Israel expected to tighten restrictions on Chinese investment in face of growing US pressure

Israel expected to tighten restrictions on Chinese investment in face of growing US pressure

“Israel and the West have an ongoing interest in the US continuing to remain the world’s dominant power. That is why imposing restrictions on Chinese investments in the hi-tech industry is rational and necessary.”

In August, the Chinese Communist Party’s International Liaison Department head Liu Jianchao told Israeli ambassador to China Irit Ben-Abba that Israel and China were at a “critical test point” and he hoped Israel would not align with US policy towards Beijing, according to Israeli media reports.

But Chinese foreign ministry spokesman Wang Wenbin said at that time he was not aware of the situation.

The US has placed a number of restrictions on China in recent months, including measures to restrict its access to advanced chip technology.

Last month, US national security adviser Jake Sullivan met his Israeli counterpart Eyal Hulata, who said the country shared US concerns about protecting technology, without mentioning China specifically.

Carice Witte, founder of the Sino-Israel Global Network and Academic Leadership think tank, said Israel had a “very sharp sense” of when technology could affect security.

“Hi-tech covers a lot of ground. There are hi-tech solutions to healthcare, water and environmental issues, transport, etc. These would not necessarily be subject to restrictions for national security reasons,” she said.

“Nanotechnology, quantum and AI as well as meta materials and other fourth industrial revolution tech may well see tighter controls due to national security.”

Over the past decade, China’s hi-tech investments in Israel peaked in 2018, with 72 deals signed. These included 25 in the field of life sciences, 23 in software and IT, six in communication technologies and two in chips and semiconductors, according to data from the Institute for National Security Studies in Israel.

Yet the number of deals has since started to drop amid increased scrutiny from the US, with 43 and 45 deals being signed in 2019 and 2020, respectively.

The US has also expressed concern about sensitive Chinese infrastructure projects in Israel. Last year, the Bayport terminal in Haifa built by Shanghai International Port Group began operating.

The port is just steps away from a dock at which US Navy vessels frequently make stops, prompting Washington to ask for regular inspections to look for possible Chinese surveillance equipment – a request rejected by Israel, according to local media reports.

Many observers expect the government to extend restrictions to the hi-tech sector. Photo: Bloomberg

Many observers expect the government to extend restrictions to the hi-tech sector. Photo: Bloomberg

Witte added that Israel would “assess its management of the tech industry based on balancing its national security concerns with its strong commitment to a free-market, capitalist system”.

China and Israel have spent almost seven years discussing a possible free-trade deal, which Witte said would not be affected by the restrictions.

The agreement, China’s first such deal in the Middle East, was expected to be officially signed by the end of the year, Amir Lati, Israel’s consul-general in Hong Kong, said last month.

China is Israel’s biggest trading partner in Asia and the third largest worldwide after the US and EU. Since the two established formal diplomatic ties in 1992, total bilateral trade has jumped from US$50 million to US$22.8 billion in 2021, according to Chinese government figures.

Yin Gang, a researcher at the Chinese Academy of Social Sciences Institute of West Asian and African Studies, said Israel had followed its own course on foreign policy despite US pressure and did not think the restrictions would affect the proposed trade deal.

“China used to have some hi-tech investments in Israel, but the main [investment] is building infrastructure – ports, railways, tunnels, and subways, etc … Israel has some practical considerations: first, it is willing to maintain a good relationship with China; second, it is willing for China to participate considering the reliable construction costs,” he said.

Zha Daojiong, a Peking University professor who specialises in political risk management for Chinese investments overseas, warned investment or technology restrictions could be “reciprocal in practice and nature”.

“In the China-Israel case, I think the real test, for both sides, is how to be sensible. If such restrictions are conceived of like economic sanctions, for example maximising pain for the target while minimising self harm, it may or may not work out as planned,” he said.

“Human creativity is hard to regulate on ‘national security’ grounds. In a general sense, the more open a system or society, the more innovative it can expect to become.”

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