How the Abraham Accords Disrupted China-Israel Relations

Recent Features

Flashpoints | Economy

How the Abraham Accords Disrupted China-Israel Relations

After the rapprochement, China’s investment momentum in Israel was overtaken by the Emiratis – just like the U.S. wanted.

How the Abraham Accords Disrupted China-Israel Relations
Credit: U.S. Embassy Jerusalem

China’s economic and political influence in Eurasia has expanded significantly in the last 10 years through two methods, namely Beijing-led multilateral initiatives and bilateral agreements tailored to the partner country in question. Arguably, no other region presented a harder challenge to China than the Middle East, as Beijing had to maneuver between greatly antagonistic states, such as the Iran-Saudi Arabia-Israel triangle, and conduct its diplomatic strategy in a way that can please each state without angering the others.

China’s relations with Israel in particular had to be based on a highly pragmatic and non-political stance, as both countries had other factors to consider. China had to manage and hopefully stay out of the Middle Eastern conflict quagmire. In addition, Israeli foreign and security policy must always align with the vision of its great power patron, the United States. Ministry officials in Jerusalem were no stranger to this delicate balancing act, as in two previous cases Israel had to withdraw certain weapon or allegedly dual-use technology deals with China under U.S. pressure, hurting or even ending the career of the Israeli officials involved.

Regardless of the complicated Chinese-Israeli history and Washington’s “red lines,” the last 10 years under Netanyahu-led Israeli governments saw an unprecedented rise in Chinese-Israeli partnerships, always described as pragmatic and mutually beneficial, directed against no other power. What sounded perfect on paper and in speeches was, however, not meant to be as smooth as both sides envisioned it, as the China-U.S. competition was becoming more severe and increasingly focused on the technological domain.

On the Chinese side, the partnership with Israel was always framed as a special case. During the peak era of the expanding Belt and Road Initiative years, when Beijing upgraded its relations with dozens of participating states under the umbrella of comprehensive partnerships, it signed a “comprehensive innovation partnership treaty” with Israel. This wording, with a focus on “innovation,” was meant to signal to the world that this deal was not about any political alignment; it was solely about business. However, as these business deals were gradually encroaching on the two most important areas of the current global power competition – critical infrastructure and advanced technology – the developing relationship was facing more and more criticism, both domestic and foreign. Israeli national security personnel were highly alarmed by the Netanyahu government’s efforts to put economic interests over national security considerations, going against the grain of the security-focused Israeli decision-making culture.

Domestic criticism, however, was not able to trump the civilian government’s vision of broadening the investor pool in the country. Israel is an interesting case, as it can attract significant capital for private business ventures, but it struggles to realize any great public project (such as railways, ports, and pipelines) that does not offer either direct, immediate business profit or military usage. Chinese investments, guided by the Belt and Road Initiative’s vision of expanding Eurasian connectivity, were exactly what Israel needed for its own strategy of positioning itself as a connectivity node between the three adjunct continents and to develop its infrastructure accordingly.

The mounting tensions came to a head with the selling of Israel’s Haifa port to a Chinese state-backed investor, Shanghai International Port Group, in 2015, which raised alarms in Washington. This purchase threatened to expand Chinese surveillance in the Eastern Mediterranean over the U.S. Navy and its allies in an environment already contested, among others, between the EU, Turkey, Russia, the U.S., and Iran. A key issue was the regular port calls by the U.S. 6th Fleet in Haifa, which were to be stopped if the Israelis did not correct their negligent approach to and lack of security oversight of growing Chinese influence. Similar veiled and open threats came from the White House, which knew full well that, for the highly intertwined Israeli military and political elite, the dismantling of the pillars of U.S. guarantees was absolutely unacceptable. Reluctantly, politicians in Jerusalem had to adopt an investment screening mechanism under U.S. pressure and scale back the rapid engagement with China, while still trying to balance between attracting capital and maintaining U.S. support.

Washington had to realize that it cannot block its Middle Eastern partner from attracting foreign capital, thereby damaging its own interests in the Jewish state. Paradoxically, the Israeli domestic political crisis of 2019-2021 and the COVID-19 pandemic provided time for Washington to develop an alternative strategy to harsh pressure, while Israel was internally focused. The United States had to offer other possibilities, a strategy it is also employing in the Indo-Pacific region to sway away countries from China’s orbit.

The key to solving this conundrum came with Trump administration’s initiative in 2019-2020, the long-promised “Deal of the Century” entitled “Peace to Prosperity.” Under this framework, the Trump administration oversaw the normalization and peace agreements that came to be known as the Abraham Accords. A significant solution to the Middle Eastern economic problems would be the linking of Gulf capital, Israeli technology, global markets, and Arab labor. The first three aspects were largely achieved by the Accords, while the fourth pillar remains unsolved, as economic means cannot circumvent political solutions to the Palestinians’ plight.

Among the countries that signed the treaty, the United Arab Emirates is in the best position to provide the amount of capital needed in Israel, as long as Saudi Arabia remains only a clandestine partner of the Jewish state.

After the ceremonies ended in September 2020, economic deals between the Israelis and the Emiratis started to flow with great pace, the first “warm peace” between Israel and an Arab country. Economic cooperation was extended to all areas that were previously attracting Chinese capital, including high-tech companies, joint ventures, and critical infrastructure. The last issue was the most significant, as it was unthinkable even a few years ago that Israel would let foreign powers, let alone Arab states, take over ports and pipelines. The change shows how the Middle East has changed with the entry of China into the picture and with the relative drawdown in U.S. influence. These processes forced regional states to band together, especially in light of an expanding Iran (itself a strategic partner of China).

The most notable project using Emirati capital to satisfy the Israeli needs is the development of Haifa port, just opposite the previously mentioned Chinese-owned section of the bay. In this project, the Dubai-based DP World has partnered with Israel Shipyards Industries (a key element of the Israeli military-industrial complex) to create a U.S. friendly harbor at this critical future transportation hub. Furthermore, both sides are working on the Med-Red pipeline project, which would link Eilat port on the northern tip of the Red Sea and Ashkelon on the Mediterranean shore, allowing Gulf oil to circumvent the Suez Canal.

The cooperation has naturally faced some obstacles, such as the withdrawal of U.S. grants supporting the deals and Israeli environmental concerns regarding the above-mentioned pipeline. These issues are, however, natural and do not take away from the significance of the strategic shift in the Middle East power relations and network of cooperation. From the Emirati point of view, the political shackles came loose, and their funds are ready to be invested in one of the most productive technology hubs in the world at a strategic location. Meanwhile, the Israelis are eager to sell their assets and utilize their geographic position without angering the United States.

Where does this leave the formerly blossoming Chinese-Israeli economic relations? It is important to highlight that we can only speak about a break in the trajectory of expanding relations, but (at least at the time of writing) not about the rolling back of Chinese influence. The assets that were already sold by Israel will remain in Chinese possession, but newer acquisitions would be limited by investment screening, or will not even get into the negotiating stage, as the expanding Emirati involvement is currently scooping up all potential opportunities. Arguably, the relationship will not see a big falling out, but rather both sides will quietly lose interest in expanding ties at the pace seen prior to 2019. While in previous months, Israel-UAE political and business visits were constantly held, both live and online, similar interactions with China are notably absent. On the governmental level, the new Bennett-Lapid cabinet in Israel came with a multifaceted foreign policy strategy, engaging with old and new partners, although not with China.

China has many other options in the Middle East to expand its influence and does not need to waste its energy on haggling with Israeli decisions-makers for minimal gains under constant scrutiny. Therefore, Beijing is also turning back toward its former pro-Palestinian diplomatic stance and to its more traditional partners such as Iran and Syria.

The previous pace of developing the Chinese-Israeli partnership was uncomfortable and threatening to Israeli domestic and foreign parties, especially the United States. Israel has now become aligned with the broad patterns of the U.S. and China great power competition in the global arena, casting a deeper shadow on the Middle East.