The Future of Sino-Israeli Relations: Optimism or Caution?

, November 27, 2018

Institute for Contemporary Affairs

Founded jointly with the Wechsler Family Foundation

No. 618     November 27, 2018

Xi Jinping with Benjamin Netanyahu

President Xi Jinping meets with Prime Minister Benjamin Netanyahu in China in March, 2017

  • As the most senior Chinese official to visit Israel since 2000, Chinese Vice President Wang Qishan’s visit on October 22, 2018, to the Jewish state marks an important milestone in Sino-Israeli relations. For the past decade, trade, investment, technological cooperation, tourism, and exchanges between the two countries have all expanded rapidly, and there is little doubt that China’s relations with Israel will continue to grow in the foreseeable future.
  • As Jerusalem embraces its growing friendship with Beijing, both Israel and China will benefit greatly from increasing economic and trade opportunities and growing bilateral political ties. However, both sides will need to exercise caution in the wider context of geopolitics in the region so as not to compromise their national security.
  • In its bid to make its economy more innovative, China increasingly sees Israel as a valuable and strategic partner. By investing in Israeli companies, especially those specializing in agricultural, food, and medical technologies, not only will China better achieve its aim of becoming an innovation superpower, it will also solve many domestic problems it is currently facing, including drought, lack of arable land, food security, and an aging population.
  • As part of the Maritime Silk Road in China’s “Belt and Road” Initiative (BRI), Israel will play an important role in connecting China with the Mediterranean through trade due to its strategic location. Through its investments and construction at the ports of Haifa and Ashdod, China will be able to create a new trade route between China and the Mediterranean via Israel.
  • Although Jerusalem’s growing ties with Beijing will certainly benefit Israel economically and politically, it must also be cautious of Beijing’s close relationships with Tehran and Damascus and ensure that the Sino-Israeli relationship does not jeopardize Israel’s national security.
  • For Beijing, while fostering good relations with Israel will bring economic benefits, it must play a balancing act between maintaining friendly ties with Israel and Middle Eastern powers such as Iran. Since Iran and the Arab states are of greater strategic importance for Beijing, it will likely be cautious in its developing relationship with the Jewish state so as not to offend its closest allies in the region.

When China’s Vice President Wang Qishan visited Israel on October 22-25, 2018, on his Middle East tour, there was a lot of media attention, not only surrounding his visit but also on the growing ties between the Jewish state and the rising Asian superpower. Although some praised increasing trade and cooperation, others warned that China’s involvement in Israel may threaten the latter’s national security. This media attention is hardly surprising. Wang Qishan is the most senior Chinese official to visit Israel since former President Jiang Zemin’s visit in 2000. For the past decade, trade, investment, technological cooperation, tourism, and academic and cultural exchanges between the two countries have all expanded rapidly.

China, which had stridently supported the Arab and Palestinian cause—mostly for its geopolitical and energy interests in the region—has become more neutral in the Israeli-Palestinian conflict and friendlier to Israel ever since the two countries established diplomatic relations in 1992. Despite Beijing’s close ties to Israel’s regional adversaries, such as Iran, there is little doubt that China’s relations with Israel will continue to grow rapidly.

What does this growing Sino-Israeli relationship mean to both countries, economically and politically? What are the motivations of this relationship, and what challenges will each have to confront? As Jerusalem embraces its growing friendship with Beijing, both Israel and China will benefit greatly from increasing economic and trade opportunities and growing bilateral political ties. However, both sides will also need to exercise caution in the wider context of geopolitics in the region so as not to compromise their national security.

Trade and Innovation

The most crucial driving factor in the Sino-Israeli relationship is trade and innovation. Ever since China opened up its economy to the world in the 1980s, major economies around the world have rushed to take advantage of China’s enormous labor market and, increasingly today, consumer market. As the world’s second-largest economy and largest exporter, it is simply impossible to ignore China’s huge market.

Israel, however, was a late starter. Even years after the two countries established official relations in 1992, China was a “relatively minor player” in the Israeli economy until a few years ago.1 For China, which currently has an economy more than 30 times larger than that of Israel, Israel was even more economically insignificant. In the past few years, however, the two countries signed numerous agreements on business, trade, innovation, and cooperation, which significantly increased bilateral trade between the two countries.

The benefit to Israel is obvious. As one of the world’s largest markets, China offers myriad opportunities to Israeli companies, especially those specializing in agricultural technologies, medical equipment, and other products in the hi-tech sector, which have a high demand in China. As a global leader in innovation and start-ups, Israel has a great comparative advantage in this sector, even in the Chinese market. Israeli exporters are not the only benefactors. Consumers in Israel would also benefit from importing Chinese products, which are usually more affordable than their Western counterparts but also of increasingly high quality.

While it is easy to see why Israel is so eager to trade with China, why is China so enthusiastic about increasing trade and cooperation with this tiny country in the Middle East? After all, China has great strategic and energy interests in the Arab states and Iran, so realistically it is not in China’s geopolitical interest to cozy up to Israel. To understand this, it is important to recognize the economic transition Beijing is currently pushing for. For the past decades, Chinese has become the world’s largest manufacturer, which has lifted hundreds of millions out of poverty and allowed China to grow at double-digit rates for a long time. China’s leaders, however, have recognized that this economic boom is unsustainable without further reforms, as manifested by the decrease in economic growth to about 6 percent and the rapid increase in debt. Innovation is the answer to this stagnation.

Namely, Chinese leaders want to transform China from the world’s factory to an innovation superpower. It is only by implementing this economic transition that China can become a high-income economy with sustainable growth.2 Indeed, China has already become one of the most innovative countries in the world. The Asian superpower has already become the global leader in artificial intelligence (AI), mobile payment, facial recognition, digital technology, and other high technologies.

Israel is also one of the most innovative countries in the world. It has the most start-ups per capita in the world and has created and invented a disproportionately large number of innovative technologies. Israel’s innovative power has undoubtedly grabbed the attention of Chinese political and business leaders. As it strives to make its economy even more innovative, China increasingly sees Israel as a valuable and strategic partner.3 Not only does trading with and investing in Israel benefit both countries’ economies, but it will also allow new and valuable technologies to be introduced to China.

China-Israel Ministerial Conference on Cooperation in Agricultural Innovation

China-Israel Ministerial Conference on Cooperation in Agricultural Innovation

Furthermore, Israel’s fields of specialty are especially crucial to China, not only in terms of its bid to become an innovative power, but also in terms of solving some of its most serious domestic problems, such as drought and food security. Agricultural technology, of which Israel is a world leader because of its arid and unfavorable natural environment, is extremely important to China because of its lack of fresh water and arable land. Thus, Israel’s agricultural and food technologies will be crucial for China to be able to continue to feed its huge population and maintain its food security, which is especially important to China’s social and political stability. In 2014, for example, the Chinese company Bright Food acquired a majority stake in Tnuva, the largest food manufacturer in Israel.4 Medical technology and equipment is another field that is especially valuable to China, as it is facing a shortage of medical supplies and its population is aging.

In addition to China’s desire to become an innovation superpower, its growing trade relationship with Israel is partly motivated by the ongoing U.S.-China trade war, which is harming China’s exports to a considerable degree despite Beijing’s tough stance. According to Tian Wenlin, a researcher at the China Institutes of Contemporary International Relations (CICIR), amid the ongoing trade war, China needs new export markets and trading partners to offset decreasing exports to the United States. For Beijing, Tian said, strengthening cooperation in various fields and expanding trade with Israel would bring great economic benefits and expand China’s export market.5 While increasing trade with Israel will not completely offset China’s decreasing trade with the United States, it will alleviate China’s loss from the trade war.

Geopolitical and Security Concerns

Cooperation in innovation and trade between China and Israel is a win-win situation from the economic perspective. However, the increasingly close ties between the two countries have raised concerns about the implications not only for Israel’s national security but also for that of its most important ally, the United States. According to The Economist, there are two main security concerns. One is Chinese involvement in infrastructure projects in Israel. By controlling key infrastructure projects in Israel, state-owned Chinese companies could easily spy on sensitive information and assets, such as military equipment, in Israel. The commercial shipping facility of Haifa Port, which is Israel’s most important port, is currently run by the Shanghai International Port Group. This port is also where the Israeli Navy docks some of its most important vessels, including submarines. Because of the close proximity of the commercial shipping to some of Israel’s most sensitive military equipment, concerns were raised about whether China will be able to gain access to sensitive information, which would potentially threaten Israel’s national security. The United States, which also has a naval presence in Haifa, has also expressed concern about Chinese involvement in Haifa Port, as China could easily spy on American military equipment as well.6

Another concern is the transfer of Israeli dual-use technologies to China, such as artificial intelligence (AI) and cybersecurity products. Although Israel stopped selling military arms to China in 2005 under U.S. pressure, some Israeli firms have continued to sell dual-use products that can be used for civilian but also military purposes, including intelligence and surveillance. Israeli security officials warned that such technologies may end up being transferred to Iran, one of China’s most important allies in the Middle East. Efraim Halevy, a former head of the Mossad, said, “Israel has to do business with China, of course, but there is no serious mechanism to make sure that we don’t sell off key economic assets and valuable technological knowledge.” Because of the lack of such mechanisms regulating the export of dual-use products, individual firms in Israel are expected to regulate themselves so that the most sensitive technologies are not exported to China. While many security officials have urged the government to implement such mechanisms, Prime Minister Netanyahu has been reluctant to do so as he fears that it may harm Israel’s trade relationship with China.7

Another dilemma that Israel must face is China’s close alliance with its adversaries in the Middle East. Although Sino-Israeli relations have never been better, China still maintains close and friendly ties with Arab states and Iran to serve China’s geopolitical and economic interests in the region. This is illustrated by the fact that top Chinese leaders, including President Xi Jinping, have made numerous visits to Arab states, while Wang Qishan was the first top official to visit Israel since 2000.

As the United States pivots toward Asia and reduces its presence in the Middle East, the vacuum is being filled by other great powers, such as Russia and China.8 China, which is seeking to expand its international influence economically and politically, will want to expand its influence in the Middle East. For example, while it has not been involved in the Syrian civil war militarily, as Russia has, China has been supportive of the Syrian government throughout the war. As the war is coming to an end, China is likely to expand its influence in Syria as the country begins its reconstruction process.9

More crucially, China maintains close and friendly ties with Iran. The Islamic Republic is especially important for China’s economic and geopolitical strategy in the region because it is an important source for China’s gas imports and because geographically it serves as the gateway to the Middle East. Moreover, China sees Iran as an important power that balances U.S. influence in the region.10 In addition to Syria and Iran, China also maintains good ties with Arab states like Egypt and Saudi Arabia. Thus, while Jerusalem’s growing ties with Beijing will certainly benefit Israel economically and politically, it must also be cautious of Beijing’s close relationships with other players in the Middle East, especially Tehran and Damascus.

China’s involvement in the region, however, may not always be a security threat to Israel. For example, while China has become less pro-Palestinian than before, it has shown interest in being more involved in the Israeli-Palestinian peace process. In 2017, when PA President Mahmoud Abbas visited Beijing, Xi Jinping presented a “four-point peace plan,” which is used by the Chinese delegation to the United Nations as a reference point to the Israeli-Palestinian peace process. During Wang’s visit to Israel, Chinese state media stated that Jerusalem expressed its appreciation of China’s increasingly active role in the peace process.11 While this does not mean that Beijing will be as involved as the United States or the European Union in the peace process, it does symbolize an important shift from its past policy of strict non-interference.12

China’s Economic Interests in the Middle East

China sees the Middle East as crucial to its economic interests. One important component of China’s economic interest in the region is, clearly, its energy security. As a rising economic superpower, China is seeing an enormous demand for energy as its economy continues to expand rapidly and as its citizens become wealthier. While it is diversifying its energy sources by investing heavily in renewable and nuclear energy, it still sees securing the supply of gas and oil as crucial to its energy policy. As the world’s largest importer of crude oil, China imports more than 40 percent of its crude oil from Middle Eastern suppliers, such as Saudi Arabia and Iran.13 Iran, as one of the biggest natural gas producers in the world, is extremely important to China’s energy interests, which explains China’s decision to ignore the recent re-imposition of U.S. sanctions.

The other important component of China’s economic interest in the Middle East is the Belt and Road Initiative (BRI), also known as “One Belt One Road” (OBOR). The BRI is an international development project initiated and led by Beijing that is aimed at fostering trade and development in different parts of Asia, Europe, and Africa. Inspired by and based on the ancient Silk Road that connected China to the West, it consists of the “Silk Road Economic Belt,” which is a land route that spans from China to Central Asia and Europe, and the “Maritime Silk Road,” which is a maritime route that spans from China to Southeast Asia, South Asia, the Middle East, and Africa. Under the BRI, China has helped to fund infrastructure and investment projects in the countries involved, especially in Africa and Southeast Asia. Although the BRI has brought great economic and trade opportunities to many countries, the initiative is also regarded by critics as a form of economic imperialism and as an attempt by China to expand its market and to increase its economic and even political influence across Asia, the Middle East, and Africa.14

Sitting at the crossroads between Asia, Europe, and Africa, the Middle East undoubtedly plays an indispensable role in the BRI. As a result, in recent years China has paid increasing attention to the Middle East by fostering ties with countries in the region. It has also begun to put efforts into promoting political stability in the region, as instability and conflict would be damaging to the trade routes under the BRI. In July 2018, for example, Beijing hosted 22 Arab League member states in the Ministerial Meeting of the China-Arab States Cooperation Forum, during which China pledged $23 billion in loans and aid to Arab states for infrastructure and investment projects and humanitarian aid.15 At the same time, however, China has emphasized the economic development method of fostering political stability and peace, rather than political interference.

Despite its small size and lack of economic connectivity with the rest of the region, Israel will likely become a vital player in the BRI. As part of the Maritime Silk Road, Israel will play an important role in connecting China with the Mediterranean through trade because of its strategic geographical location in the eastern Mediterranean. This is why the ports of Haifa and Ashdod, which connect Israel with Europe, are so important to China. By investing in and being involved in the construction of these two ports, China will be able to create a new trade route between China and the Mediterranean via Israel.16 In addition, Israel has an important role in the BRI because it is becoming an increasingly attractive destination for Chinese investments, especially in the field of technology and infrastructure.17 Nevertheless, larger economies, such as Iran and Saudi Arabia, will likely continue to play a bigger role than Israel in the BRI, simply because they are of more strategic and economic interest for China.

Conclusion

Wang Qishan’s visit to Israel in October symbolizes an important milestone in Sino-Israeli relations. Indeed, there has never been a better relationship between Jerusalem and Beijing both economically and politically. Trade, tourism, technological cooperation, academic and cultural exchanges, and political relations are flourishing and should continue to do so. Yet, both Israel and China must exercise caution. For Beijing, while fostering good relations with Israel will bring great economic benefits, it must play a balancing act between maintaining friendly ties with Israel and Middle Eastern powers such as Iran. Since Iran and the Arab states are of greater strategic importance for Beijing, it will likely be cautious in its developing relationship with the Jewish state so as not to offend its closest allies in the region. Despite these potential roadblocks, however, bilateral relations between Israel and China will likely continue to flourish.

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Notes

1 https://www.timesofisrael.com/chinese-vice-president-arrives-in-israel-to-boost-business-ties/

2 http://www.eastasiaforum.org/2017/11/07/can-china-transition-to-a-more-innovative-economy/

3 http://www.xinhuanet.com//2018-10/25/c_1123615009.htm

4 https://www.timesofisrael.com/chinese-state-company-buys-controlling-stake-in-tnuva/

5 http://news.china.com.cn/2018-10/24/content_67866613.htm

6 https://www.economist.com/middle-east-and-africa/2018/10/11/israels-ties-with-china-are-raising-security-concerns

7 https://www.economist.com/middle-east-and-africa/2018/10/11/israels-ties-with-china-are-raising-security-concerns

8 https://besacenter.org/perspectives-papers/china-israel-pragmatism/

9 https://www.scmp.com/news/china/diplomacy/article/2168482/why-end-war-syria-gives-china-opportunity-extend-its-influence

10 https://jiss.org.il/en/dostri-china-israel-relations-growing-cooperation-amidst-conflicting-interests/

11 http://www.xinhuanet.com//2018-10/25/c_1123615009.htm

12 https://besacenter.org/perspectives-papers/china-israel-pragmatism/

13 http://www.worldstopexports.com/top-15-crude-oil-suppliers-to-china/

14 https://www.theguardian.com/cities/ng-interactive/2018/jul/30/what-china-belt-road-initiative-silk-road-explainer

15 https://www.scmp.com/news/china/diplomacy-defence/article/2155258/china-belt-and-road-run-through-middle-east

16 https://besacenter.org/perspectives-papers/china-mediterranean-silk-road/

17 https://thediplomat.com/2018/09/china-and-israel-in-the-belt-and-road-initiative/

Shaun Ho

Shaun Ho is a student at the Georgetown University School of Foreign Service and an intern at the Jerusalem Center for Public Affairs (JCPA).