Israel Acts to Counter Chinese Corporate Influence

Israel’s caretaker government announced the formation of a new advisory committee last week to review foreign investment in critical sectors of the economy. After months of debate, Israel has taken an important first step to defend itself from hostile strategic investment, a growing U.S. concern.

Israel’s analog to America’s Committee on Foreign Investment in the United States (CFIUS) will be chaired by the Finance Ministry, with participation from the National Security Council and the Defense, Foreign, and Economy and Industry Ministries. The body “will assist regulators in factoring considerations of national security into the approval process for foreign investments,” according to a statement by Israel’s Security Cabinet. As regulators examine deals in the finance, communications, infrastructure, transportation, and energy sectors, they may voluntarily submit them to the new committee for input.

Although not mentioned in the Security Cabinet’s statement, a primary focus of the committee will be China. Chinese investment in Israel – in both strategic infrastructure and hi-tech – has increased dramatically in recent years, to the growing consternation of U.S. officials. In 2019, the U.S. national security advisor, secretary of state, and deputy secretary of energy all visited Israel to highlight Washington’s concerns about China’s growing penetration of Israel’s economy and its possible security ramifications. The U.S. has spotlighted Israel’s decision to award a Chinese company the contract to expand and operate a section of Haifa’s port located in close proximity to a military facility where U.S. naval ships regularly dock. Secretary of State Mike Pompeo suggested that “intelligence sharing” and “co-location of security facilities might have to be reduced” as a result.

Israel’s new foreign investment review committee may help to prevent a repeat of the Haifa port controversy, where Israel’s security services were reportedly not consulted prior to the contract award. Unlike its American counterpart, however, the Israeli committee’s jurisdiction does not cover the hi-tech sector, which has been a growing target of Chinese investment and a major area of U.S. concern. Israeli officials worry that extending a formal oversight mechanism to the hi-tech sector could end up crippling the most dynamic part of Israel’s economy. Instead, they privately suggest that the risks can be mitigated by having Israel’s security services exercise heightened vigilance in an informal manner.

The new committee’s authority and jurisdiction appear less robust than CFIUS in other important ways as well. While CFIUS review is also largely a voluntary process (initiated by the companies involved), CFIUS can, on its own, undertake investigations of any transactions that fall within its mandate. Furthermore, CFIUS determinations are not just advisory in nature, but mandatory. In other words, CFIUS can bar a transaction outright or require that companies implement mitigation plans to limit national security risks. It also has the authority to investigate transactions after the fact and, where necessary, void them and require divestiture. The risk of post-hoc nullification, even several years down the road, provides companies with a powerful incentive to submit themselves to CFIUS review in advance. At least on its face, the Israeli committee will not have nearly the same reach or clout.

Therefore, the U.S. should pursue a discrete and cooperative dialogue with Israel as its committee takes shape. Congress has amended CFIUS’s mandate several times over the years to enhance its authority and address new risks. Washington should encourage similar adaptability in Israel. It will be especially important to better understand how exactly Jerusalem proposes to enhance protections against Chinese exploitation of Israel’s hi-tech sector. Whatever precise form this takes, U.S. intelligence sharing on entities with troubling connections to Beijing could prove enormously helpful, as could a sharing of FBI and other agencies’ best practices for educating the U.S. private sector on the dangers of adversarial foreign investment.

John Hannah is senior counselor at the Foundation for Defense of Democracies (FDD), where he focuses on U.S. strategy. Annie Fixler is deputy director of FDD’s Center on Cyber and Technology Innovation (CCTI). If you would like to receive more of their policy briefs, op-eds, and research, subscribe HERE. For more from CCTI, subscribe HERE. Follow Annie on Twitter @afixler. Follow FDD on Twitter @FDD. FDD is a Washington, DC-based, nonpartisan research institute focusing on national security and foreign policy.