Israel and the new Asian Infrastructure Investment Bank

The current economic environment presents us with a new strategic triangular: US-Israel-China.

MAY 13, 2015 15:11

Money [illustrative] (photo credit: REUTERS) — Money [illustrative]

(photo credit: REUTERS)

The announcement by the Israeli government that Israel will become one of the founding members of the new Asian Infrastructure Investment Bank, a China-led development bank, could have surprised us. Israel, a close US ally, like many other nations, has faced pressure from the US administration not to join.

America has perceived the new institution as a threat to the World Bank’s and International Monetary Fund’s roles in international development and US economic and military influence in important strategic areas. Good governance is also a concern. Additionally, on the Israeli side, Israel has consistently avoided joining new multilateral institutions or treaties before the true nature and objectivity of the institution can be identified.

So, then, how can we understand this important decision, and what does it tell us about US-Israel-China strategic and economic relations? The development bank will open new opportunities for Israeli companies in key infrastructure projects in Asia financed by the bank. The bank is trying to solve the infrastructure gap in Asia, supplement limited private credit financing and foster sustainable economic development. Israel’s unique expertise in areas such as water and waste management and energy efficiency could improve many of these potential projects. Israel’s vibrant cleantech industry is already helping China with its most significant energy challenges.

The current economic environment presents us with a new strategic triangular: US-Israel-China, where many Israeli companies or projects are financed by US institutions or individuals, but they are looking at Asian markets in general, and China in particular, as the growth markets for them. It requires a significant shift from traditional paradigms in product development, marketing and distribution channels to adapt Israeli products and business models to the Asian markets.

The distinction between Israel’s strategic and military partnership with the US and Israel-China economic relations should not be dismissed. Israel’s national security apparatus will continue to rely on US military and strategic support. At the same time, Israel’s growth will continue to depend on new growing markets, and the new Asian Infrastructure Investment Bank is a true example. That other leading European nations and US allies, such as the UK and Germany, joined this China- led bank’s founders circle supports this view.

Strong economic ties between Israel and China were already defined by the previous Israeli government as a strategic goal, and two important interministerial committees have been established to come up with concrete steps to achieve that. However, this can lead to potential positive strategic spillovers in the era of China’s role in world order and the global economy.

China is becoming a more dominant player in international affairs and multilateral institutions, including with respect to Middle East affairs. The potential ramifications could be dramatic. A change to US policy on vetoes at the UN Security Council regarding Israel, for example, would increase the importance of the Chinese voice on the Security Council on Israel-related matters.

Additionally, China and the United States are gradually finding more issues and forums to agree on to achieve better global governance. The upcoming Climate Summit in Paris in December, which may lead to a global accord on emissions with China and the US as the leading forces, is a case in point.

Third-party strategic players, such as Israel, can play a role in bringing these two superpowers together to achieve global consensus on critical issues of concern.

Israel’s new role in Asia is just part of a broader approach to find new partners and allies in a changing political and economic reality. Taking a side on the new Asian Infrastructure Investment Bank can open a new chapter in the developing story of US-Israel-China relations.

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Efraim Chalamish is a professor of business and law in New York and an adviser to governments and companies on international trade, investment and energy policy and investments.