By Bill Figueroa

For the past five years, China and Israel have been attempting to hammer out the details of a free-trade agreement, which would be the first of its kind for China in the Middle East. As recently as last month, the two sides claimed they aimed to ink an agreement by the end of 2022. But now, the deal is threatened by US pressure, and may not materialise at all.

What motivated the deal in the first place? Israel’s motivations are primarily economic.  China is Israel’s second largest trading partner after the United States, and its number one source of imports. The deal would substantially reduce the price that Israeli consumers and importers pay. China also provides a large amount of investment for Israeli start-ups, especially in high-tech industries like medical, web, and cybersecurity. They have also invested in Israeli infrastructure, from the Tel Aviv light rail project to the Haifa Port and have strong ties in academia and the defence industry. While the Israeli public is split on how they see China, the government has strongly been in favour of developing these ties to diversify its market exports and sources of funding, which traditionally are heavily skewed towards the US and the EU.

China’s motives are more complex, as Israeli trade is a just drop in the ocean of China’s massive foreign trade economy, but it is part of an overarching strategy of diversifying and developing trade ties in as many markets as possible. Israel in particular offers China access to advanced technologies and R&D capacity – Israel has been referred to as an R&D lab for China, where Chinese companies can find engineers and access technology to design products that they could not do at home. It also provides Chinese goods sent through Israel access to the Mediterranean and Europe via ports like aforementioned-Haifa and Ashdod. Israel is also the second largest supplier of defence systems and military technology to China, after Russia, and an important conduit for highly sophisticated, cutting-edge weapons technology that other countries cannot or will not provide. Finally, they see Israel as having a great deal of influence on the United States; former Israeli diplomat Matan Vilnai claimed that the Chinese saw Israel as a “bridge to America” and were convinced they could influence Washington on their behalf.

Why is the United States concerned about the deal? The Biden administration claims the Chinese investment potentially gives Beijing access to technology and information that the US would prefer they not have. They posit, at worst, it could lead to the introduction of Chinese software that might have hidden features conducive to espionage. It is arguable, however, that the move is part of a broader US strategy to counter and contain China’s growing economic and political influence in the Middle East. Whatever the reason, the criticism is out of step with Israel’s position, and it is increasingly eager to work with the United States to allay its concerns.

In all likelihood, the deal will eventually move forward. Given the level of imports in Israel, and the economic pressure China is facing with both Covid-19 and the accompanying Zero Covid policy, the deal is in the interest of both parties. China is also very close to a similar deal with the Gulf Cooperation Council (GCC), which would see them conclude Free-Trade Agreements with most countries in the Gulf. If Israel wants to stay competitive with other prosperous and economically attractive countries in the region, it will need to have a similar framework with the world’s fastest growing market economy. It would also provide a framework to continue to improve economic relations over the next few years, especially if China is forced by the global recession to scale back its investment strategy.


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