Wednesday, December 12, 2018

Will Israel leave Australia’s back door open for Chinese infiltration?

Australia should be careful to ensure defence cooperation with Israel does not leave a back door open for Chinese infiltration.

The hosting of the Israel-China Innovation Conference in Jerusalem on 24-25 October 2018 highlighted the growing ties between Israel and China.

Chinese Vice President Wang Qishan attended the conference, as did Alibaba’s Jack Ma and former Google CEO Eric Schmidt. The Conference was sponsored by the Israeli Ministry of Foreign Affairs (which sits with the Prime Minister). There were representatives from 13 different Chinese and Israeli government agencies. Wang is the highest-ranking Chinese official to visit Israel since President Jiang Zemin’s visit in 2000.

Wang emphasised Israel’s importance to China, saying “Israel leads the world in electronics, information technology, modern medicine, and agriculture… China is still striving to achieve modernisation.”

Leading Chinese tech companies, such as Huawei, Legend and Xiaomi, have established operations in Israel. In 2017, 34 Chinese companies were investing in Israeli companies, up from 18 in 2013. This amounts to around US $500 to $600 million or approximately 12 per cent of the total capital raised by all Israeli startups between 2013 and 2017.

Israeli Prime Minister Benjamin Netanyahu has made it his mission to improve relations with China. In 2017, he travelled to China where he met President Xi Jinping and the two agreed to upgrade the relationship to a Comprehensive Innovation Partnership (during the trip 25 cooperation agreements were signed valued at around $2 billion). Netanyahu wants a free trade agreement between the two countries by 2019.

Wang and Netanyahu led the fourth meeting of the China-Israel Innovation Committee, which is an intergovernmental meeting aimed at improving cooperation in economy and trade, science and technology, health, agriculture, environmental quality, education and academy.

Another important example of the increased cooperation between Israel and China was the Technion Institute of Technology, Israel’s equivalent of MIT, opening a joint venture in Shantou Province with Shantou University in 2017. The event was attended by Hong Kong billionaire Li Ka-shing, who had donated US $130 million to the Technion in 2013.

Netanyahu’s commitment to open the Chinese market to Israeli companies explains why there has been a boom in economic terms between the two countries. In 2017, the volume of trade between the two countries totalled $9.67 billion – with Chinese exports to Israel twice as large as Israeli exports headed the other way. China is now Israel’s second largest trading partner after the US.

With China seen as a key market, the Israeli Ministry of Economy and Industry has established six economic offices in China (by comparison, Israel has four in the US). In 2017, the two countries opened direct flights from Tel Aviv to Shanghai and from Tel Aviv to Chengdu, which may explain why in 2017, Israel received over 110,000 Chinese visitors.

The Israelis have reportedly made it clear to the Chinese that defence technology is off the table, although healthcare, sustainable development equipment, bio-technology, medical equipment and precision farming, are all fair game. Notably, the Israelis say nothing about ‘dual use’ products.

The problem with the improved relationship is that one doesn’t know how the Chinese will exploit the technology, especially innovations relating to artificial intelligence and civilian cybersecurity (around 120 Israeli hi-tech companies receive Chinese investment).

In a remarkable op-ed, Gilad Cohen, the Deputy Director General for Asia-Pacific Affairs at the Israeli Ministry of Foreign Affairs, discounted the growing criticism appearing in the Israeli media over the extent of China’s penetration into Israel.

In September 2018, Shaul Chorev, the former deputy commander of Israel’s navy and chairman of the Atomic Energy Commission, warned as to the danger of Chinese penetration, specifically the fact that the Shanghai International Port Group would manage Israel’s port of Haifa for 21 years, starting from 2021.

Similarly, Ephraim Halevy, the former head of Israel’s national intelligence agency, has gone on record saying that growing Chinese influence is a threat to Israeli national security. This may explain why Dorit Salinger, Israel’s Commissioner of Capital Markets has blocked Fosun’s $462 million attempt to acquire Phoenix Holdings, an insurance and financial group.

Cohen’s response to such concerns was dismissive, arguing that Israel has nothing to worry about when it comes to China as Israel “is not a country like Djibouti or Somalia”. Cohen further emphasised the economic aspect of the relationship before also pointing out that Israel is committed to penetrating the Far East.

In a separate op-ed, Cohen described criticism over Duterte’s visit as “superficial and exaggerated”. Like his boss Netanyahu, Cohen seems to only see dollar signs when it comes to relationships with Asian nations – in the op-ed on Duterte, Cohen notes the economic potential of six million Filipino Christian pilgrims to Israel.

The commitment to earn hard cash may also explain why Netanyahu conveniently ignores China’s relationship with Iran, his bête noire. In other words, money and politics trump ideology.

Israel’s domestic debate about Chinese penetration has parallels with Australia.

It is increasingly recognised that our greed has allowed the Chinese to outmanoeuvre and outplay us. This highlights the need to look at who our allies and friends are working with, to ensure that we don’t get infiltrated through the back door.

Malcolm Turnbull and Benjamin Netanyahu worked hard to improve relations between the two countries, with Netanyahu in February 2017 becoming the first Israeli prime minister to visit Australia.

Later that year, Australia and Israel signed a defence industry cooperation memorandum, with one of the aims being to set up the Australia-Israel Defence Industry Cooperation Joint Working Group. The goal was for Australia to benefit from Israel’s world-leading innovation in cyber technologies, because as part of Australia’s investment in defence, the government has allocated more than $1.6 billion to expand Australia’s innovation capabilities.

As Australian policymakers and businesses increasingly take the view that Chinese penetration of critical infrastructure assets should be curtailed, there will be more questions over the extent of China’s investment and presence in Israel.

For their part, Israeli policymakers must eventually decide whether greed trumps values, friendship and allies.

Isaac Kfir

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