Analysis

Israel Won't Vet Chinese Investment, Risking U.S. Ire

Government team tasked with examining foreign investment oversight has quietly recommended against it, so as not to offend Beijing

File photo: Prime Minister Benjamin Netanyahu and Chinese Vice President Wang Qishan at a conference in Tel Aviv in 2018.
Ofer Vaknin

A team led by National Economic Council Chairman Prof. Avi Simhon and National Security Council chief Meir Ben-Shabbat will recommend against the establishment in Israel of a government body to vet foreign investments.

The panel was named by Prime Minister Benjamin Netanyahu several months ago to weigh options for a new unit that would, for the first time, rule on foreign investment. The proposed body would be similar to the Committee on Foreign Investment in the United States, which was created 70 years ago.

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Netanyahu’s directive came amid mounting pressure from Washington as part of its trade war with China. That war has grown increasingly bitter in the last few weeks after the United States imposed tariffs of 10-25% on an additional $200 billion worth of Chinese exports.

Israel has been unwillingly swept up in the battle between the world’s two economic titans. Far from wanting to wage a war side by side with its U.S. ally, Israel has been seeking to strengthen ties with Beijing – which is why the Simhon-Ben-Shabbat recommendations will remain confidential for the time being.

On the one hand, Israel doesn’t want to signal to Beijing that there has been any change in its diplomatic policies, which could only damage bilateral political and economic relations with China, should there be a move toward creating the new body. While its official task was ostensibly to approve or reject investments by all foreign entities, the real target would have been China. On the other hand, Israel doesn’t want to offend its crucial American ally.

It’s a difficult position for Israel to be in. America is committed to ensuring Israel’s security and is leading the fight against Iran and its nuclear ambitions. China does considerable trade with Iran and has closer economic ties with that country than with Israel. But China has also emerged as a major investor in Israel: Along with India and Brazil, Netanyahu regards it as a leading country with which to develop economic ties in the future.

The prime minster himself has visited China several times. After his 2013 trip, when he was warmly received by President Xi Jinping, he urged his cabinet members to cultivate relations by going to visit there as well.

Over the past decade, Chinese companies have acquired major Israeli businesses, among them Tnuva (the country’s biggest dairy products maker) and Adama (formerly Makhteshim-Agan, an agrochemicals company), and have won contracts to develop and/or operate major local infrastructure projects. Chinese investors are also becoming players in the Israeli high-tech scene.

But much of this activity worries Washington, which is loath to see Beijing gain access to Israeli technology with dual civilian-military applications or control critical infrastructure like maritime ports.

Israel has no alternative but to tread carefully: to calm American fears and treat them with respect and consideration, while at the same time doing nothing to upset the Chinese or to suggest that Jerusalem is taking a side.

Establishing a foreign investment-approval mechanism doesn’t serve Israel’s purpose in navigating between the two countries. It serves Israel better to adopt an ambiguous and undeclared policy on supervising such investment, examining each case according to its merits, and conducting behind-the-scenes dialogues with the parties involved. If it reaches the conclusion that a certain foreign investment would spell trouble for the Americans, it would be better to veto it quietly.

In fact, Israel has already adopted this policy vis-a-vis the insurance industry. On several occasions Chinese interests have taken an interest in Israeli insurers, but never got approval from Dorit Salinger, who was then the regulator in charge of the industry. There was no declared ban on Chinese investing in the sector, but Salinger kept saying no.

Israel has a mechanism for supervising defense-related exports and the sale of strategic businesses (for example, telecommunications providers whose sale requires approval from the Shin Bet security service), but there is no government body that oversees the whole process and examines each deal comprehensively.

The Simhon-Ben-Shabbat committee wasn’t supposed to set fixed criteria on what investments could or could not be approved – that was regarded as just too sensitive politically. The feeling is that if the government doesn’t want a foreign investor, it can block any moves by it without a declared policy.

Not everyone shares that view. In recent months more and more voices, both in the defense establishment and in academia, have called for clear policies, especially vis-a-vis Chinese investment and development of Israeli infrastructure.

Shin Bet chief Nadav Argaman said in January at a closed lecture at Tel Aviv University that Chinese investment could harm Israeli security, and he called for a formal body to supervise foreign investment in general.

In March, academics, government officials and defense establishment figures expressed similar views at a forum held at the Samuel Neaman Institute at the Technion – Israel Institute of Technology in Haifa. Discussions there dealt not only with the general issue at hand, but specifically with the 25-year contract won by Shanghai International Port Group to operate the new Haifa port.

When Israel sought bids for that port, as well as for additional ones in Ashdod, and also for the Tel Aviv light rail project – the sole factor in determining the winner was the price of the offers. As a result Chinese companies won three of the contracts.

Israel gave no consideration to Chinese government interests in the winning companies until American officials raised the issue of U.S. Navy ships docking in Haifa at an Israel Navy port located not far away from the future Chinese-controlled facility.

Israel cannot cancel the contract for the new Haifa port. We already have bitter experience with backtracking on deals with China, as happened 20 years ago when Israel revoked an agreement to supply that country with Phalcon airborne early-warning aircraft. It took years for Israeli-Chinese relations to recover from that.

The Shimon-Ben-Shabbat recommendations will be examined by the security cabinet after the next government is formed. The message will be that Israel needs to act cautiously – to speak softly and wield a big stick when the need arises.