China-UK rift over Dalai Lama puts major UK projects in jeopardy

A rift in the UK's relations with the Chinese government has put at risk billions of pounds of investments in major UK infrastructure projects.

According to the The Daily Telegraph, China's sovereign wealth fund would not be able to invest in long-term British projects until a solution to the diplomatic stand-off, caused by David Cameron's meeting with the Dalai Lama last year, was reached.

The Beijing government believed UK needed to make amends before relations could return to normal.

The newspaper cited unnamed sources as saying that any good business relationship relied on a good political relationship for the long-term. Favourable political conditions would help with that, they added.

They said, generally speaking, China was very willing to participate in infrastructure projects but to invest, a strong relationship was needed.

The news would mean future projects such as the High Speed 2 rail network and the UK's nuclear investment programme could see capital from China Investment Corporation (CIC), its sovereign wealth fund, dry up.

CIC, established in 2007, has been responsible for management of part of China's foreign exchange reserves and had received $200 billion at the inception. The corporation now had assets over $400 billion, which made it one of the largest investors of its type in the world.

China had warned of "serious consequences" after the private meeting between the Dalai Lama, Cameron and deputy prime minister Nick Clegg at St Paul's Cathedral in May 2012.

The UK's "intransigence" could jeopardise China and the UK's strong business ties. Bilateral trade between the two countries had surged 7.5 per cent to £40.5 billion last year and UK companies such as drinks conglomerate Diageo and Whitbread's Costa Coffee had both successfully invested in China.

Alistair Michie, deputy chairman of pro-China British business organisation the 48 Group, warned that the timing was crucial with China's new leaders only recently put in place, which meant the UK "got off on the wrong foot" with China's new leadership.

He added, the UK had not fully grasped the significance of the handover to the new leaders.

As of now, Cameron was "not welcome to visit China" until the UK apologised. A high-level trade delegation due to have been led by the prime minister last month had already been cancelled with plans for China's new premier, Li Keqiang, to visit the UK having been put on hold.