The Geopolitics of China-Israel Trade and Investment

Trans-Pacific View author Mercy Kuo regularly engages subject-matter experts, policy practitioners and strategic thinkers across the globe for their diverse insights into U.S. Asia policy. This conversation with Dr. Tomer Fadlon – research fellow in the economics and national security research field and the Israel-China policy center at the Diane and Guilford Glazer Foundation at the Institute for National Security Studies in Tel Aviv – is the 512th in “The Trans-Pacific View Insight Series.”

Analyze the top three trends in China-Israel trade and investment relations. 

I would highlight these three trends:

1. Widening Trade Deficit and Import Dominance trade relations: While bilateral trade rebounded significantly since 2023 and in 2025 was in a record high $21.17 billion (including Hong Kong), the growth is heavily asymmetric. Imports from China alone rose by 25 percent in two years to over $14.7 billion. Including Hong Kong, the imports are over $16 billion, while Israeli exports to China plummeted by 40 percent in three years to $2.8 billion causing the trade deficit to surpass $10 billion for the first time in 2024 and record high $11 billion in 2025.
2. Surge in E-Mobility and Consumer Durables: Chinese brands have rapidly captured Israel’s consumer market. In recent years, roughly one in every five new cars on Israeli roads was manufactured in China (led predominantly by BYD), alongside major volume increases in consumer electronics and textiles. The cost of living is always a major concern on the Israeli economy, and the Chinese goods are a great way to confront with this problem.
3. Sharp Decline in Investment Scale and Transactions: Chinese investment in Israel has experienced a profound and continuous drop since peaking in 2018. It hit an exceptional low in 2023 of approximately $39 million (0.12 percent of total foreign investment in Israel). A partial recovery to $800 million in 2024 was anomalously driven by a single $700 million acquisition in the gaming sector (SuperPlay by Playtika) and does not indicate a broad return of capital. The main reasons are changing nature of Chinese investments worldwide, Washington’s influence on Jerusalem, and regulatory changes in Israel.

Examine the role of the United States in Israel’s trade policy toward China. 

It seems that the United States acts as the primary external determinant of Israel’s economic policy toward Beijing. As the great power competition intensifies, Washington has placed intense pressure on Jerusalem to treat Chinese economic integration as a national security vulnerability.

In compliance with U.S. expectations, Israel established rigorous foreign investment screening mechanisms specifically designed to bar Chinese state-owned enterprises from critical infrastructure, telecommunications, and ports. Furthermore, stringent U.S. export controls on sensitive dual-use technology, especially semiconductors and artificial intelligence, directly dictate the legal boundaries of Israeli commercial exports.

Consequently, Israel’s trade policy has shifted from opportunistic market expansion to aggressive risk management. Jerusalem explicitly prioritizes its foundational military and strategic alliance with Washington over economic opportunities in Asia, choosing to deliberately suppress lucrative high-tech exports to China to preserve its vital defense ties with the U.S. The war has emphasized the unreplaceable alliance with the U.S. with massive shipments of emergency military equipment, and an expedited $14.3 billion in standalone military and security aid, short time after the October 7 massacre.

Evaluate Israel’s effectiveness in balancing its strategic position between the U.S. and China vis-à-vis- China-U.S. competition

Israel’s strategy of maintaining close ties with both is at risk as the great power competition (GPC) heats up. It is very clear to see this by the FDI trends. However, we still try to maximize the economic relations by directing FDI to non-sensitive sectors, lowering the cost of living with cheap imports and having thousands of Chinese workers building much needed infrastructure in Israel. Let’s see how it goes in the upcoming years as challenges are mounting with the GPC but also different geopolitical climate in MENA region. Furthermore, it seems that more countries are worried about China shock 2.0 which is not necessarily related to GPC. More countries, which are very friendly with China such as Brazil and Russia using tariffs to protect local industries. It should also have some impact on the economic relations as Israel is also considering using these tools against the flows of Chinese goods.

What is the impact of the Iran war on China-Israel relations in a geopolitical context? 

The widening regional conflict involving Iran and its proxies has an impact on public opinion toward China in Israel. During the conflict, Beijing systematically favored Iran and its proxies, refusing to condemn regional aggression, leveraging its veto power to criticize Israel at the U.N., and deploying hostile state-media narratives. For Jerusalem, this positioning provided an absolute reality check, permanently dismantling the notion that deep trade ties could incentivize China to restrain Iranian nuclear or regional ambitions.

The conflict has firmly placed China and Israel into opposing geopolitical blocs, transforming Israel’s perception of China from a lucrative partner into an opportunistic supporter of its existential enemies, cementing a long-term chill in bilateral trust. It is interesting to note how China sees it differently and basically believes it can continue having great economic ties with everyone while in Israel the concerns are mounting, especially given the reports on some dual use exports from China that assisted Iran in the war.

Given Israel’s world-class technology advancements, assess Jerusalem’s calculus and positioning amid the escalating China-U.S. tech race.

Israel’s status as a world-class technology powerhouse places it directly in the crosshairs of the U.S.-China technology competition, forcing a highly rigid, zero-sum calculus upon Jerusalem. Fields like artificial intelligence, cyber technologies, quantum computing, and semiconductors are treated by Washington as critical pillars of national security rather than mere commercial assets.

Faced with explicit warnings from the U.S. that continued tech integration with China would jeopardize intelligence sharing, joint military R&D, and access to American venture capital, Israel’s calculus heavily prioritizes survival over market size. Jerusalem has positioned itself entirely within the U.S. technological ecosystem. To maintain this alignment, Israel has aggressively curtailed Chinese venture funding and enforced strict dual-use export controls. This direct positioning explains the drastic contraction of Israeli high-tech exports to China. Jerusalem operates under the pragmatic realization that its qualitative military edge is organically tied to American technological dominance, choosing to enforce a technological iron curtain against Beijing to safeguard its core security architecture.