Israel as a New Arena of Chinese-U.S. Competition

In light of the increasingly tense Chinese-U.S. relations and given the internal and external circumstances in Israel, could Israel be the next arena for Chinese-U.S. competition? Are Beijing and Washington racing to win the loyalty of Tel Aviv? Or will the U.S. pressure Israel, its strategic and historical ally, to negatively affect Israeli-Chinese relations?

by Rasheed Ali
  • Publisher – STRATEGIECS
  • Release Date – Jun 4, 2020

After five-hundred days and three early parliamentary elections, during which an unprecedented state of polarization and sharp political rifts broke out, the thirty-fifth Israeli government was formed by agreement between the political opponents of the past: the Likud party led by Benjamin Netanyahu, and the Blue and White party led by Benny Gantz. On a rotating basis, Netanyahu holds the position of Prime Minister for 18 months, and during this period Gantz holds the positions of Deputy Prime Minister and Minister of Defense. They later exchange positions.

Both sides witnessed political splits that reflected some components' dissatisfaction with a coalition government. For instance, the Yamina party led by Naftali Bennett announced that it did not support the alliance with the center party movement in the government. However, this decision was violated by Rafi Peretz, who broke away from the said party to join the new government, in which he assumed his position as Minister of Jerusalem Affairs and Heritage. Yet, the "brunt" of the coalition between the right and center currents was greater on the latter; as the Blue and White alliance officially disintegrated on March 29, 2020, when the Yesh Atid party led by Yair Lapid and the Telem Party led by Moshe Ya'alon broke away. Later, the Knesset approved the Israel Resilience party - led by Gantz – to keep the name of the former coalition, Blue and White. 

The picture in the Knesset has been completed; as expected, The Arab List, which is the third power in terms of quantity, was not considered in the forming of the government, leaving it to play its historical role as a parliamentary opposition, but this time - ironically, alongside the Yisrael Beiteinu party led by Avigdor Lieberman, who Israeli and international media described during the political crisis, as the most capable, along with his party, of completing final negotiations to form any future government, which did not happen. As for the other members in the opposition, characterized by their heterogeneous makeup, both in their agenda and popular base, they included the left-wing Meretz party, after both the Labor Party and the Gesher party joined the government coalition; following the earlier alliance with Meretz.

The formation of the Israeli government came in response to several internal and external challenges and transformations. On the national level, there is the "Coronavirus" crisis, which impacted Israel, both economically and socially, as well as all countries of the world, in addition to the emerging need to reform the relationship of Israeli society with the political elite, especially after popular confidence in the authority, in general, was shaken by a prolonged political vacuum.

On the regional and international levels, many files were still pending, for they required forming a government that is homogenous to some extent, to maintain - albeit for a relatively short period - political stability in the decision-making circles in Tel Aviv, which are in the process of dealing with the signs of a Chinese-U.S. conflict of interest linked to the structure of the Israeli economy as a whole.

Recently, there have been talks on U.S. displeasure of the course of Israeli-Chinese relations, which is perceived to enjoy high levels of coordination. Relations between Beijing and Tel Aviv are considered one of the most critical files for the U.S. administration, given Israel’s position as a historical U.S. ally, along with its geostrategic position, which is imperative, both on the economic and security levels in the Mediterranean, in addition to other factors that invite Washington to closely monitor diplomatic moves and those related to Israeli interests, especially those active towards the East, and particularly China.

Is there a Race to Win Tel Aviv Loyalty?

In late 2019, RAND Corporation published a report under the title "Chinese investments in Israeli technology and infrastructure", addressing relations between China and Israel which arose in 1979 after they were cut off by the Cold War. Their relations were later officially announced in 1992. The report also discusses the opening of the bilateral relations between the two countries which were based on the transfer of Israeli technology to China, pushing their cooperation and coordination to further branch out and to include various fields: innovation, health, trade, etc.

The year 2015 can be considered crucial in Chinese-Israeli relations, in which the Shanghai International Port Group won a tender for the management of Haifa Port for 25 years starting 2021. This was preceded by the development and expansion of the port by the said Chinese company. In 2014, the Israeli Ministry of Communications signed a contract with “China Harbor" allowing the latter to build a port in the city of Ashdod in the south. All of this comes within the framework of China's efforts to achieve its desired vision of the "Belt and Road" initiative, which regards the Middle East alongside Central Asia and Southeast Asia regions as connection points between China and Europe. To achieve this, the "Belt and Road" project entails the construction and development of infrastructure in these areas, including ports; the number of ports that Chinese companies participated in or worked to establish, redevelop and expand reached a total of 42 ports in 34 countries, according to a statement by the Chinese Ministry of Transport in 2019.

One of the main pillars of Chinese-Israeli relation is targeted by the U.S. argument; U.S. experts and security officials fear that Chinese investments will intersect with Israeli military projects, or be geographically close to these projects and other strategic locations. For example, the Port of Haifa is considered one of the strategic points of the U.S. Army's Sixth Fleet, not to mention that its position as a port for Israeli nuclear submarines, which, in U.S. perspective, calls for high levels of precaution.

In another field of competition between the U.S. and China, the technology and artificial intelligence sector in Israel is of great value, as U.S. Technology Company Intel announced in January 2019 an $11b investment. It was considered by then the Israeli Finance Minister, Moshe Kahlon, as the largest foreign investment in the country's history. The U.S. company continued to acquire Israeli technology companies, the largest of which was "Mobileye" at $15.3b. In April 2020, the U.S.-based NVIDIA Corporation, the GPU manufacturer, acquired Israel’s Mellanox in a $6.9b deal.

The actions of U.S. technology companies suggest that, in addition to investment operations, there is an intent to prevent clearing the way for Chinese investments led by both Huawei and ZTE, which are among 54 Chinese companies working in the fields of communications and artificial intelligence as they both seek to invest in Israel. According to the aforementioned RAND Corporation report, Israel's technology industry attracted $5.7b in Chinese investments in the period (2011-2018), and therefore there is fierce competition between the U.S. and China to grow their gains in the profitable Israeli technology sector. For instance, the volume of Israeli exports of cybersecurity products reached about $5b in 2018, per Netanyahu's statement during the CyberTech conference.

The U.S. applies pressure on Israel similar to that of its allies in the European Union, to warn them and to try to prevent the entry of Chinese telecommunications and high-tech companies to Israel, for fear of allegations related to such companies spying on the civil and military sectors alike by exploiting cooperation with several Israeli technology companies, and the signing of formal contracts with them. Besides, Chinese telecom giant Huawei acquired the two Israeli companies, Toga Networks, and Hexa Tier in late 2016.

In November 2018, nearly one month after the Israeli government signed 8 cooperation agreements with Beijing in the fields of health, science, technology, agriculture, among others, the Israeli press described the U.S. response to the Chinese investments' deep presence in the structures of Israel's economy in general, by exploding in the face of officials in Tel Aviv, stressing that the nature of relations with China is unacceptable, as expressed during the visit of the U.S. National Security Adviser at the time, John Bolton.

The head of the Shin Bet, Nadav Argaman, responded to U.S. warnings in his statement during a closed seminar at the University of Tel Aviv, that Chinese investments pose a threat to his country - especially those related to infrastructure, including the communications and technology sector. Yet, this statement can be seen as a way to bring down U.S. rage; because he did not take any significant measures, and what further confirms this is Netanyahu's boast in January 2019 that Israeli exports had grown by 56%, reinforcing China's position as the third-largest trading partner after both the U.S. and the UK.

This great U.S. pressure on the key Middle Eastern ally was renewed with the surprise visit by the U.S. Secretary of State, Mike Pompeo, on May 13, 2020, to Tel Aviv, demanding to limit Chinese investment, manifested on May 26, 2020, when Israeli Ministry of Finance Tenders Committee, decided to implement the project "Sorek B" desalination plant, the largest in the world, via an Israeli company, in place of the Chinese company "Hutchison" that had the fortune of working and supervising the project before Pompeo’s visit.

Washington Watching Closely


The U.S. administration expects officials in Tel Aviv to take into consideration U.S. security assistance, which amounts to $3.8b annually, as well as the political and diplomatic cover provided by the U.S. to Israel in international forums and its relations with other countries, as well as its strategy towards the Middle East, as evident in Israel's behavior in its relations with U.S. global opponents. This might be seen by those in Israel who support Chinese-Israeli relations, as an infringement of Israel's sovereignty or a U.S. misunderstanding of the inter-state relations between the two countries; as Israel also provides intelligence, security, economic, and geostrategic services to the U.S., and therefore - according to this view - there is a mutual benefit, rather than a unilateral Israeli benefit.

Certainly, the U.S. cannot abandon its stance towards Iran and its regional influence in order to pressure Israel regarding its relations with China, as this file is not only related to Israeli-U.S. relations, but rather to the overall U.S. influence in the Middle East, and the associated security of vital areas for its allies. However, the U.S. can come in the way of the new Israeli government's implementation of the provisions of the U.S. peace plan in the Middle East known as the "Deal of the Century"; especially in regardings to the annexation of settlements in the West Bank and the Jordan Valley, which the Israeli government intends to implement in July 2020.

The political crisis in Israel has shown that the right-wing camp led by Benjamin Netanyahu is the only political faction to be relied upon by Beijing and Washington alike, in establishing a delicate balance between their interests in the Israeli economic and social structure. Therefore, the U.S. administration should acknowledge that increasing pressure on Israel to limit its relations with China may lead to a real political crisis with Tel Aviv. Even in Tel Aviv, Israel can enter into a state of political vacuum, just like the one it recently survived, if Washington seeks to create or support a new Israeli political elite that takes care of U.S. interests in a more clear and consistent manner. Yet, the latter scenario is difficult to achieve now, given the severe fragmentation that afflicted the various political Israeli groups in favor of the right, which is controlled by the Likud party.

Also, it is necessary to take into account Israel's ability to pressure the AIPAC in urging the White House to reduce its degree of control over Israeli external relations, and in exchange for the pledge that these relations will not be outside the U.S. orbit. This does not necessarily mean that these relations do not hold Israeli privacy, but the question here is whether the new government can sustain this equation?

There is a firm realization among Israeli decision-makers that China's increasing presence on the international stage economically and politically cannot be ignored. Moreover, they acknowledge that given Israel's current circumstances, China's presence cannot be dealt with via the protectionist approach pursued by the current U.S. administration. Quite the opposite, China will seek to further expand the base of its international and regional alliances while trying to maintain the parties and elements of this base.

China has an economic and investment vision towards the global economy, contrary to its U.S. counterpart - a vision that aims at internationalization rather than protectionism, to distribute monetary monopoly rather than centralize it, to create continental supply chains and enhance the role of commodity production at the expense of a debt-servicing economy that does not develop the production process. Between the Chinese and U.S vision, Israel does not come as a mediator, but rather as a pragmatic negotiator working to achieve the greatest amount of gains. Despite the difference in the form and objective of the Chinese-Middle Eastern alliances from the Israeli alliances, especially when it comes to relations with Iran, in addition to China’s disapproval or lack of interest in the peace process between the Palestinians and the Israelis. Both sides, China and Israel, are well aware that a long-term economic partnership is indispensable.

Some argue that the world is now witnessing a new phase of reconfiguration and distribution of power in the COVID-19 outbreak era; one that intensified economic and political differences at the global level between opponents and competitors. This is evident in contradictions and conflicting official statements between them - opponents and competitors, which are inconsistent with global virus-fighting efforts. The Chinese-U.S. differences advance to the fore and take several geographical locations around the world - including the Middle East - as a field of fortification and expansion of interests.

Israel may be more capable than others to deal with this contradictory domination of international relations, due to its economic, geographical, and military advantages. Nevertheless, it does not only face this challenge, as there is a stalled peace process with the Palestinians in which the Israeli side does not have the consent of the international community. Also, there are military dilemmas imposed by the regional context, which has not rested for decades, along with the presence of a domestic political environment that has become turbulent. All this and others reduce and even weaken the tools necessary to balance the interests of the two largest economies in the world competing in Israel and the region.


Rasheed Ali

Research Assistant, specialized in economic affairs and the role of monetary policy in shaping international relations.