Israelis Create Foreign Investment Overseer; China Targeted

TEL AVIV: American pressure on Israel helped the government here decide to limit the involvement of Chinese companies in building infrastructure programs in Israel and other investments in defense-related programs.

Breaking Defense exposed the big concern among Israeli defense experts last year about the growing Chinese involvement in sensitive projects like the new Haifa port near the Israeli navy’s main base. The Chinese company will build it and manage it for 25 years.

Following three years of deliberations and intense pressure from the US over growing Chinese investments in Israeli companies, particularly in technology firms, Israel’s security cabinet decided on October 30 to set up a new mechanism to monitor foreign investments. It appears to be similar to the American Committee on Foreign Investment in the United States (CFIUS).

This happens even as China is Israel’s second-largest trading partner and a significant foreign investor. The People’s Republic of China has also taken an active interest in collaboration with Israel on innovation and technology, which inspired the establishment of a “Comprehensive Innovation Partnership” between the two countries in March 2017. In 2018, bilateral trade between the countries hit a record of $15.3 billion, up from just $51.5 million in 1992 and $13.1 billion in 2017.

The Chinese investments in vital and often sensitive Israeli infrastructure projects, including the Carmel Tunnel project in Haifa, the Tel Aviv light rail’s Red Line, and the ports in Ashdod and Haifa, as well as the sale of the food giant Tnuva to a Chinese firm.

Israeli sources told Breaking Defense that it is already clear that the involvement of Chinese companies in some “sensitive” programs will be denied.

The initiative to set up a new advisory panel on foreign investments in Israel—defined as investments, mergers, and acquisitions—has been in the works for over a year, following a bill pushed by MK Omer Barlev in July 2018 to create a formal and organized process for vetting foreign investment. (An MK is a Member of the Knesset, equivalent to a Member of Parliament.) Israel joins many countries in the world, including the US, Canada, Britain, Germany, and Australia, that boast a mechanism to monitor foreign investment in their countries for national security reasons.

Although the Israeli Cabinet decision is framed as “supervision over foreign investment” in general, the real goal is to create a mechanism for screening investments by Chinese firms and investment funds in Israeli strategic assets. The companies subject to vetting would be in businesses designated as critical to the economy or national security, including firms involved in infrastructure or with access to Israelis’ data, such as telecommunications companies, financial institutions, and arms manufacturers.

According to the Cabinet decision, members of multiple government agencies will participate in the committee. It will include members of the National Security Council, the Treasury and Defense ministries, as well as observers from Foreign Affairs and Economy ministries, as well as the National Economic Council.

A paper by Mordechai Chaziza of the Begin–Sadat institute here, an expert on Chinese issues, reveals that regulators will consult with the committee voluntarily. Business transactions that do not require government approval will not be brought before it. Most importantly, the committee will have no authority over the tech sector, which was a major sticking point while the committee was being discussed: “The committee’s function is to help regulators incorporate national security considerations into the process of approving foreign investments in the finance, communications, infrastructure, transportation, and energy sectors”.

The committee will be created within 45 days, and regulators will be able to contact the committee starting on January 1 next year. The cabinet will convene in six months to review the body’s work and make adjustments if necessary.