US Ups Pressure on Israel over Investments by China
A prototype of the China-built rolling stock that will be used with Tel Aviv’s light-rail system. (YN Hockey/Wikimedia Commons)

US Ups Pressure on Israel over Investments by China

Washington known to be concerned over Hutchison Water, whose parent company reportedly is under Treasury Department investigation

The United States has warned Israel about a Chinese company vying for a contract to build what would be the largest desalination plant in the world.

The Treasury Department is reportedly investigating Hong Kong-based CK Hutchison Holdings, whose affiliate, Hutchison Water, is one of two remaining entities competing for the tender.

The prospective Sorek 2 installation has an estimated price tag of $1.4 billion and is expected to satisfy up to 25% of Israel’s potable water demands. As things stand, groundbreaking for the new plant is slated for later this year, and the facility is scheduled to go online in 2023.

Hutchison Water, which appears to be headquartered in Singapore, was previously instrumental in building a desalination plant in Sorek, which currently provides the Israeli population with about 20% of its drinking water.

The new contract is supposed to be awarded on May 24, but the US has reportedly urged the Israeli government to postpone the process to allow for the completion of the Treasury’s inquiry – the impetus for which remains unclear.

CK Hutchison Holdings is incorporated in the Cayman Islands.

Repeated overtures made by The Media Line to both Hutchison Water and its parent company went unanswered.

Washington has long expressed concern over Beijing’s growing investments across the Israeli business spectrum. Notably, a Chinese firm in 2014 purchased local food giant Tnuva, and deals have been forged for state-run Chinese corporations to manage soon-to-be-upgraded ports in Ashdod and Haifa.

Shanghai International Port Group is slated to operate the latter facility for 25 years beginning in 2021, which has prompted Washington to consider an end to docking the US Navy’s Sixth Fleet there.

Meanwhile, CRCC Changchun Railway Vehicles is heavily involved in the ongoing construction of a light rail system that will run through Tel Aviv and connect the commercial hub to surrounding communities.

US President Donald Trump has repeatedly accused China of leveraging its foreign investments to acquire sensitive technologies and, more nefariously, to steal state secrets, including some with military applications.

“Tensions between the US and China have been mounting since the end of 2017, when the [White House published its National Security Strategy that focused heavily on Beijing],” Assaf Orion, director of the China Program at the Tel Aviv-based Institute for National Security Studies, explained to The Media Line.

“During this period, the US has sought the support of its partners on various issues, and Israel is no exception. Dialogue between the US and Israeli governments about [Jerusalem’s] ties to China have been taking place for some time now,” he said.

“Like many countries,” Orion continued, “Israel has to consider the following aspects of Chinese investment: the business and economic benefits, in which respect China brings formidable capital, markets, technology and proven capabilities to the table; the direct implications on national security as it relates to strategic independence, foreign influence, IP [Intellectual Property] and cyber security, given the [Communist Party’s] influence on Chinese companies; and, above all, the indirect implications of Israel-China relations on the strategic bond with the US.”

Orion notes that policy-makers are seeking to strike the right balance between the various considerations while highlighting that Israel strictly refrains from defense exports to China and will most probably base its 5G infrastructure on Western components. Irrespective, he believes that the emerging problem is multi-dimensional and complex, and thus not easily resolvable.

“US-China frictions will only rise with COVID-19, the upcoming US election [in November] and due to possible military strife in the South China Sea, and perhaps with respect to Taiwan,” Orion predicted.

“Israel’s own economy will need more foreign investment following the coronavirus crisis, and Beijing will continue to look for business [opportunities]. As Western competition may weaken due to the economic slowdown, America’s sensitivity to Israel-China trade and investment will rise, as will US pressure on Israel to decrease them,” he stated.

Indeed, US concerns over the matter induced Prime Minister Binyamin Netanyahu in late 2019 to announce the establishment of a committee to “examine national security aspects in the process of approving foreign investments.”

Nevertheless, Israel’s Channel 13 this weekend cited a source within the Foreign Ministry as saying that “the decision on the identity of the companies selected to participate in the [desalination plant] tender was made… more than a year before the establishment of the [committee].”

As such, the body – which, parenthetically, does not have jurisdiction over Chinese investments in Israel’s hi-tech industry – did not scrutinize Hutchison Water despite reports that it had been flagged as a possible threat.

Last September, a top Israeli defense official sent a letter to the Energy Ministry expressing objections to Hutchison’s involvement in the development of critical infrastructure due to its Chinese ownership. No action was taken, though, as ministry officials suggested that they did “not see how the Hutchison group’s participation in the new tender is different from the company’s existing operations in the country.”

That exchange came just months after the chief of Israel’s Shin Bet security agency, Nadav Argaman, warned that Chinese investment in crucial economic spheres could jeopardize national security. A week later, a top US energy official visiting the Jewish state hinted that intelligence sharing between the two allies could be compromised unless Israeli authorities took “aggressive steps” to screen Chinese corporations seeking to penetrate the local market.

Tal Reshef, a specialist on Israel’s business ties to East Asia, told The Media Line that the competition between the two giants goes deep.

“From the US’s perspective, it is engaged in a struggle with China over which country will be the global leader technologically, economically, politically [and] militarily. Any foothold throughout the world for either is important. And the less [imprint] China has in Israel, the better for the US,” he said.

“Some people view China as a threat, as it has a manner of gaining influence over nations by loaning their governments money and then taking over public assets if the debts are not repaid,” he continued. “With respect to Israel, in particular, the greater China’s involvement, the greater its ability to learn about various programs, including in the military domain.”

However, Reshef emphasized that the true problem for Israel lay in its ties with Washington.

“If China is in any way a danger to Israel,” he said, “it is mainly because the bilateral relationship could harm [Jerusalem’s] close association with the US.”

Indeed, the delicate dynamic – with Israel seemingly stuck in the middle – could become even more pronounced, if not fraught with challenges, given China’s accelerating interest in Israeli ingenuity.

In this respect, a study by the Israel-based IVC Research Center found that Chinese investors were involved in approximately 12% of all financing rounds by Israeli start-ups in the first three quarters of 2018, compared to 7.5-9% over the same period in the preceding three years. Moreover, China-linked businesses over that time frame participated in six of the 17 rounds of funding of $50 million or more, and a quarter of the deals worth over $20 million.

According to the IVC report, Chinese investments in some 300 Israeli hi-tech companies alone totaled approximately $1.5 billion from 2014 to 2018.

Overall, China is Israel’s third largest trading partner in the world, with the mutual exchange of goods in 2018 estimated at $14 billion.

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