China’s Silk Road Strategy: A Foothold in the Suez, But Looking To Israel

Publication: China Brief Volume: 14 Issue: 19

COSCO's Mercury, the biggest Chinese commercial shipping vessel.

China plans to develop a Silk Road economic belt that spans the Eurasian continent and a maritime Silk Road that links the Pacific with the Indian Ocean. We can see on a map that the two Silk Roads will cross in the Middle East region, which spells excellent opportunities and bright prospects for common development and common prosperity for China and the region’s countries.

 – Chinese Foreign Minister Wang Yi (Chinese Ministry of Foreign Affairs, January 14).

The Silk Road narrative espoused by Chinese Foreign Minister Wang Yi evokes China’s strategy of developing linking transportation nodes between maritime port terminals and inland rail networks throughout Eurasia, including across the Middle East and North Africa (MENA) region. With the overall purpose of carving out new export markets, this Silk Road strategy simultaneously seeks to develop large-scale transportation infrastructure construction projects for China’s state-owned enterprises (SOE) and create transportation routes to export products to foreign markets. Furthermore, as China’s national development has become increasingly dependent on maritime commerce to reach the global marketplace, Beijing has sought to minimize the risk of shipping disruptions by reducing its dependence on any single route through developing a variety of transportation corridors.

In order to ensure reliable access for Chinese commercial shipping from the Red Sea to the Mediterranean Sea, the Chinese government has adopted a dual-track approach, simultaneously expanding its interests in the Suez Canal corridor while also pursuing a land-based route through Israel. For its preferred maritime strategy, China’s state-owned shipping companies have invested in ports along the Suez Canal Corridor, from the Gulf of Suez to Port Said in Egypt. For China’s alternative land-based route, Beijing is pursing the “Red-Med” rail project, which completely avoids the Suez Canal by traversing Israel from Eilat on the Gulf of Aqaba to Tel Aviv on the Mediterranean. These two routes position China to realize its goal of the two Silk Roads meeting in the MENA region.

High Stakes in the Suez Canal

Beijing’s current reliance on the Suez Canal for shipping Chinese exports to Europe represents an increasing risk to the continued growth of China’s economy. Prior to the Arab Spring in 2011, China invested heavily in the Suez Canal corridor and considered the Canal its primary access point to Europe, China’s largest export market. In 2008, COSCO Pacific, China’s largest shipping SOE, invested $185.6 million in a joint venture to operate and manage the Suez Canal Container Terminal (SCCT) in Port Said East Port, located in the western Sinai peninsula at the northern end of the Canal (Cosco Pacific Announcement, December 11, 2008). For this port’s second development phase, operating since 2012, state-owned China Harbor Engineering Company (CHEC) invested $219 million to construct a 1,200-meter quay (CHEC Press Release, November 8, 2008). CHEC also completed a contract valued at $1 billion to construct a quay in al-Adabiya port at the southern entrance to the Canal (CHEC, 2009).

The overthrow of Egypt’s longtime strongman ruler Hosni Mubarak during the Arab Spring in 2011 turned the economic and security risks of China’s overdependence into a reality when Chinese cargo ships were severely delayed in the Suez Canal. Ain Sokhna, al-Adabiya and Port Said East Port experienced intermittent closures, causing a severe container backlog and preventing, on one occasion, Chinese ships from working for over ten days (Port Technology, February 11, 2011; Daily News Egypt, July 11, 2011; Daily News Egypt, December 20, 2012). A representative from China Shipping said that on other occasions their ships were diverted to the Israeli ports of Ashdod, 24 miles south of Tel Aviv, and Haifa, 55 miles north of Tel Aviv (Author’s Interview, Port Said, February 26, 2013).

Beyond shipping delays, the turmoil following the removal of Mohammed Morsi from power further increased security risks to ships using the Suez Canal. On August 31, 2013, China’s COSCO Asia, one of the company’s newer and larger vessels, came under fire from two rocket-propelled grenades 30 miles south of Port Said at al-Qantarah, after leaving Suez Port on the southern entrance to the Canal (Egypt Independent, September 1, 2013). The al-Furqan Brigades, who claimed responsibility, said they carried out the attack because the Suez Canal “has become a safe passageway for the Crusader aircraft carriers to strike the Muslims, and it is the artery of the commerce of the nations of disbelief and tyranny” (The Long War Journal, September 7, 2013). China’s policy of support for the long-standing military regimes in MENA and unfounded accusations that a PLA Navy (PLAN) escort fleet transited the Canal to supply arms to Bashar al-Assad illustrates a sense of enmity towards China (Al Arabiya News, July 30, 2012; QQ, July 27, 2012; Global Times, July 30, 2012). While little damage to the ship was reported, the event underlines the risk of shipping disruptions that the Chinese government seeks to minimize through its dual land and sea strategy.

Yet, China has redoubled its bet on the Suez even after the recent turmoil. According to a representative from China Shipping, a third development phase is underway, which would constitute an extension of Port Said West Port (Author’s Interview, Port Said, February 26, 2013). Furthermore, Zhenhua Port Machinery Company, a subsidiary of China’s state-owned Communication Construction Company (CCCC), secured a large-scale infrastructure project for U.A.E.’s Dubai Port World Sokhna under development alongside the China-Egypt special economic zone on the Gulf of Suez (Port Technology, July 12, 2012). China proceeded with a $416 million investment in a second contract, for construction of a cargo terminal at al-Adabiya port (Chinese Embassy in Egypt, July 17, 2012). China is also considering the Suez Canal Regional Development Project (SCRDP), which includes the addition of a parallel channel to the Canal, as well as the construction of sub-sea tunnels under the Canal (Daily News Egypt, September 16; Foreign Ministry, August 14).

Seeking an Alternative Route Through Israel

The “Red-Med” railway through Israel represents China’s efforts to address its overdependence on the Canal and create a viable backup plan to ensure reliable passage for Chinese commerce from the Red Sea to the Mediterranean Sea and on to Europe. The railway, a proposed twin-track, one for passengers and one for cargo, is expected to hurtle through Israel’s Negev desert at speeds of 155–185 miles per hour (Global Times, July 5, 2012). Of the total 217-mile distance, a passenger track of 55 miles from Tel Aviv to Beersheva has already been completed by an Israeli SOE, Netivei Israel; this line will then be connected to an existing track that runs from Beersheva to Dimona, and thereafter a further 150-mile track that has yet to be built will run to the port of Eilat on Israel’s Red Sea coast. This “Red-Med” railway will support China’s ambitions to carve out Israel as an export market, as it will allow shipping containers coming from China to be transported via the railway to Israel’s interior (Globes Online, July 13, 2011; Globes Online, July 20, 2012).

However, extensive engineering challenges and the railway’s high projected cost are potentially prohibitive issues for the project’s successful completion. In total, the railway would include 63 bridges extending two miles and five tunnels totaling five miles, raising questions about the project’s feasibility (Globes Online, February 29, 2012; Globes Online, October 6, 2013). Current cost estimates range from $8–13 billion, and since transportation of goods by rail is more expensive than by sea, the long-term profitability of the project is not assured (Globes Online, October 6, 2013; Globes Online, May 26, 2013).

Israeli Prime Minister Benjamin Netanyahu welcomes China’s railway plan, as long as China is willing to pay for it. China’s Transport Ministry has been in talks with its Israeli counterpart since Israel opened the project to public bidding in late 2010, and the two Ministries signed a memorandum of understanding (MOU) in July 2012, paving the way for the official negotiations (Globes Online, July 3, 2012). For Israel, China’s involvement in the project would bring Chinese funding, provided by the state-owned Import-Export Bank and a Dubai-based investment company, as well as a Chinese construction company to lead development (Al Monitor, October 22, 2013). For Beijing, this government-to-government agreement would provide China export credits, boost its construction SOEs and create employment opportunities for Chinese nationals abroad. Yet, some in the Israeli government oppose the deal, so it is still in the early earlstages.

One part of China’s Silk Road strategy in Israel that is for certain is a project to connect the railway to Israel’s Mediterranean ports of Haifa and Ashdod. In June, CHEC won the pre-qualification stage of two tenders, after submitting unbeatably low-priced bids, to build one new port in either Haifa or Ashdod, and ultimately decided to build South Ashdod port (Globes Online, June 23). While COSCO Container Lines already offers a transatlantic service from Haifa and a trans-shipment service from Ashdod to Europe’s Mediterranean ports, this new project illustrates China’s ambitions to fortify its Silk Road in Israel. At the signing ceremony, China’s Ambassador to Israel, Gao Yanping, said, “This project will effectively open up the Israeli market to China” (The Times of Israel, September 23).

However, China’s alternative strategy through Israel still poses similar risks to that of the Suez Canal in Egypt. In January, a Sinai-based jihadist group named Ansar Jerusalem claimed responsibility for a rocket attack on the city of Eilat, and on July 7, as the Israel-Palestinian conflict began, a German cruise ship was showered with shrapnel from a Hamas rocket after leaving Ashdod port (Xinhua, January 22; The Guardian, July 8). Nevertheless, China continues to pursue projects in Israel.

Toward a Modern Silk Road: China Pursues a “Dual Approach”

China’s interest in the ambitious “Red-Med” railway appears to have crystallized after the numerous threats to its interests in Suez since 2011. As Zhang Le, China program coordinator for the U.S.-based non-profit Israel Project, maintained, “The railway has strategic significance because it will also provide a land-based passage for Chinese cargo to Europe, in addition to the Suez Canal” (Global Times, July 5, 2012). China’s Minister of Transportation Li Shenglin said that the signing of the MOU would set “a new stage” for cooperation between the two countries’ transportation companies (Global Times, July 7, 2012). Reflecting his country’s view of China’s involvement, Netanyahu said, “We have the ability to create an alternative transportation route that bypasses the Suez Canal—this is an insurance policy. Israel must become a continental land crossing route and create great power interests” (Prime Minister’s Office Press Release, February 5, 2012).

Israel’s proposal for the “Red-Med” railway must also compete with a number of other similar projects seeking Chinese funding around the world. CHEC and the Chinese-Panamanian Office of Business Development have expressed interest in constructing a fourth set of locks in the Panama Canal beyond the current expansion expected to be completed in 2015 (Xinhua, August 6). Furthermore, a Chinese businessman won a 50-year concession for $40 billion to construct an inter-oceanic Nicaragua Canal (Xinhua, June 13). While further development of the Suez Canal and additions to the Panama Canal constitute upgrades to existing projects, the Nicaragua Canal is much more of a long-standing dream than a solid feasible engineering project (Christian Science Monitor, January 22).

China’s Future Still Depends on the Suez

Despite Beijing’s pursuit of alternative routes beyond the Suez Canal, China will likely remain dependent on it for the foreseeable future, due to its large capacity that is needed to accommodate the growing size of cargo ships. The biggest advantage of the Suez Canal over the Panama Canal is that the former is wider, allowing the passage of larger ships, which Chinese companies value for their economies of scale. The Suez Canal and the SCCT are already capable of handling the world’s largest container ship, the Malaccamax, an 18,000 twenty-foot equivalent unit (TEU) vessel, tipped as the future global norm. Upon completion of the expansion currently underway, the Panama Canal will only be able to accommodate 12,500-TEU ships. The size of China Shipping’s largest ship is currently 14,000 TEU, already too large for the Panama Canal (China Shipping Turkey, 2014). Thus, Chinese companies will likely remain dependent on the Suez Canal as they follow global trends toward larger ships in the future.