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Simple and Best
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Simple and Best
By Shira Efron, Karen Scwindt , Emily Haskel
Summary
Bilateral ties between Israel and China began in 1950, but the two countries recently substantially expanded their relationship. China is interested in Israeli advanced technology, wants to learn from Israel’s success in innovation, and considers Israel an important player within the Middle East and a useful node in China’s ambitious Belt and Road Initiative (BRI)—China’s vision to connect Europe, Asia, and Africa via land and sea. Israel, for its part, seeks to diversify its relationships beyond its traditional partners, the United States and Europe, and wants to benefit from enhanced ties with the world’s fastest-growing major economy. Since 2013, Chinese companies have increasingly become more involved in Israel by purchasing Israeli companies and successfully bidding on key infrastructure construction projects. Such activity has been significant in the high-tech sector, in which Chinese investment of venture capital (VC) doubled from $500 million in 2014 to $1 billion in 2016. Israeli tech startups received Chinese investment of $325 million in the first three quarters of 2018, up 37 percent from a year earlier.1 This exploratory research is a deep dive into an issue—the security implications of Chinese investments in Israeli technology and infrastructure—raised in a 2018 RAND Corporation report on evolving Israeli-Chinese ties.2 The analysis here benefitted from U.S. Department of Defense (DoD) research support funds, but it was not directed by the U.S. government and does not reflect its opinions. This study was conducted with a mixed-method approach. We drew on academic literature and original reporting in Hebrew, Chinese, and English, as well as on open-source materials reporting on 92 investment and construction deals between 2007 and 2018. We also held off-the-record discussions with over a dozen Israeli and U.S. current and former government officials, subject-matter experts, and business executives. We first examine China’s outbound investment strategy, discuss how Israel fits within China’s broader policy goals, consider how Israel benefits from increased economic engagement with China, and survey a range of Chinese investments in Israel. We then discuss potential risk to U.S. and Israeli interests from these investments, including broader security concerns, and conclude with some additional questions that warrant further investigation.
