Queengate, China and retaliation

Queen Elizabeth’s comments on China were a leak, not a gaffe.

PUBLISHED : Wednesday, 18 May, 2016, 10:15am
UPDATED : Wednesday, 18 May, 2016, 10:50am

First we had just had unattributed leaks; then we had regular whistleblowers. Next, WikiLeaks told us what the great and not so good thought about each other, following which the Panama Papers spilt the beans. Now we have the ultimate leaker – Queengate.

Queen Elizabeth has been on the throne for 60 years, having seen 12 British Prime Ministers, 12 US Presidents, and outlasted every world leader except the King of Thailand. So when she let it be known in public that Xi Jinping’s official entourage had been “very rude” to British officials during the recent Presidential visit to Britain, this was no gaffe. This was a leak.

Globally interconnected trade is the biggest stimulus for stable bilateral relationships between countries these days

There were at least two cameras on the scene. The Queen is led directly to the Police Commander and the conversation is immediately led to that topic. The Queen as Head of State naturally says little but the Police Commander speaks liberally and fast — as if remembering her lines — and the videos are released to the press. Some accident; perhaps?

We can conclude that a Chinese official behaved in someone else’s country in a boorish manner. Perhaps they were genuinely worried about security, or perhaps he or she was tired and emotional from the diplomatic cocktails.

Or perhaps they didn’t like taking security advice from a high-ranking female police officer. It doesn’t matter; British diplomacy is very sophisticated and the incident was too far over the professional diplomatic line not to have a bit of fun with it. The first lesson of diplomacy is to get your retaliation in first.

Will China retaliate? Could they say, “Bad mouth us and we will stop investing?” Possibly; but China will not necessarily retaliate because this too is a diplomatic skill. The Chinese style is to talk loudly (in the case of the Chinese official perhaps rather too loudly) but carry a small stick.

Grown up countries will trade their retaliation against future benefits and China’s leadership is highly sensitive to this balance and rarely makes a considered mistake.

To hear China diplomatically belittling Japan sounds serious, but a big part of the Great Game is to embarrass your opponent. For Japan is China’s third largest trading partner and the country benefits from a great deal of Japanese investment. Economically, the two are far too close for a few upturned Japanese cars to disturb the relationship.

The US is China’s leading trading partner and the US benefits in turn from the Chinese recycling their reserves back into US treasuries.

No matter what little diplomatic difficulties there may be around the world — trade is the key relationship.

Indeed, with almost a half of Chinese reserves invested into US Treasuries, diplomacy will remain the main method of sorting out bilateral disputes — for that is only 11 per cent of the US government bond market. China needs a stable US more than anyone.

This retaliation discussion extends to other countries. Will the European Union retaliate against UK trade if the upcoming referendum results in the country leaving Europe?

There are many reasons for Britain to stay in Europe but trade retaliation is not one of them. Countries trade because the terms are good, not because they are doing each other a favour.

Globally interconnected trade is the biggest stimulus for stable bilateral relationships between countries these days. The mutually assured destruction of modern warfare makes it so (except of course among small defenceless countries with civil wars when the superpowers can test out their tactical military capabilities). Trade is of course often used as a weapon but can rebound badly, leaving diplomacy the best solver of disputes.

At the very worst, the UK may lose Chinese investment for a short time but everybody knows it will be back, especially if Britain stays in the EU.

China has always been viewed fondly in the UK. So it is a comfortable place for Chinese investment. In any case, the Brits will only find their investment elsewhere, perhaps with fewer strings, and that will be bad for Chinese influence in Europe.

So will the Chinese react to the Queengate? I think not. In the cold light of dawn, thoughtful Chinese diplomats are too good for that. Diplomacy is a game where you fling the ball at your opponent without getting it returned with interest. On the other hand you have to accept that sometimes you will miss the ball. There will always be another opportunity to play the game. In diplomacy, as elsewhere, revenge is a dish best served cold.

Richard Harris is chief executive of Port Shelter Investment Management