HERMAN PENG analyzes Israel’s strategic partnerships with the US and China and offers advice for Israeli and American policy.

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Emil Salman | Flash90

Even to most well-versed readers of Chinese or Israeli history, Kaifeng and Shanghai probably bear little relation to Jewish history. These two Chinese cities — the former an old imperial capital tucked in Henan’s outer rim, the latter a megalopolis seated at the helm of China’s economic revival — garner little reference in our mainstream understanding of the diaspora. This makes perfect sense. Kaifeng is host to the oldest extant group of Jews in Asia, but according to a recent census currently only hosts around 400 Jews. Shanghai once provided sanctuary to 25,000 Holocaust refugees during World War II, but almost all have since made their way to Western pastures. Both stories — as truly marvelous and extraordinary as they are — are what those who exercise greater care with time may teasingly refer to as niche.

Yet, the tales of the Kaifeng Jews and Shanghai refugees have recently been thrust into the limelight. But this phenomenon is far from miraculous or random.

Shifting Sands

Since 1992 to 2013, trade volume between China and Israel has increased from $50 million to $15 billion; as of 2018, trade to China and Hong Kong make up ~14.5% of Israeli exports. Chinese exports to Israel hit the $8 billion range in 2016, up from just $12.8 million in 1992. Imports to China from Israel have grown from only $38.7 million in 1992 to more than $3 billion in 2016. Services trade also is active. In 2015, Israeli origin patent applications in China hit 700, up from zero in 1992. China also granted 365 patents to Israeli innovators that year, a sign of Israeli’s globally esteemed technology sector.

Growing trade typically begets growing relations, but one still cannot help to notice how open both countries are towards each other despite — or perhaps because — of systematic geopolitical differences. Israel is a state backed and supported by Washington militarily, economically, and politically. Conversely, China has been dubbed the newest challenger to the Western-led order, with today’s trade war the latest testament to this growing sentiment. Beijing’s policies toward the Middle East don’t necessarily sync with Tel Aviv’s agenda either: China is one of few powers concurrently maintaining warm relations with Israel, Palestine, and the Arab world at large.

This makes the growing number of references to Kaifeng and Shanghai much more worrying for the US They propose an alternative to the history typically used to justify a linkage between Israel and its traditional partners. As Beijing would like to portray it, because they are not as militarily invested in the region, China offers no-strings attached trade and investment as opposed to Washington’s need for allegiance towards America’s regional military hegemony. Preparing for his 2017 visit to Singapore, Israeli Prime Minister Benjamin Netanyahu announced that his country was pivoting toward Asia in a “very clear and purposeful way” referring to the increasingly integrated bilateral economic partnership and technological cooperation with China. President Xi Jinping, in his meeting with Netanyahu in Beijing, took the occasion to praise the 25 years of fruitful bilateral relations that led to the new innovative comprehensive partnership in hi-tech and environmental preservation, among other areas. With growing opportunity in the East and mounting political baggage in the West, Tel Aviv receives a cash cow of leverage when negotiating with Washington.

To be sure, the relationship between China and Israel is a pragmatic one, nor is there parity between the two parties. Allusions to Kaifeng, Shanghai, and “shared cultural values between two ancient peoples” (as leaders from both capitals have expressed) are just another part of the political spectacle; indeed important, but at the negotiating table does little more to practically advance modern Sino-Israeli relations than Rush Hour 4 does for Sino-American relations. Furthermore, Israel has more to gain and lose from this relationship than vice versa, simply due to the great scale of China.

Technological advancement and trade have been the bedrock of relations since 1979, even before official relations started in 1992, when secret meetings orchestrated by a businessman brought together Beijing and Tel Aviv for their first diplomatic engagements over technology transfers and market access. China was interested in developing the relationship for several reasons. First, it was impressed with Israeli military technology, and China was intent on upgrading its military, especially in the wake of the Sino-Vietnamese War. Second, partly via its wars in the Middle East, Israel had access to Soviet military technology and was familiar with Soviet military doctrine. As a result, Israel could help China upgrade its Soviet-made equipment. As ties began to grow increasingly formalized, so did US reluctance towards sanctioning transfers of American-backed Israeli technology to a burgeoning Chinese military and economic power.

Thus, the modern push-and-pull between Washington, Tel Aviv, and Beijing was born.

Who Wants What and Why

On the surface, the trade relationship between China and Israel seems straightforward. In the late 1990’s to early 2000’s, the US periodically stopped allowing the transfer of defense technology from Israel to China. However, this neither stopped Chinese interest in technology nor Israeli interest in markets, thus the relationship would only grow as China became progressively developed. Israel, therefore, further leaned into China as a counterbalance to the West; for example, Sino-Israeli bilateral relationships took off in 2013 and 2014, while American-Israeli relations turned icy.

However, escalating trade between both countries and growing Chinese global influence has further intensified both countries’ interests in one another and complicated the relationship.

For Beijing, interest towards Israel is still focused on technology, but has primarily shifted from defense toward other fields. Primary interest may not be in innovation and research and development, crucial as China attempts to shift from an investment- and export-led economy to an innovation- and consumption-led economy. Furthermore, Israeli expertise in security and counterterrorism is seen as a potential remedy to China’s own domestic security capabilities. Other elements of China’s domestic agenda can also be negotiated with Israeli achievements, particularly in agriculture, medicine, and water.

There is also a potential geopolitical dynamic to China’s mostly economic encroachment. Beijing poses itself as a purely economic partner in the region, hence its effort to maintain good relations with all Middle Eastern states. However, a geostrategic interpretation belies a growing power making inroads with a key US ally with the intent of undermining global US alliance and partner networks. There is furthermore a geo-economic reason: China’s grand Belt and Road Initiative requires linking up the Eurasian continent. Both Israel and Iran are seen as potential nodes for this project, and Beijing’s choice would determine who would receive massive infrastructure investments.

For Israel, the rise of China has intensified both the benefits and risks. Tel Aviv would stand to clearly benefit from diversifying their economic relations beyond their traditional partners. Europe’s markets have stagnated and are difficult on the diplomatic stage, with the pro-Palestinian Boycott, Divestment, and Sanctions movements adding substantial strain to this relationship. The United States rarely exerts the same sort of political pressures, but being placed next to a growing China grants Israel bargaining power.

Furthermore, as mentioned before, Chinese investment in Israel has increased substantially and could increase further with the Belt and Road Initiative. For example, between 2007 and 2017 there were at least 69 investments and construction projects involving Chinese entities in Israel, which broadly involved 34 Chinese companies. Reported investment totaled $12.9 billion, while contracts for the construction and operation of infrastructure projects totaled more than $4 billion. Conversely, in the same time span, there were fewer than 50 Chinese applications and grants in Israel.

However, it is also these investment projects that pose the greatest risk to Israel and provide the greatest concern for the US Similar to before, the US does not want the transfer of important defense-related technology to China, or any other technologies and capabilities that could strengthen China’s military. However, it is now harder to limit the movement of these technologies. Large Chinese companies, for example, inevitably have ties to the government; private Chinese investment in Israel would amount to a long-term interaction with Beijing and therefore a potential security breach.

A good example of the risks incurred by investment is the case of Haifa. A state-owned Chinese company will start operating a container terminal in the Israeli port of Haifa, which also operates as an important government-owned naval port used by the United States. The economic benefits to Israel are great, but many in both Israel and the United States, including former ambassador Dan Shapiro, question the tradeoff between economic value and security risks raised by potential Chinese surveillance of the naval port.

There are additional fears that high levels of both Chinese investment and construction could provide political or social leverage over the Sino-Israeli relationship, contrary to the image Beijing intends to portray. This was demonstrated in 2013 when the Chinese government conditioned Prime Minister Benjamin Netanyahu’s visit on Israel ending a federal court trial in New York against the state-owned Bank of China. In that case, the Bank of China was accused of laundering Iranian money for terror activity by Hamas and Palestinian Islamic Jihad.

Future Policy

The meta-relationship described above can be summed up by the international relations doctrine of “strategic hedging.” The theory identifies mechanisms whereby second-tier states can indirectly challenge the system leader, going beyond soft balancing but without engaging in hard balancing behavior. The rising power and the regional power want to improve their power and sphere of influence, while avoiding direct confrontation with the great power. The rising power may seek to improve its position relative to the system leader, the regional power wants to leverage its relative power to decide its foreign policy and achieve economic independence. This appears to be what is  occurring with China and the Middle East. China has used hedging behavior as an insurance policy to offset risks by pursuing multiple policy options.

Due to the US dominance in the Middle East, China appears to use hedging behavior to improve its economic, military, and political ties with regional powers, and to extend its sphere of influence without directly challenging Washington. As US influence declines, China seeks to expand its economic investments and political engagement with non-US-aligned states and its key allies in the Middle East. Beijing understands that because of the limits of its hard power and especially its secondary position with respect to the US, China could not achieve a position comparable to the US role in the region at present. Therefore, China’s hedging relationship with Israel is limited to the establishment of economic, technological, and infrastructure partnerships. Beijing managed to expand its strategic presence in Israel by a growing portfolio of holdings in high-tech startups, national infrastructure, and core industries without disrupting relations with the US.

So, we know what China is doing. But what should Israel and the United States do?

Commentators point to the Obama administration as having been a low in US-Israel relations, particularly with the US refusing to veto anti-Israel bills in the UN. However, Washington still has a stake in Israel and the region. The Trump administration has reversed much of Obama’s key Middle East policies, which has curried the favor of Netanyahu, but the long-term trend does seem to be lukewarm relations.

Israel, similarly, also has an intense stake in the US being in the region, and still likely sees Washington as their top strategic partner. Nonetheless, Israel as a regional power wants to leverage its relative power in the region to gain more freedom to make foreign policy decisions without external pressures and to achieve increased economic independence. Therefore, China is still an asset. And, as the US has learned in Italy and other European states, they will be hard-pressed to stop even close allies from turning down Chinese money.

Therefore, a mutually beneficial partnership between Washington and Israel to raise security protocols regarding Chinese investment would be the most prudent and possible way of avoiding security breaches (that the US is worried about) while still safeguarding Israeli interests its economic opportunities. A prime example of what could be done is implementing greater foreign investment screening measures. A dedicated philosophy for foreign investment screening would be required; for example, the US focuses on national security, Australian on national interest, and Canada on net benefit. This could be unified via a bureau that works together with the Ministry of Foreign Affairs, or a specialized department within a branch of Israeli’s Intelligence Community. Furthermore, it would be prudent for the US to help Israel come to a flushed-out strategy regarding how it should negotiate with China. Tel Aviv would benefit from American expertise while Washington gets greater influence and control over a potentially growing threat. The ideal situation for Washington would be getting Israel to a point of running its own relations with China autonomously, but without giving Beijing access to any of the security breaches. Ultimately, it is the US and China who are the superpowers here; power politics are fully at play, and the US has more cards in the game.

Herman Peng can be contacted at herman.peng@yale.edu.