China’s firm backing of Palestinians amid Israel's war on Gaza has damaged Beijing's bilateral relations with Tel Aviv while boosting its standing in the Arab world. China has voiced Palestinians' “inalienable right” to an independent state while also calling Israel's war on Gaza “collective punishment” of Palestinians—not self-defence.
And while China's position certainly hurt its relationship with Israel, economic relations between the two countries were already on the decline since 2018. This makes Beijing’s position on Gaza and its move away from Israel less consequential than it may appear. Still, it confirms suspicions that Sino-Israeli relations are heading toward a prolonged decline.
Young relationship
Beijing formally recognised the Palestinian Liberation Organisation (PLO) three decades before it established a formal diplomatic relationship with Israel in 1992. Since then, relations between the two countries have been both pragmatic and complex.
China has no history of enmity with Jews, even offering them shelter at times of oppression. The Shanghai Jewish Refugee Museum recounts how Jews took refuge in the city during the 1930s and 1940s when few places in the world would accept them. And while antisemitism emerged in many societies around the world, China has never had this problem.
During their short history of relations, China and Israel have had periods of warmth. Prime Minister Benjamin Netanyahu once referred to relations as a “match made in heaven.” However, this has clearly changed amid geopolitical shifts and differences over Palestinian statehood, Israel’s war on Gaza, Iran’s nuclear pursuit, and the future of the Middle East.
Despite the COVID-19 pandemic, nearly half of Israelis surveyed perceived China favourably, compared to only 20% in the US, according to a Pew poll published in 2022. This favourable view will undoubtedly wane due to Beijing’s critical view of Israel's war on Gaza. But for Israelis, China’s support for the Palestinian cause should not come as a surprise. China's position on the Palestinian issue is not new—it has been voting against Israel’s proposals at the UN for the past decades.
American influence
Bilateral relations between Beijing and Tel Aviv are intricately linked to the United States' relationship with China. When Washington and Beijing established diplomatic relations in January 1979, it brought fresh impetus to China’s engagement with Israel. With Washington’s tacit support, the transfer of defence technology and services from Israel to China was established and continued over the span of three decades.
In 1992, when direct relations were formalised, the two countries boosted trade, investment and development with one another. During this period, mutual trade rose from $50mn in 1992 to $24.45bn by 2022. By then, China had become Israel’s third-largest trading partner after the European Union and the US and its largest trading partner in Asia.
However, this rise was driven primarily by China’s imports to Israel, resulting in a widening trade imbalance. Israel’s exports to China peaked in 2018, while China’s exports to Israel plateaued in 2022. The steady rise in China’s exports to Israel over the last decade has been led by growth in e-commerce—including stand-out success for Alibaba’s AliExpress and online fashion store Shein.
Electric vehicle sales (EVs) have also increased. Two of the top Chinese EV brands—BYD and Geely—constituted 45% of the total EV sales in Israel in 2023. Despite souring political relations, 22% of all new cars sold in Israel in the first four months of 2024 were Chinese—far higher than their Western counterparts.
As for Israeli exports to China, Intel microprocessors account for almost 40% of total trade. Chips made in Israel have powered China’s large-scale manufacturing capacity and much of its expansion, driving most of the export growth from 2017 to 2018.
US restrictions on high-tech trade with China, which apply to American companies at home and abroad, have also affected production in Israel. As data and cloud services become the centre of security concerns in a fast-changing world, Chinese e-commerce platforms will likely see stagnant growth in Israeli markets. This reduction in trade would have occurred regardless of whether the 7 October attacks and the subsequent war in Gaza took place.
Geopolitical shifts
Wider global currents cooled China-US trade, which had a knock-on effect on China-Israel trade. This decline will likely continue despite efforts to put business before politics.
China’s investment in Israel peaked in 2018 after it witnessed accelerated growth starting in 2014. The expansion reflected Beijing’s twin, long-term strategies: the Belt and Road Initiative to connect Eurasia through infrastructure and its Made in China 2025 scheme. Data from Israel’s Institute for National Security Studies show that Chinese investment in Israel was most robust in the infrastructure and technology sectors.
The tapering of investment from 2018 does not show a decline in China's ambitions but rather a rise in US concern. In 2019, in response to a US request, Israel established a foreign investment oversight mechanism to address Washington's concern about the potential implications of Chinese investments in Israel's critical infrastructure. In fact, China lost the bid to the Sorek Two desalination plant after Israel received a warning against Chinese investments in critical infrastructure raised by then Secretary of State Mike Pompeo.
Among China's various infrastructure projects in Israel over the past decade, the most controversial are two ports. In 2021, China's Shanghai International Port Group (SIPG) won a 25-year lease to operate the port of Haifa—a frequent port of call for the US Navy's Sixth Fleet. In 2014, China Harbor Engineering Company (CHEC) won the tender to build the now-Israeli government-run port of Ashdod.
At the time, Israel assuaged American security concerns by saying that the US could surveil the area by renting a flat overlooking the port. Since then, the US has continued to operate there—a sign that any security concerns it may have had were addressed.
Although Chinese investments represented only 5% of the total foreign direct investment Israel received in the technology sector in 2018, the US was still unhappy about Chinese investments in Israel's innovation and tech start-ups. To Israel, maintaining its strategic alliance with the US comes first, so it will likely place further restrictions on Chinese investments to please Washington.
In summary, the deterioration of China-Israeli relations has more to do with geopolitics than economics. The bilateral relationship—born from the warming of US-China ties four and a half decades ago—is now on a downward trajectory, and neither China nor Israel can do much about it. No matter what strategy or position China pursues in the Middle East, its relationship with Israel—the US's strongest ally in the region—will continue to deteriorate.
