Chinese vector of Israel

12 m.   |  2019-09-27

The cooperation between Israel and China shad began since the 1980s, and was focused mainly on the supply of Israeli military technology to Beijing [1]. The first deal between them was signed in 1979 and was associated with Saul Eisenberg a Jewish businessman. Mr. Eisenberg organized a secret meeting, where an agreement was reached to supply China with Israeli military technologies. In 1968, together with the Israeli government he established Israel’s corporation, which played an important role in Israeli economic ties with various countries of Europe, Central Asia and the Far East since 1960s [2],[3],[4].

Between 1980s and 1990s, military technology transfers between Israeli and China totaled between $1- $2 billion in more than 60 transactions [5]. The bilateral military cooperation upset Washington; Israel’s strategic ally in the Middle East, which in 1999 cancelled Israel’s deal to supply China with PHALCON advanced airborne radar system of about $250 mil.[6],[7]. These systems were designed for the surveillance planes of Chinese Air Force.

Despite the claims of the Israeli Government, Washington was concerned that Israel could supply Beijing with technologies that were once supplied to Tel-Aviv by the US. The Pentagon said, “Given the amount of weaponry and military technologies that the United States shared with Israel, it was difficult to separate American military technology from Israel’s own. Given the very close relationship that we have, there is always the danger, that some of these technologies could pass from Israel to China” [8].

The State Department's spokesperson, James P. Rubin provided details about this deal: “There is no treaty prohibiting conventional arms transfers to China, (author: Conventional Arms Transfer, CAT) and our laws don't prohibit transfers when they do not involve American technology” [9].

Israel had to cancel the 2005 deal to supply Harpy Killer drones to Beijing [10], [11]. Based on some data, before 1999 Tel-Aviv had supplied Beijing with more than 100 drones totaled between $55 - $70 mil. [12].

According to the estimates of a report on “The evolving Israel-China relationship” published by the Rand American research center in 2019, “Israel-China relationship has some challenges: Israel relies on the US for security economic ties and geopolitical assistance, while the China-US relationship has grown increasingly tense [13]. There are some concerns about transfers of US technology and about any technologies that give China a military advantage. Moreover, Israel has relied on its technology sector for economic growth, but China has a record of pilfering technology and not respecting intellectual property” [14].

Diplomatic relationships between Israel and China were established in January 1992 [15], [16]. In the end of 2018 Israel developed its relations with China through four diplomatic missions in China, including an embassy in Beijing, consulates in Shanghai, Guangzhou and Chengdu [17]. Before establishing diplomatic relations, Israel had set up a Consulate General in Hong Kong [18]. The bilateral relations have particularly strengthened since 2000. Relations included a wide range of issues, such as trade and investments, innovation and high technologies, culture and tourism.

Beijing is interested in Tel-Aviv for two main reasons. First, it is that the two sides can develop their cooperation in the areas of innovation, start-ups and high technologies. Israel has made great progress in leaps and bounds in technology and can share its serious experience with Beijing [19]. It about technological capabilities of both security, defense and agricultural, health, water and other areas. Second, Beijing observes Israel as part of the “One Belt, One Road” strategic initiative [20].

Rand’s report outlines, “China is interested in Israel from the geopolitical dimension as well: China views Israel as a partner in China’s overall Middle East policy, by maintaining good relations with all countries in the region”. According to the report’s expert assessments: “Beijing can use the Israeli factor to undermine global US alliance and partner networks” [21], [22].

China is a huge economic market for Israel, with wide opportunities to enter an innovative and high technology market [23]. Some experts think that by deepening relations with China, Israel can diversify its foreign policy and trade-economic ties, by reducing its dependence on the US. It was also mentioned in the Rand assessments that:

“Israel has been working to diversify its economic relations from its traditional trade and investment partners—the United States and Europe—because of economic and diplomatic considerations” [24].

Today more attention is paid to the economic component of bilateral cooperation, if in 1192 trade turnover was $50 million, in 2017, it reached to $13.1 billion (more than 260 times) [25]. In 2018, China became Israel’s second largest trading partner after the US, ahead of the European Union [26], [27], and the first in Asia [28]. China goods exports to Israel hit the $8 billion range in 2016, up from only $12.8 million in 1992 [29]. In 2017, China goods imports from Israel were $4.2 billion and exports to Israel were $8.9 billion. In the first quarter of 2018, the exports from Israeli to China reached $2.8 billion, 73% more compared to the same period of last year [30].

By the end of 2018, China’s non-financial direct investment in Israel reached more than $7 billion. According to the IVC Research Center [31],[32], Chinese investments in Israeli hi-tech companies have almost tripled between the years 2013-2017 ($232 million in 2013 and $596 million in 2017) [33]. Chinese investors were involved in 12% of financial deals in Israel’s hi-tech industry from January to September of 2018 [34]. Based on the assessments of some experts, now the Chinese side directly governs or influences over the 25% of Israeli hi-tech industry.

Chinese companies have a hefty involvement in the Israeli construction industry. More than 69 investment and construction projects were applied in Israel with Chinese companies’ participation between 2007-2017.

In the first quarter of 2018, the investments in hi-tech with the participation of Israeli companies made up 32% of total investments, and 68% of foreign investments. In the third quarter of 2018 the local investments decreased, 23% of the total and the volume of foreign investments amounted 77%.

For the last 5 years, the US has been leading the list of top 5 countries by the volume of Israeli investments, making up 35% of the total. The second foreign investor after the US is China, with 4% in the total stake.

The leading 5 countries investing in Israel for the last 5 countries:



local (Israel)






Great Britain




other countries


          For the last 5 years, American companies have been leading according to the statistics of Israeli (local) Mergers and acquisitions- M&A with foreign companies by forming 53% of such deals.  The US is followed by Great Britain (6%) and China (3%).

Israeli and foreign companies Mergers and acquisition statistics for the last 5 years



Great Britain








Other countries


In 2014, Bright Food Group state-owned company purchased the controlling stake in Tnuva [35] for $2.5 billion [36]. In 2007, a British Investment Firm called Apax Partners bought the shares. The deal gave the Chinese side a 56% stake in Tnuva Company, which controls more than 70% of the dairy market in Israel [37]. It should be mentioned that the Bright Food Group is the second largest company in the food market. In 2015, one of the Chinese Fosun International [38] companies bought Israeli cosmetic Hahava Company for $77 million [39].  

In 2010, the Governments of Israeli and China signed a bilateral memorandum (China-Israel Industrial R&D Cooperation Framework), with the primary aid of supporting joint industrial R&D projects [40]. In 2013, they started to negotiate on the China-Israel Changzhou Innovation Park Initiative (CIP). The agreement on the initiative was signed in the end of 2018, supporting Israeli innovative companies to enter the Chinese market [41],[42],[43].

The China-Israel Innovation Hub was launched in Taopu Smart City, [44] Shanghai in May 2019. The Innovative Hub supports joint technological, scientific-research and development (R&D) projects [45], [46]. The hub also aims to attract Israeli Universities, research institutions and enterprises to Shanghai. The initial fund is about $145 million [47].

China-Israel Innovation Hub in Shanghai

  In August 2017, an agreement [49] was signed to establish China-Israel innovation center-CIIC [48] in Beijing, aiming to form an ecosystem platform between the two countries, while investing, supporting and promoting innovation-driven and hi-tech projects. The ceremony after signing the agreement was hosted by Compass ventured group, a leading investment organization whose strategic mission is to bridge the gap between Israeli innovation and the Chinese market [51]. Based on the agreement, the Israeli innovative companies will have an opportunity to be engaged in various fields in the Chinese market.

Signature Ceremony of Chinese-Israeli innovation hub founding agreement

The city of Herzliya, Israel is actively involved in the Chinese-Israeli Innovation hub projects with its huge innovative and technological potential, recognized as Israeli’s Silicon Valley [52]. To promote this partnership, the Friendship City Agreement was signed between the Haidian District of Beijing and the city of Herzliya in Israel in November 2018 [53].   

It is said in the 2018-2019 Innovation report of Israel that “the global tech industry shifts into a new world order, which impacts on Israeli high-tech industry as well. Tech industry today is more global than ever. Dramatic developments in the global economy in 2018 are reshuffling the deck-namely the US’s retreat from the globalization trend and tightened regulations on the tech companies activities in developed countries”. [54]

The report also states, “as a result of tax reforms and US Tax Cuts and Jobs Act of 2017 signed by Trump in December 2017, some American foundations had problems with Non-US companies when investing in Israeli companies”. [55]

Israel faces new opportunities for deepening cooperation with Beijing in the field of artificial intelligence, where China strives to become a leader. Beijing already made $10 billion investment in the development of this technology and applying it in Chinese companies [56].

According to Chinese strategy of “A Next Generation Artificial Intelligence Development Plan” [57], [58] adopted in 2017, China will be equal to West in 2020, will record a major progress in 2025 and will reach the world’s leading level in 2030 [59].   

In 2015, Israeli Government granted Chinese Shanghai International Port Group (SIPG) with the 23-year franchise right at the new port of the Bayer of Haifa, during which the new dockyard should be completed in 2020 [60].

Port of Haifa

In 2014, China Harbour Engineering Company won the project of Israeli Ashdod new port construction, which is one of the largest investment projects of Israel (about $930 million). The project will be completed in 2022 [61].

Port of Ashdod

The importance of the Water-city joint project of Israel and China, which enabled to apply Israeli experience in water resource management and water tech application. In 2012, China allocated Israel $200 million to acquiring water-cleaning technologies. Recently tourism between these two countries also has grown. According to Israel’s Central Bureau of Statistics, the number of tourists from China to Israel was 32.4 thousand and it increased to 123.9 thousand at the end of 2017 [62]. 

In 2019, the two sides will sign an agreement on creating a joint free trade zone.  































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