FEATURE: Israel accelerates China engagement

Israeli Prime Minister Benjamin Netanyahu arrives for a meeting with Liu Yandong, the vice-premier of the People’s Republic of China, in Jerusalem in May 2014. FLASH90 PHOTO

As Iran’s nuclear talks with the UN and Israel’s campaign to stop it dominated the headlines, news of the two countries joining others to help China found a new multilateral bank largely escaped scrutiny. After the March 31 deadline, 57 countries had joined the Asian Infrastructure Investment Bank (AIIB) to fund proposed multi-billion-dollar projects in Asia and the Middle East.

The bank’s rise barely six months after its memorandum signing has presented Israel and Iran with an unexpected opportunity for collaboration. The AIIB forms part of China’s grand strategy to reshape the global economy that includes the revival of the ancient 6,500-kilometre Silk Route alongside a new maritime trade channel stretching from the South China Sea to the Persian Gulf.

“Both countries have huge motivations to join the AIIB and support China’s Silk Route strategy,” said Shalom Salomon Wald, a senior fellow at the Jerusalem-based Jewish People Policy Institute. While security remains their primary concern, Israel and Iran are also eyeing the area’s huge infrastructure demands and opportunities to work with other countries.

Iran is so desperate to escape Western trade sanctions that it immediately accepted China’s offer to join the AIIB, said Wald in a telephone interview.

In contrast, Israel’s engagement with China has been in the works for at least two decades. Wald credits Prime Minister Benjamin Netanyahu for laying the groundwork for Israel’s China pivot following his first visit to Beijing in 1998. Well before taking office in 1996, Israel’s youngest prime minister at 46 years old had identified China’s importance to his country’s future, although the “Look East” shift was briefly interrupted when he lost re-election in 1999. By then, Israel was already convinced it needed to actively engage Asia’s rising powers. 

According to Wald, who wrote an influential book, China and the Jewish People, in 2004, Netanyahu felt that Israel was too focused fighting intractable prejudices in Europe and the Middle East made worse by the rise of radical Islam. China, India, Japan and some of their neighbours with almost no history of anti-Semitism were in full economic bloom, and buying products and services that Israel could supply. Israel faced a simple choice: continue obsessing over the old world, or branch out to a welcoming Asia with its large fast-growing markets.

Netanyahu made his move in May 2013 with a trip to Beijing to meet the new leadership under President Xi Jinping who was envisioning a globally-involved China with a large footprint in the Middle East. That meeting culminated nearly two years of groundwork to re-position Israel for an increasingly multi-polar global order.

“In 2010 and 2011, we undertook a detailed analysis of Israel’s economy and concluded that we had to expand ties with Asia. China topped our agenda,” said Netanel Oded, a senior National Economic Council (NEC) member in the Prime Minister’s Office. Headed by influential economist Eugene Kandel, the council also counts India and Japan in Israel’s long-term plan.

In his second coming to Beijing, Netanyahu played to China’s self-esteem by calling Israel “a small country” and “a perfect junior partner” in their joint quest for economic development. He clinched the relationship with an offer to his host to co-operate in Israel’s technology development.

Why would anyone risk sharing technology development with a country so notorious for intellectual property (IP) violations?

“We discussed this issue at length,” said Oded in a phone interview as the NEC wrestled with the challenge of protecting Israeli technology in courting the Chinese market.

“China craves foreign technology, and Israel is seen as a world leader in technology,” explained Dan Ben-Canaan, a China-based Israeli academic. Netanyahu’s offer was timely as China was seeking international expertise to help clean up its environment and reduce its economic dependence on smokestack industries.

His trip helped launch the China-Israel Joint Task Force (JTF) to develop large projects that would “integrate Israeli advanced technologies into the Chinese market.” 

China responded by boosting its economic commitments with Israel. Oded said Chinese firms have invested more than $2 billion (US) in Israel so far this year compared with $300 million in 2014. Chinese firms are vying for Israel’s infrastructure projects including a 300-kilometre freight rail linking the Red Sea and the Mediterranean. The two countries will soon begin free trade agreement talks as China prepares to overtake the U.S. as Israel’s largest trading partner.

As part of its strategy to safeguard Israeli IP, the JTF has invited top Chinese firms to invest in Israel and jointly develop solutions with local firms.

“It’s important to build trust so that we can focus on jointly developing the technology to meet China’s demands. The Chinese need to know our work style and expectations, and we have to know theirs too,” said Oded. 

To date, more than 30 large Chinese firms including Alibaba, Xiaomi, Baidu, Lenovo and Fosun have established subsidiaries in Israel with the goal of developing technology and boosting exports to China. In a March 30 update, Kandel predicts that growing bilateral relations between the two countries will have “far-reaching effects on the Israeli economy.”

Not everyone shares Kandel’s optimism.

Alon Levkowitz, an East Asia analyst at the Begin-Sadat Center for Strategic Studies, said “some Israeli companies are limiting co-operation with China,” for fear that their IP will be compromised. He reminds Israel that the U.S. remains its main ally while China enjoys close ties with Iran and Syria.

But some Israelis are now accusing the U.S. of “abandoning” Israel with its proposed nuclear deal with Iran. Exacting some revenge, Netanyahu defied the Obama administration by committing Israel to the AIIB and supporting China’s Silk Route strategy. China might yet help Israel and Iran find common ground. Or it might not, as the world awaits the next twist in this convoluted plot.

Ng Weng Hoong is a Vancouver journalist who specializes in writing about energy issues in Asia and the Middle East.