This week U.S. Assistant Secretary of State for Near Eastern Affairs David Schenker said publicly that Israel should strengthen its screening of investments from China. His remarks came after Israeli press reported that the Trump administration asked Israel to explain why Hutchinson, a Hong Kong-based Chinese company with an Israeli subsidiary, had reached the final stage of a tender process for building a desalination plant near the Israeli Air Force Base Palmahim. The project, known as Sorek B, is expected to be the largest desalination plant in the world, producing 200 million cubic meters of water annually, a quarter of Israel’s annual water consumption. If Hutchinson, currently a frontrunner, wins the $1.5 billion tender, it will also operate the plant for 25 years. Only a couple of weeks earlier, the Israeli Ministry of Health’s decision to allow the controversial Chinese company BGI Genomics—which has close ties to the Chinese government and which previously published private genetic data without permission—partner with the Israeli MyHeritage in building a COVID-19 testing lab, raised eyebrows in Washington.

While U.S. pressure on Israel concerning the latter’s deepening ties with China is not new, the escalating tensions between Washington and Beijing in the aftermath of the COVID-19 crisis means that this pressure is only likely to grow. That is especially true considering that Chinese outbound investments, relative to those of the United States and Europe which are looking inward, are expected to increase in the near term. In Israel, these include both investments in infrastructure and in technology. Special attention should now be given to Israeli medi-tech and biotech, areas that are already a target of substantial Chinese investment. Both the United States and Europe have recently called for increased scrutiny on foreign investments in any health-related field. Such higher barriers to Chinese investments elsewhere could drive those investors toward Israel. Meanwhile, augmented Chinese investment in an area that although civilian is now deemed in the United States as vital for national security will not go unnoticed in Washington.

To understand why, it is useful to briefly review Israel’s attempts to balance its interests vis-à-vis China and the United States. Israel and China have substantially expanded their ties since the early-2000s, including educational partnerships, scientific cooperation, tourism, and extensive Chinese investment in Israeli technology and key infrastructure. Both countries stand to gain from a deepening of ties. China is interested in Israeli advanced technology, wants to learn from Israel’s success in innovation, and considers Israel an important player within the Middle East and a useful node in China’s ambitious Belt and Road Initiative (BRI)—China’s vision to connect Europe, Asia, and Africa via land and sea. Israel, for its part, seeks to diversify its relationships beyond its traditional partners, the United States and Europe, and wants to benefit from enhanced ties with the world’s fast-growing major economy. Since 2013, Chinese companies have increasingly become more involved in Israel by purchasing Israeli companies and successfully bidding on key infrastructure construction projects. Such activity has been significant in the high-tech sector in which China invested over $1.5 billion over the last five years, excluding mergers and acquisitions and investments in venture capital.

As Israel worked to improve its ties with China, the U.S.-Chinese relationship has grown increasingly tense. Since 2017, and more so since early 2019, the Trump Administration has been pressuring Israel to limit engagement with Beijing. Press reported in 2019 that U.S. officials, including President Trump himself, have even warned Israeli counterparts that unless Israel limits its ties with Beijing, the U.S.–Israeli security relationship could be impaired and intelligence sharing curtailed. Israel, still scarred from two major blows to its ties with Washington after attempting to sell China advanced military technologies in the late 1990s and early 2000s, took notice.  In late October 2019, the Israeli cabinet announced it would form a new advisory committee that would help screen foreign investments in the country. Although no foreign country was mentioned by name, it is clear that this decision was concerned primarily with China.

This was a welcome step in the right direction, although insufficient from an American perspective due to serious structural and legal limitations of the committee. For one, it was established by a caretaker government, and although the emerging government is unlikely to dissolve the committee, it is not formalized through legislation. Second, the committee is defined as “advisory.” Regulators could voluntarily choose (or not) to seek its advice—an advice that in itself is non-binding.  In addition, the committee’s mandate is extremely limited. It is only tasked with advising on “investments in the areas of “finance, communications, infrastructure, transportation and energy,” per a statement from the prime minister’s office. The technology sector is excluded from the committee’s areas of responsibility in remarkable departure from its U.S. parallel, the Committee on Foreign Investment in the United States (CFIUS), which per the 2018 Foreign Investment Risk Review Modernization Act (FIRRMA), can review transactions related to various technologies that are defined as “critical, emerging and foundational,” including biotechnology; artificial intelligence (AI) and machine learning technology; data analytics technology; robotics; and microprocessors. Most of the Chinese investments in Israel in the last decade were in areas that FIRRMA covers, but the new committee does not.

The case of the Sorek B desalination plant, a critical infrastructure facility, illustrates another limitation that the committee has even within its mandate—Israeli officials argue that the committee cannot advise retroactively on a tender that was issued before it was established. This explanation is hardly satisfying as the tender process is still on and a winner has not been selected yet. At the very least, Israel can use this to showcase to Washington its commitment to better scrutinize foreign—meaning Chinese—investments, even if Hutchinson ultimately proves to be the best candidate.

However, no matter what the deliberation is in this case, clearly U.S. concerns regarding Chinese investments in Israel are not going anywhere. To preempt the next point of contention between Israel and the United States on this issue, the new government would be wise to quickly strengthen the new committee, staff it with appropriate personnel, consider expanding its mandate to include investments in technology, make rulings to mandatory rather than advisory, explicitly communicate the committee’s strengths and limitations, and ensure a certain degree of reporting on its operations and procedures (while keeping discussions classified). Even if still imperfect, these steps as a start would demonstrate to Washington that Israel takes its concerns seriously.