Analysis

With Its National Security at Stake, Israel Takes Sides in U.S.-China Trade War

Israel's security officials object to a Chinese infrastructure project in central Israel ■ What seems like a shift in policy comes amid growing U.S. concerns that China could strategically gain from such investments

Israel takes sides in U.S.-China trade war. Pictured: Netanyahu and wife Sara at the Great Wall of China, 2017
Haim Zach / GPO

The trade war being waged by the United States against China escalated further this week when, in the wake of warnings from the Trump administration, Google announced that it would cease doing business with Chinese tech giant Huawei. Two days later, the administration relented a bit and granted the Chinese a nine-day extension that would also delay Google’s breakup with Huawei, and that of other American companies that trade with it. But the two countries clearly remain on a collision course. The international press is already describing the current era as the technological Cold War between the two superpowers. 

Israel is a secondary but still significant front in the economic duel between American and China. As reported here over the past year, Trump administration officials have expressed growing concern over the tightening economic ties between Israel and China and Chinese companies’ increasing involvement in building major infrastructure projects in Israel. In discussions with Israeli ministers and other officials, the Americans have raised the specter of China exploiting its ties with Israel to boost its strategic standing, and to acquire sensitive intelligence and classified technology.

The Americans had in mind Chinese activity in Israel at sites like the Haifa and Ashdod ports, the Tel Aviv light rail and the Carmel tunnels. Voices were occasionally raised in some of these talks. During his visit to Israel in January, U.S. National Security Adviser John Bolton referred specifically to penetration by the Chinese tech companies Huawei and ZTE into Israel. 

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A Rand Corporation report published two months ago said that Chinese involvement in projects in Israel could become a security risk for Israel and the United States too. The authors of the study recommended that Israel establish a supervisory mechanism for technology and foreign (essentially, Chinese) investments in Israel, similar to what exists in other countries, including the United States.

Netanyahu prepares to shake hands with China's President Xi Jinping at the Great Hall of the People in Beijing, on Thursday, May 9, 2013.
ASSOCIATED PRESS

The possibility of establishing such a mechanism was discussed in the cabinet several months ago, in the wake of the American pressure. This week, Sami Peretz reported in TheMarker that Israel is leaning towards deciding against establishing a special authority to deal with this, to avoid angering the Chinese. Israel will continue to try to cautiously maneuver between the Americans and the Chinese, with increased supervision, but without establishing an official body for this purpose. 

Currently on the agenda is another major national infrastructure deal, which may not have attracted that much attention yet from the Americans. Last week the Finance Ministry announced it had received three bids on a tender to build a new water desalination plant. Dubbed Soreq B, the plant will be built next to the desalination plant already in operation. The new facility will be the biggest of its kind in the world: Early estimates say it will be able to produce 200 million cubic meters of water annually.

The construction costs are expected to total 2.5 billion shekels. Construction will take three years and require hundreds of workers. Afterwards, the company that built the plant will continue to operate it until 2049. 

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Calcalist reported this week that four bids fell out of the running at an earlier stage of the tender, including one from a Chinese company called PMEC. One reason the examining committee cited for rejecting the bid was a lack of suitable previous experience. But this is just the beginning of the story: One of the three bids that advanced to the next stage was submitted by Hutchison, a Chinese company headquartered in Hong Kong, which is competing with Israeli companies and a partnership between Israeli and Spanish companies. 

Haaretz has learned that Nir Ben-Moshe, director of security for the Defense Ministry, whose responsibilities include preventing leaks of information about classified sites, recently raised a “firm objection” to Hutchison being selected for this massive project. 

This looks like the start of a policy shift in the defense establishment, which is increasing its involvement in examining major infrastructure deals and not hesitating to raise objections for security reasons. Pressure from the Americans is likely a factor behind this. 

Security sources declined to elaborate on the reasons for Bar-Moshe’s position, but one may hazard a cautious guess: Although the desalination plant is of strategic importance for the economy and the country, there is no issue here of security secrets directly related to the water industry.

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A look at the map explains the mystery: The new plant is due to be built in a location close to a number of highly sensitive security sites. It will share a fence with a security-experiments site in Nahal Soreq, it will be situated at the foot of the Palmachim air force base and only a few kilometers from the Soreq Nuclear Research Center, as well as from the southern end of the Palmachim base. The plan calls for a 50-meter-high smokestack that could be used as an observation point over all of the sensitive sites. 

If the new plant is built by a similar method to that used for the first plant, it would apparently entail digging infrastructure tunnels below the northern testing zone of the Palmachim base, and inserting an underground pipeline beneath the testing zone out toward the sea and within the naval firing zone adjacent to the base.

The winner of the tender will also maintain the infrastructure for the next 30 years, with some of this infrastructure located within the testing compound. In the past, the defense establishment ignored concerns about this kind of proximity, as when it approved operations by Chinese companies at the Haifa port, near the naval base there, and in the light rail tunnels, one of which passes close to the Kirya in Tel Aviv. Times have changed, apparently. 

Hutchison is currently a 49-percent partner in operating the first desalination plant, Soreq A. The adjacent power station and smokestack, which are part of the plant, are under full Israeli ownership. Should it win the tender, it will control close to half of the quantity of desalinated water in Israel. The company’s activity in Israel is not new: Hutchison built the Partner cellular network in 1997, extended its infrastructure throughout the country and sold its holdings in the company 12 years later.

The company, which is controlled by its founder, Hong Kong billionaire Li Ka-shing, has encountered some wariness in recent years from Western governments, which have been trying to limit some of its activity. In Australia, its attempt to acquire a government-owned natural gas company and one of Australia’s largest electric companies was thwarted.

In Britain, the government halted the acquisition of switches for a British cellular network owned by Hutchison, because the switches were produced by Huawei.

Israel’s Defense Ministry says that “the professional opinion of the defense establishment’s security director has been forwarded to the relevant parties.” 

In the coming years, Israel will continue to confront this same sort of dilemma in relation to major infrastructure deals: The Chinese companies generally offer quicker and more effective work on these big projects than their competitors, but these deals often entail serious security questions too. Israel does not want to forgo the huge commercial potential of the Chinese market, but it is wary of incurring America’s wrath. At least for as long as Donald Trump is in office, until January 2021, or maybe January 2025, Israel will have to keep navigating these stormy waters.