Israel pledges to keep US in loop on trade with China

Ever since the current Israeli government took office five months after the Biden administration entered the White House, the United States and China have been locked in a commercial and strategic conflict with important implications for Israel.

Inevitably, Washington has expected Jerusalem to align its policies with its own, for instance pressuring Israel because of its commercial and technological ties with China. While the current government has made certain policy changes, it remains unclear whether they meet US expectations in terms of scope or speed.

The issue was raised in the recent meetings between senior officials from both countries, including during Prime Minister Naftali Bennett’s Aug. 27 visit to Washington and his meeting there with President Joe Biden. It came up again during Foreign Minister Yair Lapid’s visit to in mid-October, though the issue wasn’t mentioned in any summaries of his meetings there.

The dilemma lies in Israel's increasing trade with China and Beijing’s enormous investments in Israeli infrastructure projects. At a press briefing this week, Lapid noted that while China is Israel’s third-largest trading partner, strengthening ties with the United States is his ministry’s foremost strategic objective.

Economic ties between Israel and China grew significantly over the last decade. They gained momentum as a result of a 2014 government decision to remove obstacles to trade with China and promote technological and other cooperation with Beijing. Former Prime Minister Benjamin Netanyahu met with Chinese President Xi Jinping in China in 2017 and with Vice President Wang Qishan in Jerusalem in 2018.

Doron Ella, a research fellow in the Israel-China program at Israel’s Institute of National Security Studies, says that Chinese investments make up just under 10% of foreign capital invested in Israel, far behind foreign investments from the United States and Europe. On the other hand, the main source of US concern is Chinese investment in supposedly sensitive technologies, regardless of the actual scope.

But the government in Jerusalem has decided to put the dilemma of its place in the conflict between the United States and China on hold, while taking steps to alleviate US concerns. Reportedly, this latter effort involves closer ties on all issues involving Chinese investments in Israel, greater transparency about them and updating the Americans about all major business deals.

Israeli sources have made it clear that China is and remains a major trading partner with Israel. As an example, they point to recent talks between Lapid and China’s Science Minister Wang Zhigang . Israeli President Isaac Herzog spoke with Xi on Nov. 17 and the two announced that they intend to advance joint initiatives between the two countries. Herzog’s office released a statement calling for greater cooperation in the areas of economics, tourism and culture. The mood during the discussion was friendly and positive, with the two leaders noting the “historic occasion of the first-ever phone call between the presidents of China and Israel.”

Thousands of Chinese laborers work on infrastructure projects being built in Israel by Chinese firms. However, Israeli sources also say that there are certain restrictions and limitations in place. They explain that the new transparency with Washington is intended to prevent anything like the Falcon deal occurring behind Washington’s back. Back in 2000, Israel had to cancel the sale of its reconnaissance plane to China over American objections. Nevertheless, Israel will not avoid deals similar to those that the Americans themselves are making with China and will not impose restrictions on itself that the Americans do not observe themselves.

In conversations with the Americans, Israel suggested for Washington to encourage American companies to compete with Chinese companies over infrastructure projects in Israel. According to a source at the Foreign Ministry, Israel will not squabble with the Americans because of the Chinese, even if there are economic implications.

The person appointed to oversee the issue in Israel is the head of the National Security Council, Eyal Hulata. He works closely with senior Foreign Ministry officials, headed by the ministry’s director, Alon Ushpiz. The issue comes up whenever they have talks with the US administration, including during recent visits to Israel by Secretary of State Antony Blinken and national security advisor Jake Sullivan.

A senior Israeli diplomatic official told Al-Monitor on condition of anonymity that China is the second or third most important issue raised in talks between top US and Israeli officials, after Iran and its nuclear program and maintaining Israel’s technological superiority in the face of the Iranian threat. “We realized right from the start that this is a pressing issue for the Americans. Sometimes the issues get shuffled. In other words, it has been more than hinted to us that the China issue is the Americans’ number-one foreign policy priority, with an emphasis on developing a strategic response to the Far Eastern giant. Israel is being asked to pick a side, particularly if it wants to keep America attentive to its demands regarding the nuclear negotiations with Iran.”

Another issue that comes up in talks with the United States is the demand that Israel expand oversight over foreign investments, particularly Chinese investments. The mechanism for this oversight was created a few years ago in response to American demands, but it has no real teeth. Israel is now looking into the possibility of transferring the responsibility to the National Security Council, which would then oversee Chinese investments directly.

Recent activity by Beijing, in particular its extensive relationship with Iran, might push Jerusalem to reduce Chinese investments.

At the same time, tension remains between the benefits and economic interests surrounding the relationship with China and the close diplomatic, defense and economic alliance with the United States. This tension has not dissipated, even though the current government makes every effort to prove that its preference lies with Israel’s closest friend and ally. It acts with the utmost transparency so as to enable the Americans to express their opposition to any deals with China that it considers problematic.