22 April 2020

A reflection on China-Israel relationships in the midst of Covid-19

22 April 2020

On 8 April 2020, Zev Chafets, a journalist and a former aide to Israeli Prime Minister Menachem Begin, wrote an opinion piece for Bloomberg about China sending 20 tonnes of medical supplies to Israel in the midst of Covid-19 pandemic. From this, he extrapolates that China has been gain soft power within Israel, and increased the tension between Washington and Jerusalem over Israel's growing relationship with China. Most of his points are well-known to those who have been observing the Sino-Israeli relations. I thought I would use his opinion piece as a springboard into further reflection on this relation between two nations with divergent geopolitical interests but converging economic interests.

1. Has China been gaining influence in Israel?

According to a Pew Research report published in 5 December 2019, around 66% of Israel's population have a positive view of China. That is quite high, but as Carice Witte pointed out,  that is actually a drop from 90% in nationwide survey conducted by SIGNAL (an Israeli based think tank that focuses on China-Israel relationship) back in 2017. Witte suggests that the reasons for this drop in positive view of China among Israelis might have to do with negative news surrounding default loans for BRI projects (e.g. Sri Lanka and the Maldives). That might be true, but a more probable reason might have to do Israeli sensitivity to America's strategic views and suspicions about China's strategic intention with regards to its investment in Israel. This can be seen in the formation of an advisory committee within Israel's security cabinet to vet foreign investment proposals on the basis of national security interests. (Reuters, October 2019). This suspicion is clearly seen in the recent decision in April 2020 by the CEO of Clalit health fund, an Israeli health maintenance organisation (or HMO) to back off from a deal worth US 29 million dollars to cooperate with BGI Group, a Shenzhen based genomics firm, on research into antibodies tests for Covid-19, due to privacy concerns about the DNA data of Clalit's 4.9 million customers.  This is despite previous attempts by Yossi Cohen, the head of Mossad, to try to resolve any issues of concerns with regards to the deal. So, while Chafets is probably right that many Israelis admire China's successful efforts in containing the Covid-19 virus (despite its earlier missteps) as well China's generous donation of medical supplies, China's soft power has actually been dropping in Israel.

2. Oh, that port of Haifa deal ...

Chafets alluded to Israel's strategic role in China's BRI project, with the port of Haifa connecting the Mediterranean Sea and Eilat facing the Red Sea. In 2018, Israel agreed to lease the operation of the port of Haifa to a Chinese company, angering Washington. This earned a stern visit by Mike Pompeo and John Bolton to Jerusalem, warning Netanyahu that the deal could lead to cessation of cooperation in the sharing of intelligence and visits by US navy to the port of Haifa. It is worth noting, however, that the deal to own the operation of the port of Haifa was previously offered to US companies, but none showed interests. Israel then turned to a Chinese state owned company, the Shanghai International Port Group, who secured the deal to operate the port from 2021. This leads to three obvious points.

a) Israel as a start-up nation is hungry for investment capital.
b) They would have preferred to turn to US or other western sources for finance, perhaps due to cultural and institutional affinities. This happens a lot, but not always.
c) Where that is not forthcoming, Chinese SOEs and private companies have been willing and able to provide the capital that Israel needs to continue its start-up economic model.

3. Looking into a post-Covid-19 future
China is going through an economic downturn in the midst of Covid-19 epidemic. So funds for Belt and Road related projects will lessen. But this has already been happening in the lead up to the Covid-19 crisis, due to experience with loan defaults from several countries (e.g. Sri Lanka, The Maldives). Interestingly, funding for projects in the Middle East has increased in the same time. The coming months will see a Chinese government being more astute about how it spends its money on any overseas projects that loosely come under the banner of 'Belt and Road'. Israel might probably seen as a safer bet for Chinese investment in a post-Covid-19 world.

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