Pompeo Visits Israel: China is likely to be on the agenda

The US Secretary of State Mike Pompeo is due to land in Israel on Wednesday. His visit coincides with the swearing-in of a new Israeli government, breaking the country’s year-long political deadlock. The COVID-19 pandemic and moves towards annexing parts of the West Bank are likely to dominate Mr. Pompeo’s discussions with both Benjamin Netanyahu and Benny Gantz. Yet also likely to be on the agenda is the thorny issue of US-China tensions and Israel’s position in relation to them.

The US is Israel’s closest strategic ally. The two countries share democratic values and a belief in free and fair trade within a rules-based international order. In the Middle East – Israel’s backyard – Jerusalem and Washington see eye to eye on many strategic and security issues. When it comes to dealing with China, however, the picture is less clear.

Eager to acquire Israeli knowledge and expertise, Chinese direct investments in the Israeli tech sector have totaled $1.5 billion across 300 companies over the last five years. Israel’s top universities are jointly researching nanotechnology with their Chinese counterparts, and Chinese corporations are playing leading roles in a growing number of important infrastructure projects, including operating the new port at Haifa and building the new Tel Aviv light rail system.

Already before the US deemed China as a “strategic competitor” in its 2017 National Security Assessment, Washington had taken issue with Beijing over allegations that it was engaging in intellectual property theft, unfair trading practices, and industrial espionage. But the US has since come to view China as a threat to its national security, believing it to be a “revisionist power” that wishes to create “a world antithetical to US values.” In the wake of the novel coronavirus, the pre-existing tensions between the two superpowers have been further strained, increasing hostilities.

In recent years, Washington has consistently warned allies that Chinese involvement in infrastructure projects, particularly in sensitive areas such as telecommunications and transport, would present serious security challenges. The coronavirus has not hampered US efforts to caution its allies over dealing with China. Earlier this year, Pompeo implied that the UK’s decision to implement Huawei’s 5G network equipment might lead to reduced intelligence sharing between Washington and London. One US official has already called on Israel to increase its scrutiny of foreign investments amid the health crisis.

As a tech exporting nation, Israel shares US concerns regarding economic factors such as IP theft. However, the two countries have not always seen eye to eye on the national security issues presented by international bids on infrastructure projects.

Despite differing concerns on many fronts regarding China and an appetite for Chinese investment, Israel has shown a readiness to prioritize American interests in managing its relations with China. This was most clearly demonstrated amid the Phalcon and Harpy affairs during the early 2000s: Israel canceled the deals after Washington made it clear that the sale would harm American interests. Since then, Israel completely stopped all export of Israeli military equipment to China. The prospect of advanced weapon systems falling into the hands of its enemies in the region, notably Iran, is also a significant factor in Israel’s security considerations, creating a common interest with the US. These concerns were further strengthened with China’s increased focus on civil-military integration.

Many in the Israeli defense establishment have come to share US fears about Chinese involvement in Israel’s critical infrastructure. In January 2019, the head of the Shin Bet, Nadav Argaman, called on the government to pass legislation to monitor foreign investment in light of Chinese investment in projects such as the Tel Aviv light rail system. The key sensitivity is that the rail passes by Israel’s military intelligence center. Another US concern is the Haifa port, a frequent dock for the US Sixth Fleet. Israel displayed shared awareness of national security interests when in January 2020, the Israeli Border Police banned its officers from using the Chinese video-sharing app “TikTok,” similar to the US military decision a month earlier over cybersecurity concerns and fears of snooping.

Israel’s awareness of the looming national security concerns is perhaps best exemplified by the establishment of a committee to vet foreign investments in 2019 – following countries such as the US, UK, and Germany, which had already introduced such mechanisms. The establishment of the committee demonstrates Israel’s shared national security concerns with US allies and the need to look more carefully at foreign involvement in its critical infrastructure.

At present, the committee play’s an advisory role, and government regulators are not obliged to accept its recommendations, giving it far less power than the Committee on Foreign Investment in the United States (CFIUS) established by Washington. Furthermore, the committee will have no authority over-investment in the Tech sector, a major recipient of Chinese interest, out of fears that this would harm an “essential engine” of the Israeli economy. The committee’s establishment amid political deadlock may also have undermined its clout, an issue that may well be resolved after the government is formed. With a new government now in the making, the committee may adopt more robust mechanisms going forward.

Even before the committee’s establishment, Israel prevented acquisitions that raised concerns for national security. Between 2016-18, three Chinese-linked acquisitions of Israeli insurance firm Phoenix Holdings were blocked by Israel’s Commissioner of Capital Markets. Phoenix Holdings operates the pensions of much of Israel’s security establishment. Such an acquisition by a Chinese firm would have given China access to highly sensitive information.

With the COVID-19 pandemic significantly exacerbating tensions between Washington and Beijing, Israel may come under greater pressure. It will likely exercise increased caution in navigating its relationship between the two going forward. Whatever the economic benefits to be reaped from closer ties to China, the military and strategic alliance with the US is of paramount importance to Israel’s security. The current US administration has given Israel unprecedented backing on the international stage. It has recognized united Jerusalem as Israel’s capital, as well as Israeli sovereignty over the Golan Heights. In return, the US may expect clearer messages regarding Israel’s cooperation with Beijing, particularly as US-China relations once again head into stormy waters.

Nevertheless, by developing a coordinated strategy that delineates the boundaries with Beijing while also accounting for Washington’s concerns, Israel’s decision-makers may well be able to strike the right balance between continued economic cooperation with China and protecting its vital friendship and shared interests with the US.

This article was originally published in the Jerusalem Post: