Analysis

In Turnaround, Israel May Form Body to Vet Foreign Investment

Move would almost certainly focus on China, whose global shopping spree is creating anxiety in the U.S. and Europe

Israeli Prime Minister Benjamin Netanyahu and a local Chinese official shake hands at the Shanghai Jewish Refugees Museum in Shanghai, China, May 7, 2013.
AP

Following in the footsteps of U.S. President Donald Trump, Prime Minister Benjamin Netanyahu is considering forming a new government body or team that would vet foreign investments, a move largely seen aimed at China.

Discussions about a new foreign investment body -- which were revealed last week by Prof. Avi Simhon, the prime minister’s economic adviser, at a meeting of the Knesset Foreign Affairs and Defense Committee -- would mark a sea change for Netanyahu who has long encouraged foreign investment from everywhere, including China.

On a visit to China last year, he met with property developer Wanda, the ecommerce giant Alibaba, the electronics makers Huwei and Lenovo and the internet company Baidu. Alibaba founder and CEO Jack Ma visited Israel.

Businesspeople involved in Israel-China ties said over the weekend that Netanyahu’s new attitude was influenced by Trump and the growing wariness worldwide about Chinese overseas investment.

Although the figures look to be on the downturn this year after Beijing cracked down on what it regards as excesses, Chinese outward investment fell 15% worldwide in the first half of this year from the same time in 2017, but it still reached $56.4 billion, according to the American Enterprise Institute’s Global China Investment Tracker. In 2017 it was a record $177 billion for the full year.

The surge has aroused fears in the U.S. and Europe about China’s taking control of key companies and gaining access to intellectual property.

In March, Trump blocked the $117 billion takeover of the American company Qualcom by Singapore’s Broadcom out of concern that Broadcom would cede leadership of the mobile-chip market to China’s Huawei. Last September the U.S. president blocked a Chinese-backed private equity firm from buying a U.S.-based chipmaker Lattice also on national security grounds.

In Europe, Germany, France and Italy are in talks about how to create a mechanism to limiting Chinese investment.

Even without a formal body vetting foreign investments, Israel hasn’t always been receptive to Chinese investment. Repeated efforts by IDB group to sell its Clal Insurance and by Delek Group its Phoenix Assurance have lured Chinese investors, but none of them have succeeded in getting the required insurance license from the Capital Market, Insurance and Savings Authority.

Vis a vis non-financial investment, the government has been more welcoming. China National Chemical Corporation (ChemChina) bought the Israeli agro-chemicals company Adama in 2011 in a $2.4 billion deal hailed by Netanyahu as “a big achievement for the economy of Israel.”

Four years, Bright Food bought control of Tnuva, Israel’s biggest food maker, in a deal valuing the enterprise at 8.6 billion shekels ($2.36 billion at current exchange rates) (see story on this page).

Although the government approved the deal, it engendered opposition from lawmakers and others who worried about China’s poor record on food safety and interference by Beijing. “The fact that Israel’s largest food company is owned by the Chinese government will lead to the company’s financial conduct serving Chinese interests,” warned former Mossad head Efraim Halevy at the time.

The most intense activity has been in high-tech. Investment reached $596 million in 2017, or 12% of all capital invested in the eyars 2015-17, according to the IVC Research Center. The Economist Intelligence Unit China Going Global Investment Index last year ranked Israel 11th among 59 major economies in terms of their attractiveness to Chinese firms, up from 17 in 2015 and 31 in 2013.

Where Israel is hesitating about following the Trump lead is in the realm of foreign trade. Israel has every reason to want to steer clear of a conflict with either of the two economic giants. In terms of merchandise exports, the U.S. accounted to 28% of Israel’s total, or 40 billion shekels, last year. China took just 11.5 billion shekels of Israeli exports, but it is an up-and-coming power and the figure will almost certainly grow.