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Haifa’s new port will be operated by a Chinese corporation, while Israeli public transportation company Egged Israel Transport Cooperative Society Ltd. has partnered with another Chinese company to run Tel Aviv’s light rail. Simultaneously, China became one of the biggest investors in Israeli tech.

Data collected by Israel-based market research firm IVC Research Center Ltd. shows that in 2018, Chinese investors made direct investments in 12% of local funding rounds, compared to 7.5%-9% in the previous three years. Over the past five years, direct Chinese investments in Israeli tech totaled $1.5 billion across 300 companies, according to IVC. Tens of millions of dollars of Chinese money were invested through Israeli venture capital funds.

But the increased interest Chinese companies have shown in Israel is not without its downsides. “The U.S. and China are two oceans, and Israel is the boat stuck in the middle,” Aharon Aharon, CEO of the Israel Innovation Authority, said earlier this year. One of the reasons for concern is new U.S. regulations that mean companies that operate in 27 specific technologies and industries must report any Chinese investment before the deal is closed and CFIUS will have 30 days to clear or reject the deal. The rather vague reasoning is national security.

Most of the Israeli business sector seems to view Chinese investors as practical investors looking for technologies to import home, and tends to avoid mentions of a possible guiding hand from the Chinese government. But there are those who think otherwise. Chinese involvement carries negative elements that cannot be ignored for long, said Tel Aviv University professor Aron Shai, author of “China and Israel: Chinese, Jews; Beijing, Jerusalem (1890-2018) (Jewish Identities in Post-Modern Society).” Shai, who co-founded the East Asian Studies Department at TAU and is also a guest lecturer at NYU, thinks that Israel needs to set up a CFIUS-equivalent to oversee Chinese investments.

Shai describes a Matrix that has companies like Dead Sea cosmetics manufacturer Ahava—acquired by Fosun International in 2016—on one side, and companies like Israel’s national carrier El Al Israel Airlines Ltd. on the other side. In the middle are companies like food processing company Tnuva Food Industries Ltd., which today is owned by China-based Bright Food Group. “There is nothing problematic with Chinese players buying companies on the axis between Ahava and Tnuva, but they can’t have companies like El Al or (Israeli maritime cargo transport company) Zim, which serve as lifelines during war. The criticism is that not enough is being done, because in many cases the Israeli finance ministry wants those investments.”

“Thinking there is a difference between a private Chinese company and a government-owned Chinese company is naïve,” Shai said. “A private company is also completely under the control of China’s communist party. In Israel, the government has no authority to dictate the activity of a private company, and that’s a crack Chinese companies can use.” When the Technion establishes a branch in China, the question that must be asked is if it could not provide the Chinese government with access to problematic technologies, he said.

Story originally reported in Calcalist