Israel, like other countries, has long courted China for investment and business opportunities.

But like other countries, Israel has grown wary of Beijing's overtures abroad.

Now Israel must reconcile two contradictory policies about engagement with China, argues Israeli journalist Yossi Melman.

This month, Israel’s National Security Council (NSC) will present the cabinet with its recommendations on foreign investments in Israel. Because of the sensitivity of the issue, no one in the cabinet is prepared to talk about the elephant in the room. Nevertheless, it is clear that the policy review and the report are primarily focused on China.

In the past decade, Beijing has increased its economic and military investments and interests in the Middle East, including Israel. The Israeli government ignored China’s behavior for too long, but lately it has begun to pay attention. The National Security Council has to reconcile two contradictory policies, both of which are important to the Israeli economy and its national-security interests.

The first is a policy embraced by all government across the political spectrum for decades: encouraging foreign investment, privatization of national assets and utilities, and the expansion of international markets for Israeli goods. In recent years, like many other exporters, Israeli firms have looked eastward to the growing and developing economies of Asia—and China’s in particular.

A recent survey by the Israeli intelligence community that is not in the public domain shows that Chinese investment in the Middle East rose by 1,700% between 2012 and 2017. Altogether, the Chinese have invested $700 billion in the region. Nearly half of it is in the energy sector, $150 billion in research and development, $113 billion in industry, $103 billion in transportation, $68 billion in the military field, $4 billion in financial loans, and only $155 million in humanitarian aid.

From 1992 to 2017, China’s bilateral trade with Israel has grown from $50 million to $13.1 billion, making it Israel’s largest trading partner in Asia and its third-largest trading partner in the world after the European Union and the United States. In the first half of 2018, China’s imports from Israel reached $2.77 billion, an increase of 47% compared with the same period in 2017.

A map of China's "One Belt, One Road" megaproject at the Asian Financial Forum in Hong Kong, January 18, 2016. Reuters

The second policy is to defend national and strategic assets and infrastructure from being controlled and taken over by foreign governments and corporations, even if they are not hostile to Israel. Because of its high-tech economy, Israel also faces the delicate problem of foreign spying and theft of its advanced technologies and know-how. Russia and China have in recent years enhanced their espionage efforts in Israel, particularly to obtain access to both state-owned and private-sector Israeli tech companies, and through them to the United States, a close ally of Israel.

China has targeted Israel’s two largest arms exporters, Israel Aerospace Industries and the arms manufacturer Rafael, along with the company Elbit Systems. The first two are state-owned corporations, and all three have subsidiaries in the United States that help manufacture Israel’s most advanced weapons, including missiles and avionics. These designs and trade secrets are coveted by intelligence agencies and governments throughout the world.

Investigations by Israeli counterintelligence agencies discovered that Chinese hackers were particularly interested in the Israeli companies’ ties with US defense contractors. The Israeli firms are collaborating with their US counterparts such as Raytheon, Boeing, and Lockheed Martin in the joint projects, which include F-16 and F-35 warplanes and the Arrow anti-ballistic missile defense systems. Clearly, China perceives Israel as a back door through which it can access and penetrate secret US programs.

Israel is an international powerhouse when it comes to cyberwarfare, which is of the utmost importance to Moscow and Beijing. If they can steal state-of-the art technologies, it could create havoc in the United States and other Western democracies.

It’s no wonder that both countries have large embassies in Tel Aviv, which serve as hubs to advance their interests. Until recently, China was interested in purchasing a chunk of land in the posh neighborhood of Herzliya Pituach for its new embassy. It is located very close to Mossad headquarters and those of the military intelligence agency Unit 8200 at the Glilot Junction, north of Tel Aviv.

Tel Aviv. REUTER/ Nir Elias

In their attempts to penetrate defense installations and steal security-related technologies, Russia and China have faced a fierce, determined, and skillful rival—the Shin Bet, Israel’s domestic security service, which specializes in counterintelligence and information protection.

But the civilian sector, especially firms producing technologies that can be used for both peaceful and military purposes, is less protected. For many years, consecutive Israeli governments neglected and ignored the security risks posed by China. On the contrary, they encouraged Chinese businessmen to invest in Israel and purchase Israeli assets.

But when it comes to China, the so-called private sector is a fiction. The government controls the economy. Whoever deviates from party guidelines is severely punished.

And so over the last 15 years, Chinese companies have invaded Israel. They purchased Tnuva, a household name and the country’s largest producer of dairy products. They won tenders to build roads, light rail lines in Tel Aviv, and the Carmel Tunnels in Haifa. China has also expressed intentions to buy Israeli insurance companies and banks, to lease huge tracts of land in the Negev Desert to grow avocados and wheat, and to build a railroad from Tel Aviv to Eilat.

Chinese construction companies are now enlarging Israel’s two major ports in Haifa and Ashdod, which handle most of Israel’s trade. Even more worrisome is the fact that Chinese companies have gained the concessions to operate and run the new harbors for 25 years. Both ports are also the bases for the Israeli navy, including heavily fortified marine infrastructure which houses the Israeli submarine fleet. The decision to build the Haifa marina was a result of the 2006 war in Lebanon. During the war, Hezbollah rockets hit Haifa aiming at the port and navy vessels.

Israeli Prime Minister Benjamin Netanyahu exits the Rahav, the fifth submarine in the Israeli navy, in Haifa, January 12, 2016. REUTERS/Baz Ratner

The five-strong submarine fleet (the sixth submarine is due to arrive next year from Germany, where all of them were constructed) reportedly carries nuclear-tipped missiles, thus providing Israel with a second-strike nuclear capability, if and when Iran obtains its own nuclear bombs.

For years, Prime Minister Benjamin Netanyahu and his deputy, Transportation and Intelligence Minister Yisrael Katz—who is now also acting foreign minister—encouraged the Chinese to gain access to the Israeli market and boasted about their achievements.

Only a few officials tried to warn Netanyahu and the cabinet, including the Shin Bet’s leaders and Efraim Halevy, the former head of Mossad. But their warnings were not taken seriously. Even Shaul Chorev, a former rear admiral and commander of the submarine fleet from 1980-1985, who was also a defense ministry official and the director general of the Israel Atomic Energy Commission (IAEC), seemed not to be bothered and kept silent.

Now as the head of the Haifa Research Center for Maritime Policy and Strategy at the University of Haifa, Chorev has expresses some concerns about the new Chinese neighbors of the submarine fleet. “I admit that I was insufficiently interested in the topic because as the director of the IAEC I was too busy with other important issues,” he told Foreign Policy. “But now I and the center are actively raising awareness of the problem.”

Israel’s bureaucratic negligence was reversed only because of external pressure.

The US administration perceives China as its main rival and has turned its attention from the Middle East to Asia, the Pacific, and the Korean Peninsula.

US President Donald Trump has declared a trade war on China and is trying to limit its economic and military expansion. One of the United States’ major concerns was Chinese involvement in the Haifa port, which is a host to frequent visits by the ships of the US Sixth Fleet, including aircraft carriers.

President Donald Trump with Israeli Prime Minister Benjamin Netanyahu at the White House, March 25, 2019. Reuters

That’s why Chinese involvement in Israel got Washington’s attention. The Trump administration asked Israel to reduce its ties with China, and US National Security Advisor John Bolton directly requested it. Israel doesn’t want to insult or humiliate China, which is sensitive in terms of its pride and would undoubtedly retaliate. But Israel can’t ignore a request, which is really a demand, from its most important strategic ally.

In the past, when it came to relations involving the three nations, Israel has bowed to US pressure because it had to comply. It is almost certain that past failures and negligence, especially in the harbors, can’t be fixed. The contracts given to Chinese firms cannot be canceled. In case of war, the submarines will go to sea, but they and the US fleet could still be vulnerable to a surprise attack.

The forthcoming Israeli National Security Council report is therefore likely to focus on the future and seek a solution that satisfies Washington without offending Beijing—offering a set of recommendations to the cabinet that addresses economic needs while defending essential strategic installations and interests in the fields of water, land, energy, food, telecommunications, and finance.