The US is asking its allies, including Israel, to sever ties with China in areas with security risks, a US official with knowledge of talks on the matter said on Tuesday.
The demand marks an escalation, since in previous public statements, US Ambassador David Friedman and State Department officials had focused on the establishment of a more robust review process for foreign investments that could pose risks, and a reduction of reliance on China for emergency equipment in light of the coronavirus pandemic.
Asked whether the establishment of an Israeli version of the Committee on Foreign Investment in the United States (CFIUS) would satisfy the US, the official said: “I’d go further. Reduction of entanglements overall. Elimination in critical areas altogether.”
“A CFIUS-type mechanism is a good start,” he added.
As Secretary of Defense Mike Pompeo has done in the past, the official emphasized that “this is not exclusive to Israel. We’re having similar conversations with all of our allies and partners.”
The Trump administration official said that Israel must be prepared to take concrete action to reduce its ties with China.
“I don’t think polite deflection will cut it anymore,” he stated. “This is a high priority for the US.”
In past meetings on the matter, “the Israeli side has politely acknowledged our concerns without committing to action,” the official based in the US recounted.
Multiple US government sources denied knowledge of an Israeli request for indemnity from the US in exchange for reducing trade ties. Army Radio reported on Tuesday that US officials declined the request, but still expect Israel to be on their side in their standoff with China.
The ongoing friction between the US and China escalated in recent months, in the wake of the COVID-19 outbreak, and the US has put pressure on many of its allies as a result.
The US has repeatedly and publicly asked Israel to make its system of regulating foreign investments more comprehensive. The Prime Minister’s Office established an advisory committee on the matter last month, but its recommendations are nonbinding and regulators are not required to bring investments before the panel. In addition, investments in technology are outside its narrow mandate.
China is Israel’s third-largest trading partner, and trade between the countries grew by 402% in the past decade, reaching about $14 billion in 2018.
One industry that the US has fingered as particularly sensitive is technology, so much so that the US has been eyeing Chinese-Israeli joint academic research in the field, the source confirmed.
The US is especially concerned with the billions of dollars Chinese companies have invested in Israeli technologies that Israel has classified as commercial, but could be used by Chinese intelligence, like artificial intelligence, satellite communications and cybersecurity. Some of the technology companies investing in Israel, like Huawei and ZTE, are known to sell products with security vulnerabilities.
Another one of the “critical areas,” as the official called it, that the US has pointed out to Israel is Chinese companies’ involvement in major infrastructure projects in Israel in recent years, because of the ability of Chinese operatives to gather intelligence while working on them and the massive economic, social and environmental losses, and even casualties, that could be inflicted if that infrastructure is damaged.
The best-known project of this kind is a new terminal, partially constructed and to be operated by a Chinese company next year, in the Haifa Port, where the US Navy’s sixth fleet docks at least once a year. There has also been increased attention paid to Sorek 2, planned to be the world’s largest desalination plant. Hutchison Water International, a subsidiary of a Hong Kong-based company, is one of the two finalists for the tender to operate the plant, and following US pressure Prime Minister Benjamin Netanyahu ordered Israel’s committee on foreign investments to reassess the tender.
Friedman warned earlier this month that China uses its investments and infrastructure projects to “infiltrate” countries.
“They crept up on the entire world in a benign but dangerous way. They didn’t do it with rockets and tanks; they did it with cheap labor projects,” he said, adding that “these [Chinese] companies have the ability to flick various switches and gain access to the most sensitive communications.”
The biomedical field is also likely to be a sensitive one in the aftermath of the coronavirus crisis. A report by the RAND think tank found over $1 billion in Chinese investments in the Israeli health and biomedical sectors in 2013-2018. CFIUS monitors these kinds of investments in the US, and the EU instructed its members in April to be more cautious about foreign investments in public health companies.