Biden administration ups pressure on Israel to crack down on China

Biden administration officials spoke with National Security Advisor Eyal Hulata about the threats posed by Chinese investments in major infrastructure and hi-tech in Israel, when he visited Washington this week.

The American officials encouraged Israel to establish a more robust screening system for foreign investments.

Senior Israeli defense officials have also recommended that Prime Minister Naftali Bennett establish a new committee to oversee foreign investments in Israel, in light of China’s numerous bids on Israeli infrastructure and technology.

The new committee, which the officials have suggested be led by the prime minister, would replace an existing committee that falls under the Finance Ministry, but is voluntary and does not cover core areas in which China invests.

The Prime Minister’s Office has yet to make a decision on the matter, but the recommendation comes as the government continues to stall on announcing the winner of the tender to build the Tel Aviv Light Rail’s new Green and Purple Lines. The NTA Metropolitan Mass Transit System, the government-funded company responsible for the design and construction of the transit system, has been dragging its feet in making a final decision.

Earlier this week, Egged, Israel’s largest transit company, announced the winners of a tender to buy 200 electric buses in April. All three companies that won would be supplying buses made in China.

The officials who have recommended the establishment of the new committee include top officials in the IDF and the Shin Bet (Israel Security Agency) who are concerned over two possible consequences of the continued Chinese penetration of Israel’s economy.

The first concern is that if China continues to win tenders and build infrastructure, Israel’s ties with Washington will fray and lead to tension with Israel’s most important ally. The second concern is that China could use the infrastructure for espionage activities inside and against Israel.

The winner of the Tel Aviv Light Rail tender was originally scheduled to be announced in June.

Most of the groups competing for the multi-billion deal include Chinese companies. While the government officially says it has not opened the envelopes to review the bids, a source with knowledge of the matter said the government contacted one of the groups to ask why its price was so much lower than the others.

One of them includes the China Railway Construction Company. One of its subsidiaries, the China Civil Engineering Construction Corp, dug the Gilon Tunnel in the North in 2014 at a cost of about $200 million, worked as a subcontractor on the Carmel Tunnel project for about $150m. in 2010, and for the last couple of years has been working on the Tel Aviv Light Rail’s Red Line to the tune of $500m.

President Joe Biden issued an executive order in June banning these companies from receiving any US investment, due to suspected ties to the Chinese defense industry.

Government officials have voiced concern that if the Chinese are nixed from the tender it could lead to a major crisis with Beijing and see China cut economic relations with Israel. On the other hand, if China does win the tender, the news could strain relations with the Biden administration, which could turn tense in the coming months amid a continued pursuit of a nuclear deal with Iran and the White House’s declared intention to open a consulate for Palestinians in east Jerusalem.

The committee proposed by the defense officials would sit under the National Security Council, headed today by Eyal Hulata, whom Bennett appointed to the role in July. Hulata was in Washington this week as part of a large interagency delegation that held talks with US counterparts led by Biden’s National Security Advisor Jake Sullivan.

The committee, if approved, would replace the one former prime minister Benjamin Netanyahu established in 2019 to vet foreign investments. That committee includes senior representatives from the Treasury, Defense Ministry and National Security Council, as well as observers from the Foreign Ministry, Economics Ministry and the National Economic Council.

Referral for a recommendation from the committee comes from various regulatory bodies.

The Prime Minister’s Office declined to comment on the matter.

In response to a query, the NTA said on Thursday that a decision on the tender would be announced “soon” and after the different bids are reviewed. The company added that the tender “was one of the largest and most complex ever done in Israel.”

Carice Witte, executive director of Signal, which studies China-Israel ties, said, “It is very smart to rethink the review committee to take into consideration critical developments and new factors that could impact Israel’s long-term national security.

“A well-fashioned committee could prevent delays like the one we’re experiencing now with the light rail,” Witte said, adding that the delay on the light rail is due to government offices not being properly versed in the relevant issues.

Shira Efron, a senior research fellow at the Institute for National Security Studies said, “To strengthen investment screening, the key is to monitor investments in tech, and I doubt Bennett would do it now, given his tech [and] investment background and reluctance to add layers of bureaucracy.”

Bennett opposed past attempts to restrict investments from China, when he was not prime minister.