Foreign governments who allow the Dalai Lama to visit are often accused of "hurting the feelings of the Chinese people".
China has repeatedly warned foreign heads of state not to meet the Dalai Lama, with Zhu Weiqun, the executive deputy head of the Communist party’s United Front Work Department, saying: “We will take corresponding measures to make the relevant countries realise their mistakes.”
Now, for the first time, two economists at the Georg August University of Goettingen in Germany have calculated the price that you pay for upsetting China’s feelings.
In a research paper that crunches the figures on exports to China, and then correlates them with the map of the Dalai Lama’s state visits, the two economists find that a country’s exports to China fall by around 12.5% for around two years after its leader meets the Dalai Lama.
"Since China is neither a democracy, nor a free market economy, its administration has greater capacity to impact on trading decisions than the government in a democratic free market economy. Such significant scope for government intervention thus gives leeway for the utilization of trade flows as foreign policy tool," the two economists conclude.
The worst hit sector is "machinery and transport equipment", which is the only product group with a consistent negative effect of Dalai Lama meetings on exports. This makes sense. Just about the only thing that China buys in bulk from Europe, which is the most frequent destination for his Holiness, is advanced machinery. And of course, with France, Germany and the UK all vying to sell engineering to China, the Chinese can switch to other suppliers with no negative effect.
The economists say that the Dalai Lama effect on trade is limited to the Hu Jintao era (2002-2008, when they last have trade figs). "We find at best weak evidence to support the existence of such an effect in earlier years."
They provide two explanations for why China might use trade as a punishment. "At first glance, it may seem odd that China would be willing to forgo the gains that would arise from trade under efficient importing decisions in order to punish trading partners who receive the Dalai Lama," says the paper.
"However, China’s political leadership may be willing to bear the economic and political costs that arise from diverting trade away from Dalai Lama-receiving countries if such ‘punishment’ increases the likelihood of its political survival. As argued in Mansfield, Milner and Rosendorff (2000), political leaders in autocratic regimes also need to maintain political support to ensure their political survival, which is also reflected in their trade policy. By exerting economic pressure on Dalai Lama-receiving countries, the Chinese administration seeks to maintain the territorial integrity of China and intends to strengthen the stability of its Communist regime in the multi-ethnic country. However, such an economic punishment mechanism will only prevail as long as the expected political gains from stabilizing the regime outweigh the losses from trade diversion."
They also point out that a negative effect may come from Chinese consumers forgoing the goods of the country involved.
However, as I mentioned above, a third hypothesis is that, in the case of Europe, there is little downside in switching suppliers and, of course, it helps reassert China’s superior position in the balance of power and encourage countries to fall into line with China’s policy. It’s divide and conquer.