Skip to content
Jerusalem Center for Public Affairs
Strategic Alliances for a Secure, Connected, and Prosperous Region

The Phalcon Sale to China: The Lessons for Israel

Filed under: U.S. Policy
Publication: Jerusalem Viewpoints

No. 473    March 2002

The Sino-Israeli-American Triangle

The Israeli decision, under intense American pressure, to cancel the sale of the Phalcon Airborne Early Warning System to China during the Camp David summit in July 2000 threatens to be a major foreign policy debacle for Israel.

What was once a promising Israeli endeavor to develop strategic and lucrative commercial relations with a rising great power now lies in tatters. The Chinese, still angry over the Phalcon debacle and loss of face, have demanded large-scale compensation. The Americans, the reigning superpower, demand a veto over Israeli arms sales to certain countries. Israel’s very credibility as an arms exporter has been called into question.

A complex Sino-Israeli-American triangle has emerged in the decade since the establishment of diplomatic relations between China and Israel in 1992, one that presented Israel with a fundamental, and perhaps insolvable, dilemma as it entered uncharted waters with two stronger and often antagonistic powers. Israel began to develop close ties with China beginning at the end of the 1970s, and in recent years these ties have become particularly strong in the area of defense. Yet Israel’s security is primarily dependent on its relations with the United States — a country perceived by the Chinese as the main obstacle to achieving their national objectives. This leads to great risks for Israel, as evidenced by the forced cancellation of the Phalcon deal.1


Sino-Israeli Relations (1992-2000)

Prime Ministers Yitzhak Rabin, Benjamin Netanyahu, and Ehud Barak all sought to build a special relationship with China for both commercial and strategic reasons. The Phalcon deal, begun in 1994 and finalized on Prime Minister Netanyahu’s visit to Beijing in 1998, was in some ways meant to be the capstone of the economic and military relationship betweenthe two countries. China sought to modernize its military with four to eight Phalcons able to simultaneously track 60 planes and ships within a several hundred mile radius reaching across the Taiwan Straits and into the South China Sea, thus enhancing its great power aspirations. In return, Israel would receive a major defense contract worth $1-2 billion for providing the planes.2

As Gerald Steinberg has emphasized, the main incentive for Israel in its growing relationship with China, like the U.S. and other countries, is economic. Israel has fewer potential markets compared to the major players in the hi-tech arms market since the Saudis and other Arabs and Islamic purchasers are not on its list of potential customers. So China is very important, providing contracts for much needed jobs, as well as income to offset the high costs of maintaining Israel’s technology and industrial base.3

Israel’s military relationship with China included cooperation on the J-10 advanced fighter plane (modeled on the Israeli Lavi jet fighter) and a series of other military projects. Trade between the two sides reached over $500 million by 2000.4

China sent former Prime Minister Li Peng to Israel in November 1999, followed by President Jiang Zemin on a six-day visit in April 2000. At a press conference during Zemin’s visit, Prime Minister Ehud Barak proclaimed: “We attach a great deal of importance to our relation with China and our credibility.” President Jiang declared at the Knesset during his visit: “This (trip) laid a solid foundation for the establishment and growth of bilateral ties. These managed to grow on a healthy and rapid track and gratifying results were achieved.”5

China had also moved far from its strongly pro-Arab stand during the Maoist era to a nuanced appreciation of the Israeli position. Yet China continued to sell weapons to Israel’s enemies such as Saudi Arabia, Iraq, and Iran, and have helped to develop Iran’s nuclear capabilities.6

After cancellation of the Phalcon deal in July 2000, China has been increasingly critical of Israel. In March 2001 the Chinese Foreign Ministry spokesman Sun Yuxi berated Israel for attacking Palestinians with heavy weapons. In August 2001 China strongly condemned the Israeli takeover of Orient House in east Jerusalem and later its killing of Ali Abu Mustafa, the leader of the Popular Front for the Liberation of Palestine. In January 2002 China continued to warmly praise Yassir Arafat and ignored his censure by America and Israel in the wake of the capture of the Karine-A arms ship.7

In an inconclusive round of talks between Israel and China in December 2001, China rejected Israeli proposals and demanded $1-2 billion in compensation. The Chinese Foreign Ministry spokesman declared: “We think the relevant country should take responsibility and come out with a satisfactory solution.”8 China also warned Israel against selling the Phalcon to India. As a senior Israeli official was quoted at the time, “We thought that the Chinese would move on after an apology and a pledge for cooperation in other fields. Now it looks as if the Chinese want to break the dishes.”9

In mid-February 2002, newspaper reports indicated that China was willing to settle for the return of the $200 million it had paid for the Phalcon, plus an additional $150 million in compensation, perhaps in the form of satellites, although Israeli government officials and Israel Aircraft Industries spokesmen have staunchly refused all comment on the reports.10


The Sino-American Relationship

Shorn of the anti-Soviet axis that sustained the relationship for two decades (1972-1990), Sino-American relations have been notably unstable since the demise of the Soviet Union. The irritants in the relationship between the two sides that share little in common (different culture, history, language, geography, politics, economic system, position in the global polity and economy) are numerous: Taiwan, Tibet, Falun Gong, Democracy League, human rights, espionage, underground religious churches, a massive trade surplus with the United States, China’s missile sales to Pakistan, and its assistance to Iran. The recent conflicts between the U.S. and China include China’s missile exercises in the Taiwan Straits (1996), America’s bombing of the Chinese embassy in Belgrade (1999), the Wen Ho Lee affair (2000), the Chinese downing of the American EP-3 spy plane (2001), and American bugging of a new Boeing plane delivered to President Jiang Zemin (2002).

Since September 11th, unlike Russia and India, China has distanced itself from the American-led war on terror. In the circumstances, in which the two sides share limited common goals (peace, prosperity, and global economic integration) and have many differences, an unstable relationship is perhaps inevitable. This is reinforced by the Chinese perception that the United States wishes to limit or prevent its rise as a world power.

Israel fell victim to the instability and oscillations of this relationship. When the Phalcon deal was first broached to the United States in 1994, it was never formally approved but no objections were registered either. U.S. aerospace industries, like Hughes Electronics and Coral Space Communications, had been involved themselves in China’s missile programs. During the 1990s, there had been a considerable amount of liberalization of American defense trade controls. Furthermore, American passivity in not opposing the Phalcon sale in 1997 and 1998 was part of the process of improving Sino-American relations. By June 1998 President Clinton in Beijing pledged a “strategic partnership” with China and in Shanghai issued his famous “three noes” on Taiwan. By the end of Clinton’s ten-day visit, Sino-American relations were at their apogee and the Phalcon was still tolerated.11

However, the Sino-American relationship rapidly deteriorated in 1999 and the first half of 2000 — and with it went the Phalcon sale. Already in 1996, as noted, China held one of the largest military exercises in its history in the Taiwan Straits; two U.S. aircraft carrier groups were deployed in response. A second large-scale Pacific exercise followed in November 1998. In April 1999 Chinese Prime Minister Zhu Rongji visited the United States and was humiliated when Clinton reneged on his promise to wrap up the deal over Chinese entry into the World Trade Organization (WTO). In May an American warplane bombed the Chinese embassy in Belgrade, killing several Chinese officials. Chinese anger, both public and official, was searing and long-lasting against what President Jiang Zemin called an exercise in “gunboat diplomacy.”

Stories about illegal Chinese campaign contributions in the 1996 U.S. elections, mounting Chinese trade surpluses with the United States, repression of human rights and democrats, and discussion of the possible sale of the American Theater Missile Defense (TMD) system to Taiwan further roiled the waters. The December 1999 disclosure of possible massive Chinese espionage by Taiwanese-born Los Alamos scientist Wen Ho Lee excited strong anti-Chinese sentiment in the United States. In March 2000 the election in Taiwan of pro-independence DPP candidate Chen Shuibien further exacerbated the tension between Washington and Beijing.

When the United States changed its position on China in 1999 and 2000, the pressure on Israel became intense. In April 2000, Defense Secretary William Cohen was blunt in condemning the proposed sale for upgrading Chinese capabilities against Taiwan and possibly degrading American capabilities to operate in the region. Congressional pressure was evident in a non-binding resolution of the U.S. House of Representatives in June 2000 objecting to the sale. American officials spoke of reductions in aid and technology transfers, and even a lessening of America’s commitment to Israel if the sale were not voided.

By the time of Camp David in July 2000, a weakened President Clinton, having barely survived impeachment proceedings over the Monica Lewinsky scandal, was unable to continue along a pro-Chinese path in the wake of public and congressional indignation. The presidential campaign that year brought into play an American public notably more pro-Taiwan and anti-China than the executive branch. Congress and the Defense Department quickly jumped on the anti-China bandwagon in an election year. Thus, the American position on China shifted sharply between 1996 and 2000, and Israel was to pay the price of the change.12 When President Clinton turned up the pressure at the beginning of the Camp David summit, Israel had no choice but to cancel the sale.13


American-Israeli Relations

The American-Israeli relationship has long been close and intense, with both countries sharing common values and common enemies. The relationship is underscored by a massive American military and economic aid commitment to Israel ($2.4 billion a year), deep American involvement in efforts to end the Arab-Israeli conflict, and a shared vision of the war against the “axis of evil.”

Yet there have been repeated occasions when U.S. strategic objectives and commercial interests have clashed with those of Israel. The United States imposed a weapons ban on Israel during the War of Independence (1948), forced Israeli withdrawal from the Sinai after the 1956 Sinai Campaign (1957), failed to honor its commitment to guarantee free access to the Gulf of Eilat in the days before the Six-Day War (1967), was slow in resupplying Israel during the Yom Kippur War (1973), sold AWACS aircraft to Saudi Arabia (1981), and blocked Israeli retaliation for Iraqi SCUD attacks in the Persian Gulf War (1991). Similarly, in the late 1980s the United States forced the cancellation of the Lavi jet fighter project and raised objections to Israeli sales of Kfir jets to Ecuador. (In the end, the sales to Ecuador were permitted; Israel also sold the Kfir to Columbia and Sri Lanka.) The Phalcon episode is thus the latest in a long line of such disagreements between the U.S. and Israel.


What Can Israel Do?

While Israel seeks a resolution of the aftermath of the Phalcon debacle, it is important for Israel to show its good will, usefulness, and importance to Beijing. Military issues are only one part, if still a critical element, of the Sino-Israeli relationship. The Chinese leadership, in the midst of a succession struggle, has other issues besides Taiwan on its agenda.

The Chinese leadership is acutely aware of the dangers that could lead to its downfall. It well remembers the Tienanmen demonstrations in 1989 that brought one million Chinese out into the streets of Beijing, the downfall of the Eastern European Communist regimes that same year, and the disintegration of the Soviet Union in 1991. Its fierce response to the Falun Gong movement reflects an acute awareness of its limited popular support and its lack of a strong ideology as the era of socialism passes away.

Israel would be wise to seek to assist China in projects with strong symbolism and visibility in areas important to the political leadership and/or the people. Here are three such suggestions:


Aiding in the War against Islamic Extremism in Xinjiang

China has been facing its own war against Islamic extremism in its western Xinjiang Autonomous Region. Here, Turkic-speaking Uighur separatists have been mounting attacks on Chinese officials since 1996, and ever more militant forms of Islam continue to seep into Xinjiang. Uighur aspirations for independence grew as other Turkic peoples gained their independence from the former Soviet Union. China, which, like the United States, helped to oust the Soviets from Afghanistan over a decade ago, now also finds itself a target of Islamic militancy unleashed by the Afghan war, from Uighar militants trained in Afghanistan. In addition, Saudi-financed religious Muslim extremism, known as Wahhabism, has begun penetrating into Xinjiang — the very same radical ideology that underpins Osama bin Laden’s al-Qaida terrorist network. Cooperation between Israel and China in their mutual fight against Islamic extremism is an obvious area of joint cooperation.

In addition to extensive police action (including the execution of hundreds of Islamic extremists), the Chinese government has focused on directing millions of Han immigrants to the Xinjiang Autonomous Region (former Turkestan) in recent decades. As a result, the Muslim population has dropped from 90 percent in 1950 to less than 50 percent. The Chinese government is eager to make the remote and austere region more attractive to prospective immigrants to resolve the problem by making it predominantly Han Chinese.

Israel, with considerable experience in building new cities in remote areas (from Karmiel to Kiryat Gat), could help to design and develop a new city in western Xinjiang. This would identify Israel with China’s newest goal (developing western China), show off Israeli skills in a new area (besides military and agro-tech), and give Israel a tangible show project that would always be a small piece of Israel in China. It could even request to put a consulate there to highlight Israel’s identification with the developing western region, so similar in some ways to the Negev.


Promoting Economic Development through Educational Development

The Chinese government is putting great stress on the Internet (27 million Chinese on the Internet today, perhaps 150 million in five years) and education. But, in a struggling Third World country, over 95 percent of China’s 18-year-olds do not go to traditional universities.

Israel, a leading developer of Internet technology (sometimes referred to as Silicon Wadi), could combine this expertise with its Open University program in order to help develop a nationwide distance education system to reach out to millions of Chinese through the Internet. The result would be a prominent show project demonstrating Israel’s commitment to China’s modernization and the well-being of its country. It also would breed good will among the Chinese public and show off Israel’s higher education system.


Attacking Air Pollution and Enhancing the Environment

The 2008 Olympics in Beijing are critical to the regime and extremely popular with the people. Israel could volunteer to help in the reforestation effort outside of Beijing to ensure that massive air pollution really will vanish from China’s capital. Although this project would have to be competitive against those of other nations, Israel’s JNF, which has planted 220 million trees since 1950, could assist in coordinating such an effort. The project would be highly visible, showcase Israel’s development experience, and culminate in cleaner air in 2008.


Lessons for the Future

Beyond conducting discussions with China over the Phalcon endgame, Israel needs to be pro-active and advance major showcase projects that show that Israel is truly China’s friend, that it means well for China, and wants to identify with China’s future. In the long run, this will pay real dividends for Israel, given China’s traditional culture and stress on relationships and friendship.

Israel also has to recognize the serious constraints imposed on its arms sales by its close and highly beneficial relationship with the world’s dominant superpower. The United States provides great economic, political, and military benefits to Israel, as well as closely reflecting Israel’s democratic, free market, and cultural values. In return for this help, Israel needs clear and explicit approval for arms sales to controversial countries that are not considered friendly to the United States. No longer can Israel afford what Amnon Barzilai depicts as: “Vagueness, uncertainty and even an attempt at deception all played a role in the affair over the years, the forced cancellation of the billion dollar deal with China.”14 Failure to gain this transparent approval from the U.S. will lead Israel into further pointless confrontations with the superpower that is conducting a highly beneficial war against the axis of evil that includes two of Israel’s most serious strategic enemies.

Finally, Israel must rethink its foreign policy strategy in the Third World in the post-Cold War era. Although Israel has made major gains, it needs to be aware of the limitations of its power, of the swirling crosscurrents in international politics, and the complexities of the new era. Only by doing so can it help lessen the chance of future debacles on the Phalcon model.

*     *     *



1. Shai Feldman, “China’s Security: Implications for Israel,” Strategic Assessment, vol. 2, no. 4 (February 2000).

2. Amnon Barzilai, “The Phalcons Didn’t Fly,” Ha’aretz, December 28, 2001.

3. Gerald M. Steinberg, “A Sordid Affair,” Jerusalem Post, June 23, 2000. See also Gerald M. Steinberg, “Israel,” in Arms Production in the Third World, edited by Michael Brzoska and Thomas Ohlson, Stockholm International Peace Research Institute (SIPRI) (Stockholm: Taylor and Francis, 1986), pp. 163-193.

4. Buzzy Gordon, “China-Israel Business Ties Deepen,” Jerusalem Post, July 26, 2000.

5. See David Lague, “China Keeps Russia, Israel Up in the Arms Stakes,” Far East Economic Review, January 24, 2002; and Eric Silver, “Selling AWACS to China,” Jewish Journal, April 28, 2000.

6. Barry Rubin, “China’s Middle East Strategy,” MERIA, vol. 3, no. 1 (March 1999).

7. See various news accounts, including Agence France Presse, April 1, 2001.

8. Ellis Shuman, “China Sues for Compensation for Cancelled Phalcon Sale,”, December 17, 2001;, December 19, 2001; and Amnon Barzilai, “The Phalcons Didn’t Fly.”

9., December 18, 2001.

10. “Ministry Won’t Discuss Phalcon Deal Report,” Jerusalem Post, February 14, 2002, p. 4.

11. Barzilai, “The Phalcons Didn’t Fly.”

12. Ibid.; and Sheldon Kirshner, “Israel’s Phalcon Won’t Fly,” Canadian Jewish News, September 14, 2000.

13. Eric Margolis, “Strange Bedfellows: China and Israel,”, April 16, 2000; and Howard Adelson, “The Clinton Administration and Israel,” Jewish Press, June 16, 2000.

14. Barzilai, “The Phalcons Didn’t Fly.”

*     *     *

Professor Jonathan Adelman is a professor of Russian and Chinese studies at the Graduate School of International Studies of the University of Denver and an honorary professor at both Peking University and People’s University in Beijing. The State Department has sponsored him for five speaking tours in China. As liaison for the American Embassy to the Chinese Foreign Ministry think tank, he will be in Beijing for a conference and speaking tour in June 2002.