After U.S. Pressure, Security Cabinet Weighs Plan for Vetting Foreign Investment in Israel

Although the proposal is framed as 'supervision over foreign investment,' the real goal is create a mechanism for screening investments by Chinese companies and investment funds in strategic Israeli assets

Chinese workers at a construction location in Israel
Eyal Toueg

After three years of debate and pressure from the United States, the security cabinet held a last-minute meeting Tuesday morning to weigh a proposal by the National Security Council for creating a mechanism for vetting foreign investments in Israel.

The proposal calls for creating a body only with the power to advise on prospective foreign investments in Israeli companies. The firms subject to vetting would be in businesses designated as critical to the economy or to national security, including companies involved in infrastructure or with access to Israelis’ personal data, such as telecommunications companies, financial institutions and arms makers.

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Israel has been weighing such a plan for three years. Prime Minister Benjamin Netanyahu and Prof. Avi Simhon, chairman of the National Economic Council, have told the Knesset Foreign Affairs and Defense Committee and the cabinet on several occasions that plans were being drawn up.

Israel has blocked Chinese investment in the past, but no single body has been authorized to oversee the process. The Capital Markets Authority blocked Chinese takeovers of Israeli insurance companies, for instance. The proposed body, similar to one former MK Omer Bar-Lev proposed in July 2018, would create a formal and organized process for vetting foreign investment.

The reason no decision has been made until now is the sensitivity of the issue. Although the proposal is framed as “supervision over foreign investment,” the real goal is create a mechanism for vetting investment by Chinese companies and investment funds in strategic Israeli assets.

The U.S. government wants Israel to act on the investment issue amid a bitter trade war with China and anxiety over Beijing’s aspiration to become a global high-tech leader. Israel itself has sought to avoid taking sides in the conflict and remain neutral.

Despite Israeli reservations, the decision to take the proposal to the security cabinet is due to American pressure. Last week at a conference of the World Bank and International Monetary Fund, a senior delegation from the treasury, including Finance Minister Moshe Kahlon and Finance Ministry Director General Shai Babad, took time out to meet with their U.S. counterparts, who again raised the issue of Chinese foreign investment and how to restrict it.

In addition, on Monday, Netanyahu met with U.S. Treasury Secretary Steven Mnuchin in Israel. At a press conference afterwars, Netanyahu focused on stepping up sanctions against Iran. Mnuchin spoke about the U.S.’s close commercial ties with Israel and Israel’s technology prowess.

While neither mentioned China, Netanyahu is well aware about American expectations from Israel on the matter.

In April, Channel 13 television reported that when U.S. President Donald Trump signed the document recognizing Israeli sovereignty of the Golan Heights, he demanded that Netanyahu cool ties with China. Trump even warned that failure to do so could harm American military aid to Israel.

It’s doubtful that any decision taken by the security cabinet on Tuesday will obligate the next government. Netanyahu’s caretaker government is barred from undertaking major economy-related decisions. To bring it to the Knesset to legislate the decision would require the government to make the case that an urgent national security issue is involved. American officials who are in Israel this week with Mnuchin acknowledge that Netanyahu is in a fragile situation, which was evidenced by the fact that senior White House adviser Jared Kushner met with Kahol Lavan leader Benny Gantz on Monday.

Under the circumstances, the prime minister will do whatever he can to satisfy the U.S. government’s wishes, including calling a meeting of the security cabinet over foreign investment.

If the security cabinet does back the new investment body, the hope is that Beijing won’t see it as a hostile act.