What’s Beijing Doing in Haifa?

Below the radar screens of all but a few experts, a dispute is brewing with the potential to disrupt defense cooperation between the U.S. and Israel and embroil the Jewish state in America’s increasingly intense trade conflict with China.

The story begins in 2015, when Israel’s Transportation Ministry accepted an offer from theShanghai International Port Group to operate the port of Haifa for 25 years, starting in 2021, and invest $2 billion to expand the port into Israel’s largest harbor. Notably, this decision was taken without the formal involvement of either Israel’s security cabinet or its National Security Council.

As far as I can tell, this agreement went almost unnoticed for three years, until the transfer of part of the new port to Chinese control in the summer of 2018 sparked a furor in the Israeli media. But it took a meeting this past August between a delegation from the Washington-based Hudson Institute and Haifa University’s Research Center for Maritime Policy and Strategy to make this issue a matter of international concern. During this meeting, the U.S. delegation, which included retired Adm. Gary Roughead, former chief of naval operations, and ex-Pentagon official Douglas Feith, weighed in against the deal with a vehemence that reportedly stunned many Israeli participants.

Adm. Roughead noted that China’s presence in Haifa might force the U.S. Sixth Fleet to abandon the port and dock elsewhere. As he explained in remarks reported in the Jerusalem Post, “The Chinese port operators will be able to monitor closely U.S. ship movements, be aware of maintenance activity, and could have access to equipment moving to and from repair sites and interact freely with our crews over protracted periods.” He also expressed concern that the Chinese could use the new port’s information systems to conduct surveillance and threaten U.S. cybersecurity.

In the wake of the Haifa conference, other U.S. officials weighed in, as did defense-oriented Israelis, such as a former head of Mossad, Efraim Halevy. Articles in the Israeli and international press soon followed. By the end of the year, the Israeli government had launched a high-level review, and Prime Minister Benjamin Netanyahu had asked a panel headed by National Economic Council Chairman Avi Simhon and national security adviser Meir Ben-Shabbat to consider options for a new entity with the power to review and rule on foreign investments in Israel.

Meanwhile, the Trump administration was moving into high gear. In January White House national security adviser John Bolton raised Washington’s concerns directly with Mr. Netanyahu. On a subsequent visit to Israel, Secretary of State Mike Pompeo warned government officials that if the Chinese deal continued, the U.S. might reduce its intelligence sharing with Israel. In March, according to a well-sourced Voice of America article, President Trump warned Israel’s prime minister that if his country’s ties with China continued to expand, U.S.-Israeli relations could suffer.

Despite intensifying pressure, the Netanyahu government hasn’t budged, at least not yet. According to recent press reports, the Simhon/Ben-Shabbat team has decided to recommend against the establishment of a statutory foreign-investment review council, although less-formal options are reportedly still under consideration. Many Israeli officials speak of the need to balance the benefits of their country’s economic relations with China against the imperative of a strong security relationship with the U.S. These officials favor a policy of constructive ambiguity and fear that an institutionalized review process would tip the scales against Chinese investment.

Underlying this dispute is the remarkable growth in recent years of economic ties between Israel and China, whose companies now own major Israeli businesses, including Tnuva, Israel’s biggest purveyor of dairy products. A Chinese firm won the bid to build a new Israeli port at Ashdod. Other Chinese firms operate major Israeli infrastructure projects. Chinese investment in Israel’s high-tech sector is soaring.

This trend enjoys the enthusiastic support of Mr. Netanyahu, who has visited Beijing several times and hosted senior Chinese officials in Israel. His efforts are bearing fruit. Israeli exports to China, including sophisticated technology, grew by 52% last year.

For China, overseas investment is part of a considered strategy to increase its diplomatic clout—and ultimately its military reach. The drive to operate ports is a key part of this strategy. China’s $1 billion investment in the Greek port of Piraeus has moved Athens toward pro-Chinese policies within the European Union. Another key goal of China’s overseas investment is the acquisition of advanced technology, and President Xi Jinping’s policy of “civil-military fusion” ensures that technological gains translate into military power.

Doing business with China is not the same as doing business with a democracy. Does Israel really want to enable China’s rise at the cost of weakening its relationship with its greatest ally? It’s not too late for Mr. Netanyahu to turn back, starting with the port of Haifa.