China and Israel are hardly natural partners, but they share interests in technological cooperation. Israel’s longstanding partner, the United States, has raised varying concerns over China and Israel’s growing relationship.
Science and technology (S&T) cooperation has always been a central part of China–Israel relations. That includes defence technology transfers, but also collaborations in purely civilian areas. Recently, China has shown interest in emerging technologies being developed in Israel, such as artificial intelligence, nanotechnology and autonomous vehicles technology. Aspiring to pave new ways to Beijing after Israel unilaterally cut off its defence relations with China in the early 2000s, Israel is enthusiastic. In 2017, their relations were framed as an Innovative Comprehensive Partnership, demonstrating the central place of science and technology (S&T) cooperation in their relations.
This cooperation has developed rapidly and includes investment in and acquisition of Israeli hi-tech companies by Chinese firms, joint commercial research and development (R&D) programs and academic cooperation. The governmental framework for this cooperation is the Israel–China Joint Committee for Innovation Cooperation, which was established in 2015.
Israel may be enthusiastic about China, but it is unwilling to antagonise the United States. Israel strictly follows its mid-2000s understanding with the United States, according to which S&T cooperation with China involves civilian know-how only. Still the United States feels uneasy about Israel–China S&T cooperation. It makes decisive yet obscure demands for Israel to tighten the monitoring of these activities and to restrain them.
But a close look at China’s investments in Israel provides a complex picture — Chinese direct investments in Israel’s hi-tech industry are relatively small and sporadic. Over 90 per cent of China’s US$9.5 billion direct investment into Israel as of late 2018 was comprised of the acquisitions of only three companies, of which only one is a hi-tech company. The rest of its investments in technology are limited to a few hundred million US dollars each year. Other Chinese investments in Israel are made through capital venture funds, providing investors with very limited access to know-how.
Overall, by mid-2018 Chinese investments in Israel constituted just 4 per cent of Israel’s foreign direct investments (FDI), compared to the United States with a share of 35 per cent. Considering the limited flow of Chinese FDI to Israel (around US$100 million in 2018 out of the total US$21.8 billion), China is far from gaining a foothold in Israel’s hi-tech sector.