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June 29, 2020 5:09 am

How Israel Can — and Should — Deal With China

avatar by Efraim Chalamish

Opinion

Israeli Prime Minister Benjamin Netanyahu with Chinese President Xi Jinping, in Beijing on March 21, 2017. Photo: Haim Zach / GPO.

Secretary of State Mike Pompeo’s recent visit to Israel during the COVID-19 pandemic, and the public controversy surrounding Chinese involvement in Israeli companies and infrastructure, have intensified the discussion about the way that Israel balances US and Chinese interests in the region.

There is no doubt that China’s engagement with Israel has been on the rise for a few years now on all levels, including: a five-times increase of Israeli exports to China this past decade; the rising Chinese capital that flows into Israel’s tech and innovation ecosystem; and the intense participation of Chinese companies in public tenders and key infrastructure projects.

The Israel-China economic renaissance has been driven by a well-designed government-to-government dialogue alongside strategic initiatives among public and private entities in academia, business, and NGOs.

Yet very little attention has been paid to the need to balance the multiple interests in the region. The Israel-US unique nexus and the Israel-China track have been perceived as parallel, with limited points of intersection. However, this might have to change as the Trump administration perceives China as a strategic threat, and as China’s involvement in Israel expands to include Israeli strategic assets, such as its ports.

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The growing calls from Washington and other parts of the international security community to reduce Israel’s dependence on China have been characterized as a zero-sum game.

That said, recent experience shows that Israel can navigate this potential crisis well, and should continue the constructive dialogue with both nations concurrently.

To begin with, Israel is not the first nation to chart these waters and should learn from the experiences of others. The EU and its member states are facing similar dilemmas. When Mathias Dopfner, the CEO of the influential media conglomerate Axel Springer, called for an economic and tech “de-coupling” from China post-COVID-19, many European politicians and business leaders criticized him for picking a side.

On a related note, various countries had to decide if and how to implement Chinese 5G technology, while the US administration has been trying to prevent such adoption.

Most countries found a middle ground by allowing Chinese 5G technology in certain parts of the market that are more secured. The British government, for one, announced at the beginning of 2020 that it would cap Huawei’s market share at 35% and exclude the vendor from sensitive locations.

That decision was criticized by a Chinese PR campaign and is under review by the UK government for security reasons. While Chinese companies are currently excluded from Israel’s 5G technology push, a similar, more balanced approach may be needed with respect to other aspects of Israel’s tech environment.

Second, the Israeli government adopted a screening mechanism for foreign investments for national security purposes. Unlike the US, Canada, and other nations, the Israeli mechanism has been kept secret with limited execution. The ramifications are significant. The lack of transparency creates uncertainty in the market, both in Israel and China, and imposes constraints on capital flows. It also gives the impression that Israel doesn’t do enough to consider security interests and US-Israel bilateral relations.

Israel needs to open the process, engage the private sector more closely, and develop a reporting mechanism which would give the process the credibility and legitimacy necessary for its success.

Third, significant parts of the current Israel-US tension on China result from Trump’s specific take on trade and investment protectionist measures and the Chinese threat to US allies. It is not unreasonable to think that some of these policies may change during a Biden administration following the upcoming November 2020 elections. Many of the Israeli projects being criticized by the US government are long-term and it would be prudent to reassess them following the US election season.

Fourth, several sectors in the Israeli market are lacking major US participation, such as construction. The construction and renewables sectors have been dominated by European and Asian players in recent years. The US government should do more to bring American players into Israel’s infrastructure space.

Fifth, as more military technologies globally are being used for civilian purposes and vice versa, there is a growing connection between the “dual use” export-control regime and screening of foreign investment for national security risks. The US is going through a similar transition. Israel has a sophisticated export control mechanism, but a very limited review process of foreign investors. Israel should bring these two regimes closer to each other. The tech industry has rejected the government’s review of tech investments, while embracing a careful approach to the export of sensitive technologies. The time for change has come.

Also, any review of Chinese commercial activity should be conducted via intra-disciplinary lenses, including diplomatic, commercial, and civic factors. Israel’s National Security Council (NSC), currently responsible for executing and implementing Israel-China strategy on this matter, has been historically lacking the resources and the capabilities to support such a review.

Incidents like the military action against the Turkish flotilla in 2010 that reshaped Israel-Turkey relations emphasize the risk of over-reliance on security concerns. Empowering and strengthening the Israeli NSC should be part of the new Israel-US-China balancing act.

Finally, international trade has been shifting directions. Asian international trade, mostly from China, is now more than twice as big as America’s international trade. Israel cannot ignore the changing economic reality, and “de-coupling” is less attractive in the Israeli unique economic context. Yet, Chinese bidders have lost major tenders in Israel lately, such as the world’s largest desalination plant and Ramat Hovav’s power plant. It reflects both Israel’s policy preferences as well as new commercial and financial constraints in China. But while Israel tends to think about the here and now, China has a very long-term view on global and local markets.

Israel should show China that it knows how to address real security concerns while keeping the critical flow of inbound capital. Balancing US and Chinese interests in the region is not an impossible task and the benefits are compelling.

Dr. Efraim Chalamish is a publishing Expert at The MirYam Institute. He is an international economic law professor, advisor, and media commentator. Dr. Chalamish teaches at NYU Law School and is a Permanent Representative to the United Nations of the International Association of Jewish Lawyers.

The MirYam Institute is the leading international forum for Israel focused discussion, dialogue, and debate, focused on campus presentations, engagement with international legislators, and gold-standard trips to the State of Israel. Follow their work at www.MirYamInstitute.org.

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