Mideast war threatens China’s economic relations with Israel

Mark O'Neill October 24, 2023 09:21

The growing war in the Middle East and China’s strong support for the Palestinian side threatens its booming economic relations with Israel.

In 2022, Israel’s trade with China reached US$21.08 billion, up from US$18.16 billion in 2021, making China the country’s second largest trading partner and biggest supplier of imports. In April 2022, the Israeli central bank added the yuan to its reserves for the first time.

Chinese firms have won contracts to build new ports in Haifa and Ashdod and part of the light rail system of Tel Aviv. They have invested heavily in Israeli companies in software development, IT and health sciences, as well as agriculture and minerals. According to the latest data for China’s Ministry of Commerce, there were more than 8,200 Chinese working in Israel at the end of 2020.

But the Israeli government and public is angry with China’s response to the attacks since October 7 by Hamas. After the attacks, Beijing called for both sides “to remain calm”. It did not condemn Hamas for killing and kidnapping innocent civilians.

In response, the Israeli Foreign Ministry told China’s Middle East envoy, Zhai Jun, that Beijing’s official reaction was inappropriate and did not acknowledge its right to self-defence.

Tuvia Gering, a researcher at the Israel-China Policy Center at the Institute for National Security Studies in Tel Aviv, described Beijing’s position as “pro-Palestine neutrality,” just as its position on Russia’s invasion of Ukraine has signalled support for the Kremlin. “You cannot be neutral in something like this. Silence is acquiescence. Instead of being the responsible major power that it claims to be, China is exploiting this conflict for geopolitical benefits,” he said.

Beijing has called for a two-state solution and refused to designate Hamas as a terrorist organisation, despite the fact that its objective is not to make peace with Israel but to wipe it from the map. It also refuses to call the Iran-backed Hezbollah group in Lebanon terrorist.

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Chinese state media have strongly criticised Israel and blamed the U.S. for fanning the tensions in the region. This has led to the Israeli embassy in Beijing being bombarded with hostile messages.

Because of the war, Israeli Prime Minister Benjamin Netanyahu is likely to postpone a visit to Beijing scheduled for the end of this month.

In the economic field, bilateral relations have boomed since 2017, when the two governments announced a new phase of their relationship. Israel is a member of the Belt and Road Initiative and the two countries have discussed a Free Trade Agreement.

In May 2014, China’s Bright Food Group bought a controlling stake in Israeli dairy conglomerate Tnuva, which controls 70 per cent of the country’s dairy market. The purchase was based on an overall valuation for Tnuva of US$2.5 billion and gave Bright Food a share of 56 per cent.

In September 2021, the Shanghai International Port Group opened an automated container terminal in Haifa, Israel's main port, with an annual handling capacity of one million ships. Its investment of around one billion euros guaranteed China the operation of the terminal for 25 years.

The main Chinese investors in high-tech in Israel are private companies and venture capital funds.

These relations flourished in a period of relative peace, while Israel was improving ties with Arab countries, after the Abraham Accords it signed with Bahrain and the United Arab Emirates in September 2020. During these years, Beijing has improved its relations with Iran, the most bitter enemy of Israel that, like Hamas, calls for it to be wiped off from the face of the earth.

But the war since October 7 has sharpened all the contradictions in the region, putting Israel with the U.S. and its allies in Europe against Arab countries that support the Palestinians. Iran is the main supporter, financier and arms supplier of Hamas and Hezbollah.

“Israelis and Palestinians can coexist peacefully only if the two-state solution is implemented and the Palestinian people get a state of their own,” said an editorial in China Daily on October 17. “Israel should realise that the more vicious its current ‘self-defense’ campaign is, the more destruction, both human and material, it will cause in the Gaza Strip.”

To this, Israelis respond that they have no partner for peace – the Palestinian Authority that was supposed to be the government in waiting for a new state has proved to be ineffective and corrupt and has lost the support of its people. Its president, Mahmoud Abbas, was elected in 2005 to serve until 2009. He has held no election since then and is now 88.

Another brake on economic relations is the worsening trade war between China and the U.S., which wants to limit transfer of high technology from Israel to China. This traps Israeli companies between the two competing sides.

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Mark O'Neill

A Hong Kong-based writer, teacher and speaker.