Builders association asks High Court to even competition with China

The Israel Builders Association has petitioned the High Court of Justice to block the “takeover” of infrastructure construction by state-owned Chinese corporations, accusing the government of supporting – or failing to prevent – China’s rapidly increasing control of Israel’s most important projects.

The state must respond to the recently filed petition by June 21.

The petition reflects an ongoing debate in Israel about how close the country is getting to China, while balancing its alliance with the US, which objects to the increased Sino-Jewish closeness.

A special committee has been formed to review all future major Chinese forays into the Israeli market in light of national security implications and any impact on Israel’s relationship with the US.

But even this committee does not consider more standard business implications, like the potential advantages that state-sponsored Chinese companies might have over local Israeli infrastructure providers.

According to the petition, the builders association alleges that the government and a separate committee, the Committee for the Reduction of Concentration, have repeatedly ignored the fact that all Chinese infrastructure firms currently operating or bidding to operate in Israel are either directly or indirectly owned by the Chinese government.

As such, association members argue, Chinese corporations should be declared and handled as a “concentration group” under Israel’s Anti-Concentration Law. Otherwise, those harmed most will be domestic contractors, infrastructure firms and thousands of Israeli workers.

The time is especially ripe to act now as China’s fast recovery from COVID-19 could lead to an acceleration in its Belt and Road Initiative (BRI) investments.

Under the Anti-Concentration Law, there could be various

limitations on the activities of such quasi-state companies and they might be declared ineligible for certain Israeli government tenders.

Whereas Israeli companies are easily identified and limited by the Anti-Concentration Law, the petitioners are arguing that the Chinese companies are exploiting a loophole by which they appear to be separate smaller entities, when really they are acting in concert on behalf of the Chinese government.

This behind-the-scenes coordination allegedly gives the Chinese companies exactly

those advantages in resources and influencing the tender process that the Anti-Concentration Law is meant to prevent.

More than 100 corporations are currently active in Israel, all forming a “complex pyramid” headed by the state, the association said in its petition. The majority are controlled by the state-owned Assets Supervision and Administration Commission of the State Council (SASAC) or the Shanghai Municipal State-owned Assets Supervision and Administration Commission (Shanghai SASAC).

Chinese corporations have “participated in recent years in a long list of tenders” for national projects and have enjoyed significant success, said the petitioners.

Successful bids for multi-billion shekel infrastructure initiatives include four projects carried out by the China Civil Engineering Construction Corporation (CCECC), including tunneling for the Tel Aviv Light Rail’s Red Line; China Harbor Engineering Company (CHEC) subsidiary PMEC’s construction of Ashdod’s new HaDarom Port; the upgrade and management of Haifa Port by the Shanghai International Port Group (SIPG) and the manufacturing of trains for Tel Aviv’s Red Line by the CRRC Corporation.

In addition, the petitioners highlight additional investments including Bright Food’s controlling stake in Israeli food manufacturer Tnuva, and the acquisition of Adama by ChemChina Group.

On some occasions, multiple Chinese state-owned infrastructure giants have competed in the same tenders. In May 2019, four Chinese firms were among six international consortia seeking to win a tender for the construction and operation of the Tel Aviv Light Rail Green Line and Purple Line, described as the largest tender in Israel’s history and worth approximately NIS 15 billion. ($4.14b.)

“The Israeli government’s long-term and unreasonable disregard for the fact that the Chinese government may gradually eliminate key parts of the Israeli infrastructure sector must come to an end immediately,” said Israel Builders Association president Raul Srugo.

“We demand that the state establishes rules which are compatible with the Anti-Concentration Law, which will enable the ability to continue advancing Israeli construction. Without any change in the balance of power in the sector, we will very quickly reach a situation where the majority of companies building the country’s key infrastructure – and in some cases controlling it – will be from China.”

Srugo emphasized that the last few months have shown the need to be independent from foreign actors, with the current “unstable geopolitical

reality” requiring economic and infrastructural self-sufficiency. •