Unless you were listening very carefully, not a word was spoken about China during the chummy joint statement Prime Minister Benjamin Netanyahu made with U.S. Secretary of State Mike Pompeo on Wednesday. But China was very much there, albeit only in the form of an oblique reference by Pompeo about “some other countries that try and obfuscate and hide information” and how “We’ll talk about that country.”
What Pompeo meant is that crunch time is fast approaching for Israel on its economic and business ties with China.
Netanyahu knew what was coming and fed the beast a morsel. On the eve of Pompeo’s visit he reportedly instructed officials to delay a decision in order to make additional security checks before the Chinese company (or more precisely the Hong Kong company) CK Hutchison Holdings qualifies for an Israeli desalination contract due to be awarded May 24.
The contract itself is a pretty big deal. The Soreq B desalination project is worth $1.5 billion and when it’s completed will supply a fifth of Israel’s drinking water. The winner will not only enjoy the profits but the status of building and operating the world’s biggest desalination facility.
But there’s a lot more at stake than money and prestige. From Washington’s perspective, Soreq B is another strand in the web Beijing is weaving around the world, bringing countries into its orbit, gaining influence and maybe even control. It’s also a security risk: Soreq B is not far from the Palmachim air force base where new weapons are tested, often in the presence of American army officers, and it is close to the Soreq Nuclear Research Center. For whatever reason, Israel seems not to be particularly concerned about the espionage risk, but Washington is.
Until now, Israel has done its best to stay out of the increasingly nasty competition between the U.S. and China. America is, of course, Israel’s closest ally and biggest trade and investment partner, but China is an up-and-coming power, it’s hungry for Israel technology and it doesn’t wall off business from political considerations.
Israel faces immense difficulties whichever side it chooses, so its policy so far has been to wiggle, squirm and play for time. It took years for it to form a foreign (read: Chinese) investment review committee and when it did, the committee was given a very restricted mandate.
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Feeling combative in China
Netanyahu, who is keen to strengthen ties with Beijing, has been lucky until now. For the last year he’s headed a caretaker government with limited powers. The Trump administration treads lightly on everything Israel-related and lately it’s been distracted by its bungling of the coronavirus crisis.
The bungling shows no signs of abating, but as of Thursday Bibi will be at the head of a regular government with a strong Knesset majority and will have no excuses for not taking action on China.
And then, there’s the coronavirus. These days nothing happens without the coronavirus factoring in and implausible as it sounds, the pandemic has a role here, too. For a while, the trade wars with China got pushed to the side by the pandemic, but now the pandemic itself has become a new source of conflict. The Trump White House is determined to place the blame for the coronavirus on China, thereby deflecting attention from its own missteps, and is creating new conflicts, such as a ban on federal pension funds holding Chinese shares.
China – taking the opposite approach by ignoring its role in the crisis and swelling with pride over how it contained the pandemic far better than the U.S. – is responding angrily.
It may be a little premature for Beijing to be building so much on its coronavirus successes but for now its mood is combative. The feeling in Beijing is that the U.S. is in long-term retreat and China is on the rise. It’s not going to take kindly to a tiny country caving in to pressure from a has-been power like the U.S.
Maybe Trump’s evangelical base will weigh in and mitigate the president's umbrage at Israel's choice, but probably not. The Bible doesn’t really have much to say on Chinese investment. Or Bibi can hope the Democrats take the White House in November, but in that scenario, he will be dedicating his time to making new friends, not in testing their friendship by making deals with China. Right now, Joseph Biden is promising an even tougher stance on China than Trump.
For now Netanyahu seems to be hoping he can continue his wiggle-and-squirm policy: The government will examine the bid by CK Hutchison, the Hong Kong company, but in the end, according to one media report, it will give Hutchison a stamp of approval. I wish him luck, but it looks like the time when he could employ this bait-and-switch tactic is rapidly running out.
The bottom line is that Israel is in a lose-lose situation, but the bigger loss would be sacrificing U.S. ties for the sake of China. Our ties are just too deep. The beautiful new friendship Netanyahu envisages should give way to the old one.