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Israeli Worries About Chinese Investment Spark Calls For Closer Scrutiny

Posted by Arie Egozi on

USS Cole arrives at Haifa, Israel in 2014

TEL AVIV: Israel needs something like America’s Committee on Foreign Investment in the United States (CFIUS) to monitor and, when needed, curtail Chinese investment that may pose a national security threat.

“Surprisingly, we don’t have a body that supervises operations of Chinese companies in Israel and that is very worrying. I hope that this will changed,” a senior member of the Israeli Knesset’s Committee for Foreign Affairs and Security told Breaking Defense on condition of anonymity. “This is a very sensitive issue and it was discussed recently in the committee.”

Shaul Horev, head of the University of Haifa’s Center for Maritime Strategy, was co-author of a report about the Chinese penetration into Israel. In a special interview with Breaking Defense, the former deputy commander of the Israeli navy said that Israel should not stop Chinese investments in Israel, but should create a body to supervise these investments: “Today there is no such body and that is a reason for great concern.”

The American CFIUS oversees foreign investments with national security implications. Companies can ask CFIUS to review a transaction if they believe it might be needed, but the interagency committee has the power to review any merger, acquisition, or takeover “which could result in foreign control of any person engaged in interstate commerce in the United States.”

The issue of creating such a body for Israel may well be addressed when Chinese Vice President Wang Qishan begins a three-day visit here on Oct. 22.

As has happened throughout the world in the last decade, Chinese state-owned or affiliated companies have poured money into managing critical ports. In Israel that would be Haifa’s harbor, a strategic port of call for US Navy ships in the region, as well as the base for Israel’s brand new submarines.

The Shanghai International Port Group (SIPG), a Chinese company, will take over the management of a new privately constructed seaport in Haifa Bay in 2021. In a few years, SIPG will be granted a 25-year contract to run it.

When SIPG takes over a commercial section of the harbor, Chinese personnel will be in close proximity to US naval ships and installations and the main base of the Israeli navy. This has sparked a wave of concern about the potential security risks, including the potential for Chinese espionage and the stealing of vital industrial and defense secrets.

Gary Roughead visits Port Haifa.

Former Chief of Naval Operations Adm. Gary Roughead recently told the Jerusalem Post that a Chinese-run seaport in the bay could force the US Navy to dock warships elsewhere. “The Chinese port operators will be able to monitor closely US ship movements, be aware of maintenance activity and could have access to equipment moving to and from repair sites and interact freely with our crews over protracted periods,” Roughead remarked during a conference last month at the University of Haifa, according to Newsweek.

There are rumors that Israel was approached by CFIUS and asked about the Chinese activity in the Haifa port.

Observers are also concerned that SIPG, despite being listed as a public company, is under direct control of the Chinese government, which holds most of its shares. Chinese companies like SIPG have played a significant role in the construction of various infrastructure projects throughout Israel, including Tel Aviv’s light rail system and the Tel Aviv-Jerusalem electric railway.

Ephraim Halevy, former head of Mossad, told Breaking D that the Chinese commercial and economic activity across the Middle East, has a clear security angle. “China wants to become more powerful in the Middle East in aspects of defense. It is very close to Iran, which is very important to China as an energy supplier.” He added that China not only buys Iranian oil, but is very active in developing the Iranian oil industry. “Israel must take into account its special relations with the U.S and look at the Chinese activity in Israel with very sharp eyes “

He added that China established its first foreign military base in the nearby port of Djibouti: “China is very active in this region and that worries Washington. All this is a big reason for caution when letting China put its foot in some major Israeli infrastructure and commercial activities”

In 2014, a Chinese company purchased the majority of shares in Tnuva, Israel’s biggest dairy producer. For some, China’s increasing hand in infrastructure projects as well as in the food industry, means that large chunks of Israel’s economy could lie outside of Israeli control.

Israel had dropped military cooperation some time ago. Israel developed an indigenous fighter aircraft, the Lavi, with American help. It was killed in 1987 after American pulled out. Three prototypes have flown. When China released the first images of the J-10 fighter, people that know something about military aviation said “it’s the twin of the Lavi.” Israel Aerospace Industries (IAI), developer of the Lavi, has persistently denied it but the J-10 has been dubbed by Israeli national security observers as “the Chinese Lavi.”

In 1994, Israel entered into talks with China regarding the sale of the Phalcon airborne radar system. The initial order was for four units but with an understanding that as many as eight would be procured. An agreement between China and Israel was signed in July 1996.

On 12 July 2000, Prime Minister Ehud Barak announced that Israel would scrap the deal. Israel had to pay China $350 million as compensation.

Since then, Israel has not sold China any defense system or related know how.

Haifa is the not the only focus of Chinese interest in Israel. Chinese companies are building huge projects in Israel. Chinese delegations of scientists and businessmen visit Israel all the time. Chinese companies have invested in many Israeli companies.

The Chinese also offered to buy big parts of two major Israeli insurance companies but that plan was blocked by the government commissioner in charge of supervising the insurance market.

Yaakov Peri, former head of Shin Beit, told Breaking Defense,  that the Chinese penetration into Israel is very broad. “They try to get from Israel anything that can help their economy. As part of these efforts, Chinese officials can easily get information from Israeli officials in a long list of companies.”

Peri added that there is some protection but “this does not ensure that critical data will not get to the wrong hands.” The former head of the Israeli general security service said much more must be done to minimize the threat.

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