In a recent interview on Bloomberg TV, the Israeli President Shimon Peres stated: “The future is galloping like a horse, and if you don’t gallop with the horse, the horse will gallop without you.” His interesting words may apply to the tireless Israeli efforts in recent years to “gallop” with the Chinese horse. This Israeli “galloping” comes at a time when China is seeking to enhance the security of its energy imports from the Middle East by increasing its political and economic involvement in the region.
One of the striking issues that characterizes Beijing’s relations with the region is that it has good relations with all parties. China’s ties with Iran, Turkey, and the Arab world are growing rapidly. Today, China is the largest exporter to the Middle East, Saudi Arabia’s top trade partner in West Asia, the biggest importer of Iranian oil, the major player in the Iraqi oil game and a rising star in the Turkish economy. At the same time, China has been the top market for Israeli exports in Asia.
Logic behind the growing relations
China and Israel established their diplomatic ties in 1992, a year after the start of peace negotiations between the Arabs and Israel in Madrid. Since then, relations developed steadily (with some difficulties on several occasions), starting with the visit of the Israeli President Chaim Herzog in 1992 and culminating in the historic visit of Chinese President Jiang Zeming to Israel in 2000, the year in which trade between the two parties exceeded the billion-dollar barrier for the first time and also the year of first and last visit by a Chinese president (at least for now).
Over the last nine years, China’s investments and contracts worldwide reached $781.5 billion, Israel represents only 0.02 percent of the totalDr. Naser al-Tamimi
It seems that Israel is pushing to “gallop” with the Chinese. Indeed, since the establishment of diplomatic relations with China, four Israeli presidents; Hertzog (1992), Weitzman (1999), Katzav (2003) and Peres (2008) all made state visits to China. Three Israeli prime ministers; Rabin (1993), Netanyahu (1998), Olmert (2007), and Netanyahu (2013), all made official visits to China. In addition to this, there are regular visits and contacts between business people, companies, academics, military officials, and political and economic establishments on both sides.
Israel cannot afford to ignore a very important market and country such as China. Meanwhile, Chinese companies are scouring the globe in search for technologies that will help the development of the Chinese economy quickly and efficiently. Yoram Evron, a senior research fellow at the Israeli Institute for National Securities studies (INSS), recently summarized the logic behind the expanded Israeli-China relations: “Israel holds one of the main keys to stability in the region; another is that the events of the Arab Spring have demonstrated that Israel is an island of stability in the heart of a volatile region. In addition, Israel is an important source of knowledge about events in the region. Israel is also seen in China as a source of advanced technologies.” This is in addition to the possibilities of cooperation in the development of natural gas in the wake of the recent Israeli discoveries.
In that context, the growing political Israeli contacts have paid-off as they resulted in growing economic relations between the two countries. Indeed, the bilateral trade between China and Israel increased almost 220-fold, from as little as $51 million in 1992 to almost $11 billion in 2013. Today, China (including Hong Kong) is Israel’s second top export destination after the United States and the largest in Asia.
Nonetheless, the trade balance tilts considerably in China’s favor (almost $8 billion dollars of Chinese exports). Manufactured items such as diamonds, electrical and electronic equipment, food, textiles and clothing form the bulk of exports from China to Israel. On the other hand, the Israel Export Institute noted that the Israeli exports (around $3 billion) to China are concentrated in three main sectors: electronic components, minerals and chemicals. These account for more than two thirds of total Israeli exports to China.
China-Israel cooperation has also expanded beyond imports and exports as Chinese interest in Israel’s military technology and innovations is increasing, while the Israeli companies are targeting several sectors essential to China’s development plans; hi-tech, renewable energy, water treatments, medical equipment, communications, agriculture and consumer products. According to the “China Global Investment Tracker,” which measures China’s investments and contracts worldwide, the Chinese have poured $1.7 billion into Israel’s economy and most of it went to the agriculture sector ($1.4 billion) and the rest was invested in Israeli high-tech companies between 2005 and end-2013.
Over the last decade, Israel has attracted two major investments from China, first the $ 1.44 billion acquisition of a 60 percent stake in Makhteshim Agan (the agrochemicals maker) by China National Chemical Corporation and a $240 million purchase of Alma Lasers by Focus International. China’s Bright Food group is also seeking to acquire a controlling interest in Israel’s Tnuva Food Industries Ltd from the British private-equity firm Apax Partners LLP, which holds a majority stake in Tnuva. All of these transactions aim to improve Chinese productivity, gain market access and improve the technological capabilities.
One of the high profile Israeli projects that the Prime Minister Benjamin Netanyahu is promoting and encouraging Chinese participation in is the so-called Red-Med project. The project would connect by rail links more than 300 kilometers between “Eilat” on the Red Sea and “Ashdod” Port on the Mediterranean Sea. Chinese companies are also looking to invest in Israel’s gas fields in the Mediterranean Sea. Tourism is another area where the Israeli are betting high. The Israeli Tourism Ministry forecasts that the number of Chinese visitors will surge 60 percent this year to 40,000 as Israel tries to boost the religious appeals for a growing sector of Christian Chinese.
There is also increasing cooperation in the scientific and academic fields. In this area four major projects started last year. The biggest educational project is a Chinese donation from the Li Kay Shing Foundation, exceeding $130 million to Israeli Institute of Technology Technion. It is certain that cooperation in the academic and research will witness positive developments in the future as there are many Israeli institutions that are active in the academia and universities circles inside China. Sino-Israel cooperation in the fields of desalination, water treatment and reclamation has grown rapidly in last few years. In this regard, there is a China-Israeli Industrial Park in southern China which mainly focuses on water treatment, in addition China’s largest desalination plant in Tienjin, which is producing 200,000 cubic meters of fresh water every day, was built by the Israeli company IDE.
Limits of the relations
Despite this significant improvement in Sino-Israeli relations, there are issues that may limit the development of relations. China cannot ignore its growing economic and political relations with the Arab countries, Turkey and Iran. The two-way trade between the Arab World and China has increased rapidly to hit nearly a quarter trillion dollars in 2013. If China’s trade with Turkey (over $28 billion) and Iran (almost $40 billion) are included, the total trade reached nearly $310 billion last year. This is not to mention Chinese projects worth tens of billions, China’s oil imports dependence on the Middle East and the Islamic dimension. Over the last nine years, China’s investments and contracts worldwide reached $781.5 billion, Israel represents only 0.02 percent of the total. In contrast, the Chinese investments and contracts in the Arab countries amounted to about $82 billion, or 10.5 percent and in Iran almost $19 billion or 2.4 percent of the Chinese total, according the China Global Investment Tracker.
Although it is true that China needs advanced technology and the Israelis are advanced in some areas, China’s scientific potential is evolving dramatically and as the time passes by, Israel may lose its competitive advantage. Over the last decade, China has made significant progress in science and engineering fields and it is now the world’s third largest producer of peer-reviewed research articles after the European Union and United States according to Science and Engineering Indicators 2014 published by the U.S. National Science Foundation. China is also aiming to achieve 2.2 percent of GDP in total research and development (R&D) spending by next year. The Battelle Global R&D Funding Forecast say that at current rates of R&D investment and economic growth, China could surpass the U.S. in total R&D spending by about 2022.
To put the importance of the Israeli projects in China in context, they only represent a little spot on the Chinese technological map. The latest UNCTAD figures show that China stands out in many ways in the information and communication technology (ICT) landscape. In 2012, ICT goods made up more than a quarter of China’s total merchandise exports ($ 554.3 billion) and China remained the world’s top exporter of all main categories of ICT goods. China is also the top importer of ICT goods, accounting for 18 percent of world imports ($355.5 billion). The scale of China’s ICT trade represents nearly 4 times the size of Israel’s economy.
Chinese involvement in Israeli business has also generated security concerns. The former head of Mossad, Efraim Halevy, is one of the leading critics in Israel who believes that the country should examine the geopolitical considerations and has consistently warned the Israeli government against involving the Chinese in the Red-Med project, arguing that it could lead to a crisis in strategic relations with the United States. At the same time, China should also take into account the interests of Egypt, because if Cairo feels that the project threatens its economic security it can respond in many ways. Additionally, Israeli critics also argue that growing Chinese involvement will endanger Israel’s security and might lead to the theft of technology and facilitate operations of Chinese espionage. Above all, the Israeli government must carefully balance its burgeoning relations with China with its strategic alliance with the United States.
All in all, China recognized the Palestinian state in the United Nations, opposed any military attack against Iran, and does not consider movements such as Hamas and Hezbollah as terrorist organizations. Interestingly, one former Chinese diplomat who served in the Middle East (and asked not to be named) told me recently that if in the future, China-U.S. relations were to deteriorate, or is a pressure from Washington on Tel Aviv was to be applied, Israel can’t be trusted. China also does not fully trust Israeli intentions as there are precedents of Israeli spy operations aimed at Israel’s main ally, the United States, so it’s also possible that they will target China if they are given the opportunity. More importantly, “contrary to the Israeli claims, the Chinese leadership are worried that the Israeli policies in Palestine and other places could destabilize the already unstable region,” the source said.
Dr. Naser al-Tamimi is a UK-based Middle East analyst and author of the book “China-Saudi Arabia Relations, 1990-2012: Marriage of Convenience or Strategic Alliance?” He is an Al Arabiya regular contributor, with a particular interest in energy politics, the political economy of the Gulf, and Middle East-Asia relations. The writer can be reached at: Twitter: @ nasertamimi and email: email@example.com