Chinese Shopping Spree Raises Concerns in Israel

Will foreign control of key Israeli industries endanger its security or is this a case of “strategic prejudice”?

Last month, Israel’s commissioner for capital markets, insurances and savings indicated that it would not, “at this time,” allow a group of Chinese investors to buy control of one of the country’s largest insurance corporations, Klal Insurance Ltd. According to a report in the financial newspaper Calcalist, the commissioner could not obtain sufficient information to satisfy her concerns on whether the investors were indeed suitable to control Israel’s second largest insurance empire, despite an approach to Interpol for information about the anonymous investors.

The announcement, which effectively terminated the deal, joined other prospects relating to the sale of major Israeli companies to foreign investors, specifically Chinese ones.

Chinese groups have expressed an increased interest in investing in the Israeli economy. In 2011, Chemchina bought 60 percent of the shares in Machteshim-Agan, Israel’s foremost producer of chemicals and pesticides and a global leader in this field. In 2013, Fuson, a Chinese pharmaceutical giant bought Alma lasers for $240 million. Most recently, two weeks ago, it was announced that the Chinese Brightfood Corporation had bought 56 percent of the shares of Tnuva from the British investment fund Apax. Tnuva, which was founded 85 years ago as an agricultural cooperative and is Israel’s biggest dairy producer, is a leading and beloved household brand.

A review of the responses to the Tnuva (and other) sales reveal a curious trend. Israel is an integral part of the global economy. Many of its companies operate in foreign countries and are often partially or fully owned by foreign investors, something Israelis are very proud of — especially when it comes to foreign companies buying small Israeli startups.

Yet when it comes to Chinese investors, Israelis are more suspicious. While some commentators welcomed the Tnuva deal, others lamented it, both on economic and social grounds. The most interesting response came from Efraim Halevy, the former head of the Israeli intelligence service Mossad. In a parliamentary hearing convened after the sale, he warned of an increased Chinese control of Israel’s economy, mentioning that after the sale of Machteshim-Agan to a Chinese investor, the company changed its name and was struck from the Israeli stock exchange, effectively terminating it as an Israeli company.

What explains this objection — and perhaps hostility — toward Chinese involvement in what is a legitimate economic activity? Is it a case of prejudice or are there legitimate security concerns involved?

The gist of the argument against foreign involvement in Israel’s economy is that in light of its unique security situation, it cannot afford to surrender control of vital industries. When the day comes, proponents of this argument, including Halevy, claim, who is to say that those foreign investors will have Israel’s best interest at heart? It may turn out to be in their interest to dissolve the companies and transfer their knowledge and expertise out of Israel. In extreme cases, investors may even side with Israel’s (economically much more powerful) enemies, forcing the government’s hand by leveraging their control of Israeli industry and crippling its ability to effectively respond to security threats.

Recent years have seen an enhanced Chinese access to Israeli markets, a policy that has been enthusiastically encouraged by Prime Minister Benjamin Netanyahu who is keen to strengthen ties with the Asian superpower. The Chinese have expanded their commercial presence throughout the Middle East, in fact, in an attempt to ensure the continued flow of critical oil and gas imports to their growing economy. For this purpose China has invested heavily in building a network of roads, railways, ports and terminals, which would connect China with Europe and Africa, both by land and by sea. As part of this attempt, China has forged close ties with some of Israel’s main rivals in the Middle East region, including Syria and especially Iran.

While Israel has little to offer in the way of oil and gas, its advanced technologies can provide relatively cheap and effective solutions to many of China’s social and environmental problems, solutions which other partners in the region cannot provide.

Furthermore, Israel is strategically located on the nexus between three continents and can be seen as the perfect gateway to connect Europe with Asia.

Meanwhile, Prime Minister Netanyahu has formed an ambitious vision of his own for an enhanced relationship between China and Israel. This vision is symbolized by his attempt to connect, by rail, the southern port of Eilat, in the Gulf of Aqaba, with the port of Ashdod and from there to the rest of the country.

The project is designed to create a cheaper and faster trade route between Europe and East Asia, bypassing the Suez Canal and cementing Israel as a center of the international trade activity. While the project has received interest from various companies, it appears that Netanyahu is determined to grant the contract for the building and maintenance of the renewed Eilat port to a Chinese contractor, the China Communication Construction Company. Since this company is owned by the Chinese state, it would grant the country a strategic foothold in the region. This possibility has raised major concerns in Israel. In the campaign waged against the project, Halevy has again featured prominently.

In a lengthy report describing the arguments against the project and especially China’s involvement in it, Halevy argued that there is no way of knowing how China will react in a future conflict between Israel and its neighbors. Will it use its control of a major transport route crossing Israel in order to pressure the Israeli government into making concessions to China’s Arab allies?

Halevy also stated that Israel will not be able to resist Chinese pressures during future conflicts and cited examples in which Israel has bowed to Chinese pressure even when its own strategic interests were involved. For example, China recently persuaded Israel not to support a trial held in the United States in which a Chinese bank was accused of knowingly financing Islamic terror groups. While combatting international Islamic terrorism by tracking the way it is financed is a core Israeli security interest, Prime Minister Netanyahu bowed in to the Chinese demand, even after Israel had encouraged the family to file the lawsuit.

Finally, Halevy pointed out that closer Sino-Israeli relations could complicate the Jewish state’s alliance with the United States. Giving the rivalry between America and China, the Chinese tendency to diplomatically and rhetorically support Israel’s enemies and Israel’s strong security relationship with the United States, the question of how it should, and will, react to the growing Chinese presence in the Middle East is of paramount importance.

While Netanyahu, seeing the financial benefits accruing from an enhanced relationship with China — and bearing in mind the slow American withdrawal from the region — seems eager to strengthen the partnership, valid strategic concerns, stemming from past experience and especially from China’s overall foreign policy and behavior in international relations, will no doubt be a continuing obstacle to closer relations.