Israel a Chinese bridgehead?

Chinese president Xi Jingping and Greek prime minster Kyriakos Mitsotakis
Chinese president Xi Jingping and Greek prime minster Kyriakos Mitsotakis

If you want to know what the Chinese are after with Haifa Port, take a look at what they're doing in Greece.

A little over a year from now, the new Haifa Bay port will be given to government-controlled Chinese company SIPG to manage until 2046. This will open a new chapter in the history of shipping and transportation in Israel, and possibly a new era in Israel's international relations.

The deal is ostensibly strictly business. The new Haifa port will be "just another" international commercial cargo port - one of four that will operate in Israel. It will face competition from other ports in the region.

When you examine the broader picture, you realize that that this is an important event. It's an immovable bridgehead of a foreign power currently in the midst of a trade war and other non-trade disputes with the US, Israel's political, military, and economic sponsor. The Chinese do not conceal the fact that the new Haifa port is an important part of what they call the "String of Pearls" - a series of ports under Chinese ownership or control stretching along the marine trade routes from China to Europe. The String of Pearls is the maritime arm of the One Belt One Road (OBOR) plan, which aims to increase China's worldwide economic and political influence.

The term "bridgehead" is not just an expression. Experience shows that every strategic maritime base established by the Chinese government in foreign countries as part of the project has been followed by gradual expansion of China's economic and political presence in those countries, and not just in shipping.

Unlike the multibillion-shekel Israeli build, operate, transfer (BOT) infrastructure contracts that Chinese government companies are currently involved in, the Chinese presence in the new Haifa port is not temporary. It is deep, permanent, and long-term. And we have an example of this process just next door - the Greek port of Piraeus.

Closer ties

Although the Greeks began their Chinese romance several years earlier than Israel, there are points of similarity between China's involvement in Piraeus Port and its involvement in the Haifa Bay port. The official opening was a 35-year lease signed in 2009 by shipping giant COSCO for "upgrading and managing the cargo piers in Piraeus Port." In 2016, after a long process of political preparation and extensive investment, COSCO acquired 51% of Piraeus Port, to the outrage and anger of opposition groups in Greece, and despite behind-the-scenes opposition by the EU and the US. From being the port's operator, COSCO thereby became a key partner.

Economic relations between China and Greece have become steadily closer since August 2018, when Greece announced that it was joining the OBOR plan as an important member. The peak was reached a few weeks ago, when the Chinese president visited Greece and signed 16 trade agreements with Greek Prime Minister Kyriakos Mitsotakis. The most prominent of these agreements was a €600 million investment in Piraeus Port openly aimed at "making it the largest cargo port in Europe and a sea and land bridge between China and Europe."

China will invest €300 million in Piraeus by 2022 as part of this agreement. At the end of this period, China will be allowed to acquire 16% more of the port, and in effect acquire almost complete control over it, not just operational control. This "seaborne invasion" was accompanied by other measures. For example, State Grid, the largest Chinese government power company, acquired a 24% minority stake in one of Greece's main electricity suppliers, and is now competing in projects for laying an undersea cable to the Greek islands. Industrial and Commercial Bank of China (Europe) SA, a large Chinese bank, has opened an official office in Greece, and this is only a partial list.

In addition to these high-profile activities, the Chinese business sector has made many more investments in Greece in infrastructure, communications, mobile telephony, and other areas. As in Israel, the process is also being accompanied by direct civil aviation routes between China and Greece under an open skies policy. Activity is set to expand in the coming years following the agreements signed this month. Among other things, Chinese energy companies are due to step up their activity in Greece, and Greek shipping companies will receive $3 billion in Chinese loans for building ships in China.

US creating obstacles

Ostensibly, there is a difference between Greece-China relations and Israel-China relations. Greece is in a prolonged economic crisis, after being saved from bankruptcy near the end of the preceding decade by an international rescue plan. Greece is still in need of foreign currency and investment, and is committed to a series of tough terms and austerity programs forced on it by the European Union and the World Bank, which are arousing unrest in Greece. In contrast, Israel seemingly enjoys economic stability and positive GDP growth, and its dependence on foreign investment is less acute.

Furthermore, many argue that Israel is still deeply within the US sphere of influence, which will prevent any Chinese attempt at growing its strategic involvement in Israel. One example is the statements by figures in the US administration and defense establishment in both closed meetings and in the media against giving the Haifa Bay port to the Chinese, which reached a peak in the summer of 2019. Informed sources said that the US was delighted with the legal measures taken by the Haifa municipality to halt progress in the port's construction.

Until this month, we also believed that US opposition would thwart the Chinese bridgehead at Haifa Bay port, especially in view of US success in forcing Israel to establish an agency for supervising Chinese investment in Israel. Several developments in recent weeks, however, hint that something has changed behind the scenes.

The Shipping Chamber of Israel held an Israel shipping day in late October. One participant in the event was former Ministry of Transport director general Uzi Itzhaki, now chairman of Israel Ports Development and Assets Company. Itzhaki is a close associate of outgoing Minister of Transport Yisrael Katz, whose term featured a declared pro-Chinese policy.

At the event, Itzhaki said, "We have made progress in recent months with both the Haifa municipality and the Ashdod municipality, and have made peace agreements with them. These agreements will enable us to go forward with and accelerate construction of the new ports, and of course the preparations by the new operators." He also revealed, "The two new operators from China (in Haifa) and Switzerland (in Ashdod) will continue their preparations for bringing the cranes and the equipment here. We will soon see here not only construction of the infrastructure and the engineering, but also the new equipment, which will include autonomous and automated activity."

Since we have no reason to doubt Itzhaki's word, one of two things can be concluded. Either the US and the Israeli Ministry of Defense have decided for unknown reasons to withdraw their objections to continued construction of the Haifa Bay port and giving it to the Chinese, or someone in the Israeli leadership has decided to ignore the US's recommendations.

What next?

This development apparently removes the question marks and uncertainty about future Chinese control of the new Haifa Bay port, turns it into an accomplished fact, and leads to the obvious question of what comes next.

We will not be surprised if the answer to this question comes via the maritime asset adjacent to the new Haifa Bay port - the old Haifa Port, which is also in the midst of an advanced privatization process with the help of an international tender. Unofficial sources told us that Chinese companies with ownership links to the Chinese government are among those interested. This should surprise no one.

We will start with the fact that the future tender is aimed at companies with deep pockets. Analysis published by Amiram Barkat in "Globes" in late October stated that as part of the sale of control, the investor will undertake to invest NIS 1 billion in upgrading infrastructure at the old Haifa Port in preparation for anticipated competition from Haifa Bay port, which will open in 2022. This amount sounds logical if you take into account that, according to reports in China, the new Haifa Bay port being constructed nearby by the Chinese is an advanced port that will need few workers.

This is a significant advantage over the old port, and poses a considerable business obstacle to commercial companies weighing participation in the tender on the basis of purely business considerations. Furthermore, the state expects NIS 800 million-1 billion for its shares in the port.

In view of the opening conditions of close future competition and the surplus capacity at the two ports, at least in the first years when they are operating simultaneously, it can be assumed that financial profit and loss considerations will not be the sole factor affecting a decision to participate in the tender; external strategic considerations will also have an effect. We also do not forget for a moment that Chinese company SIPG, the winning in the tender to operate the Haifa Bay port, was the only bidder in that tender at the time. As of now, the Chinese government is one of the few players with both inexhaustible pockets and strategic interests in participating in this tender, not to mention the approving attitude of Israeli government agencies. It is still unclear what position the Israeli Ministry of Defense will take on the matter, especially given the presence of sensitive Israeli military assets in proximity to the port. Withdrawal of US opposition to Chinese management of the new Haifa Bay port, however, could certainly give a green light to Chinese participation in this tender. With or without any connection, Chinese companies are already entering energy tenders in Israel, and are expected to compete in additional privatization tenders for power stations.

We emphasize that at present the bridgehead theory, which includes the creation of continuous Chinese control in Haifa Bay of two ports with a land and railway bridge to neighboring countries, is pure speculation. That, however, is exactly how the Greeks would have described the possibility of the entire Piraeus Port becoming a Chinese asset a few years ago.

Published by Globes, Israel business news - - on November 28, 2019

© Copyright of Globes Publisher Itonut (1983) Ltd. 2019

Chinese president Xi Jingping and Greek prime minster Kyriakos Mitsotakis
Chinese president Xi Jingping and Greek prime minster Kyriakos Mitsotakis
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