“A Case for Caution” China’s Trade with and Investment in Israel and its Implications on Israel’s National Security

Abstract

Since 2012, China’s state-owned enterprises, private companies, and venture capital funds have invested a collective US$15 billion in Israel’s technology sector. The investments have blossomed into robust commercial relations and comprehensive bilateral partnerships. Yet, contrary to other industrialized nations that receive Chinese investment and trade high technology with China, Israel has displayed little concern for security and economic risks associated with bilateral commercial ties. Instead, Israel’s government has taken an unconventionally active role in attracting Chinese investment. Is Israel making a grave mistake by pursuing greater commercial relations with China without enhancing its oversight structures? This thesis argues that contrary to Israel’s policy choices, opening the floodgates to China’s trade and investment without proper oversight and restrictions could have serious consequences on Israel’s national security. In light of such risks, this thesis asks how Israel can foster a relationship with China that allows Israel to benefit from trade and investment with China, while at the same time fulfilling its national security concerns. In order to explore the potential implications of China’s trade and investment in Israel, this thesis examines how unwarranted transfers of technology through new commercial and civilian channels could result in adverse outcomes for Israel’s national security interests. By incorporating external bodies of scholarship on China’s military modernization and “Indigenous Innovation” endeavors, and interviews with relevant national security and private sector figures in Israel, this thesis finds that China has strategic incentives to exploit new channels of technology transfer in ways that could harm Israel’s national defense and economic interests. With respect to Israel’s national defense, such transfers could rupture Israel’s relationship with the US and enable the proliferation of advanced weapons to Iran. In light of Israel’s economic security, trends show that China will exploit these channels to target intellectual property of Israeli technology companies, and over the long-term erode Israel’s economic competitiveness in technology. Israel’s aim should be to create a relationship with China that promotes trade and investment while delineating clear guidelines for transactions that pose risk to Israel’s national interests. To do so, Israel must acknowledge the risks of commercial ties by instituting an oversight apparatus for investment and partnerships, tightening export controls, and spreading awareness about the dangers of intellectual property theft to its enterprises and universities. If Israel does not do so, it risks potential damages to its national defense and economic security – harms that could well be averted through preventive actions.