- Expert Brief
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China and Israel are not natural partners. In sheer size, demography, and geopolitical orientation, they appear vastly different. China has ten cities larger than Israel’s entire population. China has no indigenous Jewish community, and Israel has no indigenous Chinese community. Israel is closely aligned with China’s main competitor in the world, the United States. However, the China-Israel relationship has been expanding rapidly on a number of fronts. The past few years have seen stark upticks in trade, investment, education exchanges, and tourism between the two countries.
What is driving this? Despite their many differences, Chinese and Israeli motivations are similarly pragmatic. Both countries seek to expand partnerships outside of their regions as they tap into new markets and trade opportunities. In particular, China is attracted to Israel’s vaunted technology sector, and Israel welcomes China’s investments and potential as a research collaborator. It also views a relationship with China as a rebuff to boycott and divestment efforts by some other states.
Trade and Investment
After a period of broad diplomatic isolation, Israel in recent decades has been developing new bilateral relationships powered by trade. In particular, it has leveraged its reputation as a hub of innovation, entrepreneurship, and research. Meanwhile, China has taken on a staggering number of investment and infrastructure projects in recent years, embarking on new projects in new markets.
Trade between the two countries has surpassed $11 billion, a small figure when compared to China’s trade with the United States or Europe but two hundred times larger than it was twenty-five years ago. In the same period—1992 to 2017—U.S.-China trade only grew twenty times larger.
What do the Chinese see in tiny Israel? Its main interest appears to be in tapping Israeli research and innovation. “In China’s view, Israel, despite its small size, stands out for its scientific achievements, its number of startups, and the number of its Nobel Prize laureates,” wrote former Israeli Ambassador to China Matan Vilnai, along with Assaf Orion and Galia Lavi, in March 2017. China's investments also include high technology, agriculture, food, water, and biotechnology.
Bright Foods’ acquisition of Tnuva, the largest Israeli dairy company, in 2014 marked the first major Chinese corporate foray into the Israeli market. In April 2018, Chinese conglomerate Fosun purchased the Ahava company, maker of Dead Sea lotions. But the China-Israel economic relationship runs deeper than private Chinese acquisitions of Israeli corporate entities.
While visiting Beijing in 2017, Israeli Prime Minister Benjamin Netanyahu told an Israeli interviewer that China accounts for one-third of the investment in Israeli high technology. Chinese investment in Israel is also focused on Israeli infrastructure projects. “China is also involved in building infrastructures in Israel, such as digging the Carmel tunnels in Haifa, laying the light rail in Tel Aviv, and expanding the Ashdod and Haifa seaports” and is entering the residential construction industry, said a 2017 report from Israel’s Institute for National Security Studies.
Chinese investment shows no signs of letting up. A 2017 Sino-Israel Global Network and Academic Leadership (SIGNAL) report notes that ten bilateral agreements and business agreements, amounting to a total value of $25 billion, were signed during Netanyahu’s 2017 visit to China. This, the report also noted, came on the heels of an impressive $16.5 billion of Chinese investment in Israeli technology in 2016—a ten-fold increase from 2015.
Alibaba founder and CEO Jack Ma visited Israel, joined by thirty-five executives, in May, and some Israeli media speculated the trip was connected to Alibaba’s plan, announced in October 2017, to inaugurate a research hub in Israel.
The influx of Chinese tourists to Israel has also risen rapidly, doubling to more than one hundred thousand from 2015 to 2017. In percentage terms, China is Israel’s fastest growing source of tourists. In 2016, Israel became the third country, after the United States and Canada, to sign a ten-year multiple-entry visa agreement with China.
As the relationship between China and Israel has deepened, educational exchanges have increased. At the University of Haifa, for instance, Chinese student enrollment has gone from twenty to two hundred in the past five years.
However, it is Israel’s Technion Institute of Technology that has been at the forefront of these exchanges. In 2013, Technion, along with Shantou University in China, was awarded a $130 million grant from the Li Ka Shing Foundation, founded by Hong Kong entrepreneur Li Ka-shing some forty years ago, to establish a branch in Guangdong Province. The province and Shantou municipality provided an additional $147 million and land for campus construction. Similarly, in 2016, the University of Haifa announced plans to build a joint laboratory at East China Normal University in Shanghai to research ecology, data, biomedicine, and neurobiology, an effort funded by the Chinese government.
This followed Tel Aviv University’s 2014 announcement that it would partner with Tsinghua University in Beijing to build the CIN Research Center, where research would focus on biotech, solar, water, and environmental technology development.
A 2017 SIGNAL report found that as bilateral ties have deepened over the last two decades, so too has Israeli academic interest: Since 2002, Asian studies programs have been founded at the University of Haifa, Bar Ilan University, and Tel Hai College, while Confucius Institutes operate at both Hebrew University and Tel Aviv University.
Political and Military Relations
Netanyahu has repeatedly expressed his hope that broader economic relations with China would translate to more alignment at the United Nations. This has happened in the case of India, whose trade with Israel has surged in the last two decades. Following this uptick in trade, India, on several occasions in recent years, abandoned its previous pattern of voting with Arab states against Israel in the UN system. However, China has not changed its voting pattern, and it aligns against Israel whenever there is a vote in the UN bodies.
Israel’s growing relationship with India also includes significant arms sales, but that is not true with China. While Chinese navy ships have docked in Israel, arms sales and military cooperation are limited due to U.S. pressure.
In 2004, the George W. Bush administration demanded that Israel renege on its pledge to upgrade the Harpy missile system, which Israel Aerospace Industries (IAI) had sold to China in 1994 for about $55 million. U.S. officials cited security concerns and claimed the missile system contained American technology. Israeli officials denied the allegations, and IAI followed through on contractual commitments to China.
As a result, the United States suspended Israel from the Joint Strike Fighter (JSF) project—which led to what is now known as the F-35 stealth fighter—and demanded the resignation of General Amos Yaron, the Israeli Defense Ministry’s director general. Israel did return to the JSF a few months later but at considerable cost: The Defense Ministry had to establish a department for overseeing defense exports, and the director general did in fact retire. The U.S.-Israel military relationship includes exercises, intelligence sharing, and $3.8 billion in U.S. military aid, and the United States remains in a powerful position to curtail Israeli military sales to China.
Possible Obstacles Ahead
Despite growing China-Israel ties, there are looming challenges. As part of what has been identified as a broader Chinese strategy to expand engagement in the Middle East, China has cultivated ties with all major actors—including various Arab states, Iran, and Turkey. While Chinese President Xi Jinping has walked a fine line between Israel and its regional adversaries, deepened ties with Israel could create tension with some of China’s other regional partners, particularly Iran.
The Chinese state line on settlements could also be a source of friction. The government has refused to allow its laborers to work in the West Bank, citing its opposition to Israeli settlement construction there.
In Israel, there is some opposition to the recent expansion of bilateral relations. There are skeptics in several Israeli political parties and among former national security officials, who warn of potential security issues and possible friction with the United States resulting from Chinese involvement in Israeli infrastructure projects. In late 2013, former Mossad Director Efraim Halevy argued that “China holding the trans-Israel railway, owning it and operating it, will not be understood by the U.S.” and warned against China’s control of “political and economic pressure points” within Israel.
Those worries extend to the financial sector and labor industry. Finance Ministry insurance supervisor Dorit Salinger has repeatedly blocked sales of the Phoenix and Clal insurance companies to Chinese companies, citing fears of foreign control over hundreds of billions of shekels of Israeli pension funds. The Association of Contractors and Builders has advocated against Chinese involvement in construction and infrastructure projects.
Still, the growth in the China-Israel relationship has clearly benefited both sides. In Israel, China has found new investment opportunities and a new source of cutting-edge technology. For Israel, the relationship is the latest success of Netanyahu’s strategy of developing ties beyond the United States and the EU; China, as the world’s most populous country, is also a market for Israeli exports. In light of past friction with the United States over high-tech sales by Israel to China, Israel should be careful lest it find itself at odds with its greatest ally regarding products with any potential military uses. However, for Israel, growing ties to China are a reminder that, despite the small nation’s many local and regional challenges, it can build important relationships around the globe.