China Power

How China-Israel Economic Ties Factor Into Beijing’s Approach to the Gaza War

Recent Features

China Power | Diplomacy | East Asia

How China-Israel Economic Ties Factor Into Beijing’s Approach to the Gaza War

Israel is a key locus for Chinese investments in both infrastructure and technology. How is this close economic relationship impacting China’s diplomacy during the Israel-Gaza conflict?

How China-Israel Economic Ties Factor Into Beijing’s Approach to the Gaza War
Credit: Depositphotos

The Israel-Gaza conflict provides a valuable chance for understanding how China manages economic and political considerations amid escalating geopolitical tensions. This dynamic presents a challenge as China navigates the delicate balance between economic interests and political alignments in an increasingly fractured global order.

The relationship between China and Israel is often described as “cold politics, hot economics” (政冷经热). Despite differing political objectives, China and Israel have deepened their economic ties over the past decade. Notably, Israel was the largest recipient of Chinese investment among Middle Eastern countries from 2015 to 2018, according to AEI’s China Global Investment Tracker

According to IISS’ China Connects database, China has invested in more Belt and Road Initiative (BRI) and “BRI-like” projects in Israel than in any other regional country – even though Israel has not formally signed on to the BRI. The considerable infrastructure projects undertaken by China in Israel stand out due to Israel’s status as a developed economy, which typically restrict the involvement of Chinese firms in projects related to their critical infrastructure facilities.

In the same vein, as with many developed economies, Israel attracts substantial Chinese investments in advanced technology sectors. China’s engagement with Israel reflects Chinese techno-nationalism, and the Chinese government has employed nationalist rhetoric to encourage private enterprises to invest in Israeli technology, thereby promoting the growth of Chinese private investments alongside Chinese state-affiliated investments in Israel since 2014.

Given Israel’s prominence in advanced technological development, it’s considered a vital source for China to access critical technology, particularly as the United States and other Western nations have increasingly restricted China’s involvement in their tech sectors. According to the official investment guidance from China’s Commerce Ministry, China’s imports from Israel predominantly consist of high-tech products, including electronic equipment, medical instruments, and telecommunications products, with the notable exception of potassium fertilizers. 

Moreover, a report by the RAND Corporation revealed that between 2011 and 2018, Israel’s technology sector received the most significant Chinese investment, both in terms of monetary value ($5.7 billion) and the number of companies (54 out of 87 investments). These investments were made through venture capital or tech firms, both private and state-owned, including some companies considered controversial by Western countries, such as Huawei and ZTE. 

Notably, Chinese investment in the Israeli tech sector has cooled in recent years, primarily due to growing pressure from the United States over security and intellectual property concerns. Similarly, China’s construction of major Israeli infrastructure, including ports, metro transport, and electricity supply, is exclusively carried out by state-owned enterprises (SOEs), which raises concerns for Israel-U.S. relations.

So, how are China’s close economic ties with Israel influencing Beijing’s diplomacy in the Israel-Gaza conflict? Clearly, these ties don’t deter China from, at the very least, rhetorically supporting Palestine, as seen in Foreign Minister Wang Yi’s criticism of Israel. However, these economic links do encourage China to adopt a more nuanced approach, avoiding assigning direct blame to either party. This approach, which can be described as “neutrality with limits” or “pro-Palestinian neutrality,” allows China to navigate the complex situation while leaving room for collaboration with the United States on this matter, which aligns with the interests of both sides. 

According to Chinese experts, China’s pro-Palestinian neutrality largely stems from its mistrust of Israel. In recent years, Israel has been increasingly responsive to U.S. concerns, resulting in diminished Chinese investments. Israel’s Security Cabinet reached a decision in November 2022 that significantly tightened government oversight on foreign investments. Although the announcement doesn’t explicitly mention China, Israeli officials have admitted that the new policy is a response to two years of pressure from the Biden administration to limit China’s role in sectors like energy, infrastructure, telecommunications, and transportation. 

From China’s perspective, since Israel has already taken sides, Beijing may perceive that favoring Israel would be of little benefit.

The China-Israel case sheds light on how Beijing manages the complexity of balancing economic benefits with political concerns. As geopolitical fragmentation intensifies, China encounters mounting difficulties in balancing economic advantages with conflicting political goals. This predicament is also apparent in China’s relations with South Korea and Japan, both of which grapple with economic and political dilemmas concerning Beijing. Economic benefits might not motivate China to take a strictly pro-business stance on critical issues, but they also may keep China from entirely aligning with sides that contradict U.S. interests.