China is expanding its economic interests in Israel. Its growing portfolio of holdings in high-tech startups, national infrastructure and core industries gives Beijing an expanded strategic presence in Israel.

In Europe, a move is under way to respond to the Palestinian BDS (boycott, divestment and sanctions) strategy. Some EU companies have withdrawn from Israel’s government bidding process to build private ports.

As for the United States, President Barack Obama warned Israeli Prime Minister Benjamin Netanyahu during his recent visit to Washington that, unless Israel stops building settlements and makes a peace deal with the Palestinian Authority, it will lose U.S. support

China has seized the opportunity to fill the void left by the withdrawal of European business from Israel and the gap resulting from the anticipated reduction in U.S. support. China has no moral qualms about investing in Israel and by doing so is increasing its strategic presence. With the support of Netanyahu, China is moving full speed ahead.

Attracted by China’s huge market, its willingness to use state funds to encourage state-owned enterprises (SOEs) to invest abroad and its seat on the U.N. Security Council, Netanyahu has given top priority to expanding relations with Beijing.

Chinese SOEs, public institutions and private investors are acquiring large positions in key Israeli industries. In the process, China has gained unprecedented access to Israeli technology, innovation and business knowhow.

China needs all of these assets to modernize and transform its economy. It has found no better place than Israel — in its growing state of isolation — to meet its needs in these areas.

As Netanyahu said last December at a joint news conference with visiting Chinese Foreign Minster Wang Yi, “Our strengths complement one another. China has massive industrial and global reach. Israel has expertise in every area of high-tech.”

He left the obvious unsaid, allowing other nations to read between the lines.

Following Wang’s visit, Netanyahu publicly gave China relief from Israeli export licensing restrictions as an essential first step his government is taking to expand cooperation and trade.

In a followup to Netanyahu’s efforts, Israel’s National Cyber Bureau announced plans to include China in a Cyber Emergency Response Team to be created next year.

This is a significant step for Israel, a world leader in defeating cyber attacks, to take because China is a world leader in using cyber penetration of key industries and defense networks to benefit its companies and its defense sector.

As far as high technology is concerned, China has become a close second to the U.S. in the number of projects it is involved in that are co-managed by Israel’s Chief Scientist Office.

Israeli officials have said China will soon replace Europe as the second-leading source for investment in Israel’s high-tech sector, and could even replace the U.S. in the number one spot.

Israel already awarded the Red-Med mega-project — designed to connect the Red Sea to the Mediterranean coast by high-speed rail — to a Chinese firm. Another Chinese firm recently won the right to build a port at Ashod, the proposed terminal for the Red-Med rail scheme project.

The Red-Med project — a Chinese-built strategic alternative to using the Suez Canal — helps Beijing cement its presence in Israel for decades to come.

Netanyahu’s government sees Beijing’s participation in the project as a way to strengthen Sino-Israeli relations. Given China’s current reliance on the Suez Canal for its seaborne trade of goods bound for Europe, this is a plausible move.

In 2011, China gained a controlling interest in a major firm in Israel’s agrochemical sector on the back of $2.4 billion in investments by China National Chemical Corporation. Beijing has also gained access to Israeli nanotechnology via a joint venture between Tel Aviv and Tsinghua universities to operate a shared research center.

Washington is watching the growing embrace between Israel and China carefully. This is all the more the case as there have been increasing calls in Israel for it to revive its defense trade with China.

Israeli defense sales to China have lagged substantially ever since Washington’s strong objections forced Israel to cancel a $1.1 billion sale of a Phalcon early-warning aircraft to China back in 2000.

China pursues its interests abroad without regard to making moral judgments on what occurs in the countries it chooses to become involved in as investors (or as a trading partner). If the EU walks away from doing business with Israel, its companies will lose out while China’s will gain.

Robert Hardy is the principal at TheGeostrat.com LLC, a consulting firm. He was managing director for international trading at LaBranche and Company from 2006 to 2010. © 2014 The Globalist

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