Stuck in the Middle: Israel’s Balancing Act amid the US-China Rivalry

With the Middle East undergoing significant geopolitical changes, many regional powers, including Israel, are entering a new era of their foreign policy. And as the superpower competition between Washington and Beijing intensifies, particularly in the technology sector, Israel has increasingly found itself stuck between a rock and a hard place.

This article is part of a series of articles authored by young, aspiring China scholars under the Future CHOICE initiative.

Recent developments in the Middle East, notably the signing of multiple cooperation agreements between Saudi Arabia and China in December 2022 and the China-brokered rapprochement between Iran and Saudi Arabia, the region’s arch-rivals, illustrate China’s growing political footprint in the region. At the same time, the relationship between the two superpowers continues to deteriorate as concerns mount in Washington about China’s rise in the Middle East and the potential transfer of advanced technologies to Beijing.

Against the backdrop of these events, Bibi Netanyahu, who is considered the architect of Sino-Israeli ties, faces increasing pressure from Washington to re-evaluate Israel’s approach to Beijing. After his re-election as Israel’s prime minister, Netanyahu, who previously described the relationship with China as a “marriage made in heaven,” stated that while Israel will continue cooperating with China, it will also consider the implications the relationship has on Israel’s national security. However, the times for which Netanyahu articulated his policy toward China are now long gone. The competition in the region has become much fiercer. Netanyahu should not expect to have the same room for maneuver between China and the United States that he had in the past, at least not in the technology sector.

The Golden Years of Sino-Israeli Ties

The early years of cooperation between Jerusalem and Beijing focused primarily on trade in the defense sector. However, two crises regarding Israel’s sale of weapons and military equipment to China, namely the Phalcon crisis of 2000 and the Harpy incident of 2005, led to a political spat between Jerusalem and Washington. As a result, Washington’s concerns about China’s growing military clout strong-armed Israel into halting its arms sales to China, effectively ending their collaboration in the defense sector.

Nonetheless, in later years, the economic relationship between the two countries blossomed, especially following Xi Jinping’s introduction of the Belt and Road Initiative (BRI) in 2013 and the shift of focus toward greater self-sufficiency in the high-tech sector. In the meantime, the former US President, Barack Obama, was becoming increasingly unpopular among Israeli political elites and the general public. Obama’s diverging perspectives on the Jewish settlements in the West Bank and the growing antipathy towards Israel gradually diminished his popularity in the country. As a result, the enmity between Jerusalem and Washington prompted Netanyahu to look elsewhere for economic opportunities, and Beijing was right within reach. 

Between 2014 and 2018, the two countries rapidly expanded their economic relationship. Although the cooperation was spread across many sectors, infrastructure and cutting-edge technology represented the bedrock of the cooperation. In 2014, the two partners established the China-Israel Joint Committee on Innovation and Cooperation. Following Netanyahu’s visit to China three years later, they elevated their cooperation to a “comprehensive innovation partnership,” and Israel assumed an important strategic position within the BRI framework. As a result, the bilateral economic ties strengthened further and peaked in 2018. In that year alone, the two countries signed 72 investment deals in Israel’s high-tech sector, and their trade volume reached $11.6 billion.

Since then, however, Israel’s relationship with China has become increasingly constrained by the US-China confrontation and Washington’s goal of “maintaining an enduring competitive edge over” China. As a result, Israel now finds itself in an unprecedented situation. On the one hand, it is looking for ways to leverage the economic opportunities offered by China. But, on the other hand, it cannot afford to alienate its most important security partner.

Finding Balance: Economic Opportunities versus Security Threats

Chinese companies have become involved in a series of infrastructure projects in Israel, such as the construction of ports and transportation infrastructure, several of which are considered to be of critical strategic importance. As such, according to defense analysts, China’s involvement does not only threaten Israel’s domestic security, but also the US dominance in highly sophisticated military technologies, which it has transferred to Israel over the past decade. Consequently, both the Biden and the Trump administrations have stressed that reducing Israel’s cooperation with China will be crucial in determining the future trajectory of the US-Israel relationship. Washington even went as far as to threaten Israel with punitive measures, including reducing intelligence sharing, which helps Israel monitor and react to security developments in the region.

Recent developments have shown that Israel took some of the US worries seriously. After the election of Naftali Bennet as Israel’s prime minister in June 2021, the government introduced several changes to its China policy. These adjustments aimed to appease the US while creating a safe environment for the economic exchange with China to continue. 

In September 2022, the US and Israel introduced a Strategic High-Level Dialogue on Technology to deepen their partnership in technology and limit China’s engagement in sensitive areas such as defense and cybersecurity. Israel has also agreed to update Washington on future developments of its trade and investment cooperation with China, especially regarding major agreements in the infrastructure and technology sectors. Israel’s government also pledged to reconsider any such deal if it is viewed by the US as running contrary to its interests or as a security threat. However, to protect its economy, Israel has also asked Washington to suggest alternatives in exchange for canceling deals with China. On the investment side, Israel has strengthened the advisory mechanism, which focuses on assessing the security aspect of foreign investments.

Furthermore, regarding crucial infrastructure projects, espionage, and data theft, Israeli authorities have decided to maintain control over strategic infrastructure and ensure that the operation and management of these sites remain with state companies. For instance, the government enacted reforms in the water and electricity sectors to ensure state control over critical aspects, such as the maximum share of the production capacity that non-state local or foreign companies can control.

Finally, on multiple occasions, Israel has also canceled several deals with Chinese state-owned enterprises and prioritized other countries’ companies in constructing its infrastructure projects. The construction of the green and purple lines of the Tel Aviv light rail is the most notable example of Israel responding to US pressure by refusing to give Chinese companies access to its strategic infrastructure. Parts of the light rail will be located close to the headquarters of Israel’s Defense Forces, and the winning company is expected to build, plan, and maintain the facility for the next 25 years. For this reason, the US viewed China’s potential involvement as a significant security threat. As a result, at the end of the bidding process, none of the Chinese companies were selected for the light rail construction; instead, the tender was given to a US company.  

With the Honeymoon Over, It Is Time for Pragmatism

Although, at first sight, it seems like Washington’s warnings did not fall on deaf ears, particularly during Bennett’s time in the prime minister’s office, it is too soon to tell what we can expect from Netanyahu and his current government. Although losing business and investments from the world’s most populous country would be a painful hit for the Israeli economy, Israel cannot afford to replace Washington as its closest security and diplomatic partner. This is particularly true regarding the US unequivocal support of Israel at the UN. Furthermore, Israel recognizes that China’s primary interest in the Middle East lies in securing stable energy flows for its economy. As such, other countries, like Iran and Saudi Arabia, assume a more central role in China’s policy towards the region than Israel.

Consequently, Israel needs to find a way to navigate this delicate dynamic, focusing on cautiously strengthening its economic ties with China while maintaining its security and strategic partnership with the US. Israel should refrain from becoming a passive actor in this complex dynamic. Doing so will only lead to more significant pressure from Washington and diminish Israel’s ability to act independently and follow its national interests. Instead, while the room for maneuver is limited and gradually shrinking as the Sino-American competition escalates, Israel can leverage its current position and promote and strengthen its strategic dialogue with the US. This is especially true with regard to ensuring a safe environment for technological cooperation in the face of growing external challenges.