Two government ministers have been snubbed on their trips to Beijing in the last month.
Lord Green, the Trade and Investment minister, and Jeremy Browne, the Foreign Office minister, saw planned meetings with Chinese ministers either cancelled or palmed off on junior officials.
Lord Green, who was visiting China as the head of a trade mission, was reportedly unable to meet with the Ministry of Commerce or with the powerful National Development and Reform Commission, which sets a course for the country’s economy.
“What has happened is that things that are normally handled at ministerial level being downgraded or cancelled,” said one diplomatic source.
“In some cases the Chinese have said it was because of the [Prime minister's] meeting with the Dalai Lama, at other times they said they were sorry but something had come up,” he added.
In addition, Wu Bangguo, China’s most senior diplomat, called off a planned trip to Britain in May, and it is unclear whether the prime minister will be able to make a planned trip to Beijing at the end of the year.
One British businessperson in Beijing, who asked not to be named, said British companies may also be targeted.
“The message has definitely been sent out through the Communist party channels,” he said. “But it is difficult to link any particular negative action directly to the meeting, of course”.
Meetings between British and Chinese officials are continuing at a lower level, however, and some significant deals are still being discussed. London is poised to become a major trading hub for the Chinese yuan and a state-owned Chinese power company is bidding to build new nuclear power stations in the UK.
Cameron met “privately” with Tibet’s spiritual leader in May when the Dalai Lama visited to collect the GBP 1.1 million Templeton prize, which he subsequently donated to Save the Children.
Every British prime minister since Sir John Major has met the Dalai Lama.
Baroness Thatcher refused to meet the Tibetan leader, saying that “the interests of Hong Kong have to be taken into account”.
British officials were aware that the Chinese would respond aggressively, but there are now worries over how long the frostiness will continue.
The Dalai Lama is due to return to Britain on Thursday for a 10-day, pre-Olympic tour of various British cities. How the trip unfolds could have a significant effect on Sino-British relations, said sources in Beijing.
In addition, pro-Tibet protests have been planned for the Olympic Games.
In the wake of Cameron’s meeting, the state-run Global Times newspaper called for China to suspend all diplomatic relations “for a while”. It added that China is now strong enough to bear the economic consequences of freezing relations.
“During the Olympics, China should cool down a little bit and we should also slow some cooperative projects between the two countries.
This will have a cost to China, but it will have a negative effect on Cameron’s government,” it said. “Chinese is against foreign leaders meeting the Dalai Lama and it has become routine to have a strong response both in trade and politics”.
After Nicholas Sarkozy, then French president, met the Dalai Lama in 2008, it took France roughly two years to normalise relations with Beijing. The Chinese also believe Angela Merkel, the German chancellor, acted duplicitously by meeting the Dalai Lama shortly after a trip to Beijing in 2010.
However, sources in Beijing said the situation is not as dire as the fallout between Norway and China over the award of the Nobel Peace Prize to Liu Xiaobo in 2010. Since then, Norwegian diplomats have found themselves entirely unable to speak to their Chinese counterparts.
A Foreign Office spokesman said: “This is disappointing as we believe that it damages both Chinese and British interests. We strongly believe it is in the interests of both countries to manage our differences sensibly and cooperate as much as possible”