dubai-based DP World and Israel Shipyards Industries. Emirati and Israeli firms are also working jointly on a pipeline project designed to move Gulf oil from the Red Sea to the Mediterranean, avoiding the Suez Canal.

But with the fall of Trump and the rise of Biden, the Abraham Accords have stalled. The CIA chief’s top-level intervention two weeks ago is the most serious indication yet that Washington has pivoted to demanding Israeli compliance, rather than emphasising the creation of a more friendly regional economic ecosystem.

Prime Minister Bennett was more sympathetic than his predecessor to American appeals to lock China out of the Jewish state. But in Israel as all over the world, the Chinese approach has been a stealthy and clever one. For all Bennett’s goodwill, his country will find it difficult to close the door entirely on such a lucrative and subtle resource.

There is a sense in some Israeli quarters that the United States is being overly sensitive. After all, China accounts for no more than 10 per cent of total foreign capital investments in Israel. That is far smaller than for other American allies.

Chinese investors’ portfolio of UK interests, for example, amounts to nearly £135 billion, dwarfing that in Israel. There are 216,000 Chinese students studying in British universities, compared to about 1,000 in Israel (dual Chinese-Israeli citizens are almost unheard of, and there are no Israeli public schools stuffed with the sons of Chinese ‘big croc’ oligarchs).

Whereas Chinese infrastructure is deeply embedded in the UK, from the Hinkley Point nuclear plant to 5G – which will only be clean of Chinese equipment in 2027 – Israel’s sensitive national security infrastructure is far more secure.

Moreover, Britain is home to pro-China lobby groups like the 48 Group Club, whose fellows include Tony Blair, Jack Straw, Alex Salmond and Peter Mandelson. The Knesset’s Israel-China Parliamentary Friendship League is negligible by comparison. How can Washington complain about Israel’s trade with China when Britain is so much more compromised?

But to view the matter this way is to miss the point. The problem is not so much economic, or even security-related. It is political. With China emerging as America’s greatest global adversary, and Afghanistan underlining Washington’s declining influence, the White House is filled with adrenaline, especially with Covid turning the skies dark over Beijing.

The US-Israel alliance is a fundamental plank in America’s foreign policy strategy. For China to seek to undermine it represents a deep worry for the United States, raising questions about Israeli loyalty and ultimately placing the alliance at risk. Aside from anything else, this is creating tension; and this tension in itself, coming at such a fragile geopolitical moment, plays into the hands of China.