A Hong Kong-based conglomerate founded by the billionaire Li Ka-shing has lost its bid to construct and operate a US$1.5 billion infrastructure project in Israel, local government said, little more than a week after the US warned against Chinese-related investment as its rift with China escalates.

The Israeli government said on Tuesday that it had picked a local company, IDE Technologies, over an affiliate of the CK Hutchison Holdings Ltd to build Sorek 2, a private-public partnership that is to be the world's largest desalination plant when completed in 2023.

The decision was announced about 10 days after US Secretary of State Mike Pompeo expressed opposition to Chinese involvement in Israel's infrastructure projects. While in Jerusalem on May 16, he told Israel's public broadcaster KAN that Chinese investment could "put Israeli citizens at risk and in turn put the capacity for America to work alongside Israel on important projects at risk as well".

According to a report on the Ynet news website, Pompeo raised concerns regarding Hutchison's participation in the tender in a meeting with Prime Minister Benjamin Netanyahu at that time.

US Secretary of State Mike Pompeo (right) poses with Israeli Prime Minister Benjamin Netanyahu during their meeting. Photo: Kobi Gideon/GPO via dpa alt=US Secretary of State Mike Pompeo (right) poses with Israeli Prime Minister Benjamin Netanyahu during their meeting. Photo: Kobi Gideon/GPO via dpa

To be built on a site south of Tel Aviv near the Soreq Nuclear Research Centre and the Palmachim military airbase, Sorek 2 is expected to produce 200 million cubic metres of water annually " a quarter of the water Israel uses each year. The winning bidder will have the rights to operate the plant for 25 years.

Without mentioning Hutchison or China, the Israeli Finance Ministry, Energy Ministry and Water Resources Ministry said in an official statement that IDE Technologies, which partnered with Bank Leumi, submitted the winning bid, promising desalinated water at the cost of approximately 1.45 shekels per cubic meter (about 29 US cents), roughly 0.65 shekel cheaper than existing desalination solutions in Israel today, according to The Jerusalem Post.

Under Netanyahu, Israel over the past decade has significantly expanded trade and business with China, which has become Israel's third largest trading partner. Some Chinese companies have took part in major infrastructure projects there, from public transit to port construction, and others have invested millions of dollars in Israeli hi-tech start-ups.

But Israel, a close US ally, has increasingly been caught in the crossfire of the growing US rivalry with China. The Trump administration has pressed Israel to take a tougher line, especially over China's growing investment in Israel's infrastructure projects.

In October, Israel set up a committee to review foreign investment in general " though not specifically Chinese investment " but US officials were not satisfied.

Ma Xiaolin, a Middle East affairs expert with Zhejiang International Studies University in Hangzhou, said that Israel's decision could be a "trade-off" after Israel invited a Chinese company late last year to build and operate a port at Haifa, where ships from the US Navy's Sixth Fleet often dock.

But Ma warned that it could also be an early sign of a "ripple effect" that could see increasing challenges over China's overseas investments, particularly those under the Belt and Road Initiative, Chinese President Xi Jinping's flagship project to boost links across Asia, Africa and Europe.

Citing a US official with the knowledge of the talks about the investment, The Jerusalem Post reported that the US has in recent weeks asked its allies, including Israel, to sever ties with China in sectors that carry security risks.

"It remains a question if this would set a precedent and open a crack in China's cooperation with countries along the Belt and Road, with more projects to be under pressure by the US," Ma said. "If these countries are forced to pick sides, more likely they would take the side with the US because Israel is a close ally to the US."

In 2000, under pressure from the US during the Clinton administration, Israel called off a sale to China of the Israeli-built Phalcon Airborne Warning and Control System (AWACS), after Washington threatened to cut its aid if the deal went through.

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2020 South China Morning Post Publishers Ltd. All rights reserved.

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