DAN HODGES: This is who Cabinet ministers have instructed me is REALLY responsible for Labour’s China disaster… and a few Foreign Office officers are even calling her the ‘Dragon Lady’

Inside government, Rachel Reeves has a new nickname. ‘If you want to understand the Government’s policy on China, you have to understand one thing,’ a senior adviser told me. ‘It’s all being driven by the Treasury and Rachel Reeves. She’s so obsessed with developing a close relationship with China, some of the Foreign Office officials now call her the Dragon Lady.’

The title, bestowed by some of the more experienced mandarins, is a reference to a Nixon-era scandal in which his senior aides reportedly conspired with the Vietnamese government to delay peace talks until victory over his Democratic challenger Hubert Humphrey had been secured. A key player in the saga was a shadowy lobbyist who was given the exotic codename Dragon Lady.

Over the past week Keir Starmer has been embroiled in his own Far East espionage scandal, following the fallout from the collapse of the China spy trial. This has thrown the spotlight on to the Government’s broader policy towards the regime, and what Starmer’s critics regard as a policy of thinly disguised appeasement.

But while the bulk of the focus has been on the Prime Minister and his National Security Adviser Jonathan Powell, other members of the Cabinet have begun pointing an accusing finger in the direction of the Chancellor.

‘You need to look at Rachel’s trip to Beijing earlier this year,’ one told me. ‘That’s where this all begins.’

The visit Reeves embarked upon in January coincided with a major pivot in the Government’s economic strategy. After focusing on public service investment and tax rises for business in her first Budget, the Chancellor dramatically shifted tack and declared: ‘Economic growth is the number one mission of this government.’

Implementation of this aggressive new growth strategy began on January 11, when she touched down in China to sign a £1billion trade deal. According to a statement issued by the Treasury at the time, ‘closer financial services links with China to support secure and resilient growth in UK’ was now the Government’s ‘number one mission’.

The Chancellor’s visit to China in January coincided with a major pivot in the Government’s economic strategy

Reeves herself stated: ‘Today is a platform for respectful and consistent future relations with China. One where we can be frank and open on areas where we disagree, protecting our values and security interests, and finding opportunities for safe trade and investment.’

Soon after she returned to Britain her colleagues began to see what development of that respectful and consistent relationship was going to entail.

A major issue of contention had been China’s submission of a planning application for a new ‘Super Embassy’ near the Tower of London. The security services and police had expressed concern over the proposal, and the plans that had been submitted showed a mysterious ‘dungeon’ as well as what appeared to be a series of covert listening posts.

However, within two weeks of Reeves’ trip to Beijing the objections submitted by the police had been dropped. As was an objection by Tower Hamlets Council.

At around the same time, in the third week of February, Deputy National Security adviser Matthew Collins was putting the finishing touches to a new witness statement that had been requested by the Crown Prosecution Service to enable them to proceed with the China spy-case trial.

The purpose of their request was to formally clarify that China did indeed represent a major national security threat to the UK. Collins duly submitted his evidence. But, strangely, he had inserted the following paragraph.

‘It is important for me to emphasise, however, that the Government is committed to pursuing a positive economic relationship with China. The Government believes the UK must continue to engage with international partners on trade and investment to grow our economy, while ensuring our security and values are not compromised.’

Rachel Reeves has said the Government needs to be ‘balanced’ over dealings with China

Meanwhile, ministers in the Home Office were making their own final preparations for the implementation of the Foreign Influence Registration Scheme, aimed at tightening restrictions on activities taking place in the UK at the instruction of a foreign state.

But they were suddenly presented with a problem. The scheme had two tiers, with the second ‘enhanced tier’ representing those countries that were deemed to represent an especially high risk to UK interests.

The decision to place Russia and Iran in that tier was quickly agreed. But Home Office ministers also wanted to place China alongside them. And they faced major opposition from the Treasury.

According to one Home Office source: ‘Rachel was absolutely adamant that China shouldn’t be included in the enhanced tier. She was completely opposed.’

Last week I spoke to two senior officials who have direct experience of the internal debate raging within government over its China stance. They both painted the same picture.

‘All of the music from Rachel and the Treasury is the same: don’t upset China,’ one told me. ‘We have to maintain good trade relations.’

The second said: ‘You have to understand the backdrop.

‘We have an economy that is flatlining, and a major shortage of international investment. So in the meetings it’s always the same basic dynamic. You have the Chancellor and the Treasury arguing for a closer relationship with China. And you have the security establishment arguing for a much more robust and hawkish line.

‘But to be honest, that’s not new. You can track that all the way back to George Osborne and the golden decade of relations with Beijing.’

Reeves’ allies strongly refute the allegation she is guilty of kowtowing to the Chinese regime.

And they adamantly insist she had no role in the collapse of the China spy case, or decisions relating to planning permission for the Super Embassy.

China wants to develop the old Royal Mint for its ‘super-embassy’

Their line is that she is trying to engage pragmatically with a difficult but powerful trading partner.

‘You have to have a balanced approach to dealing with the Chinese,’ one friend of the Chancellor told me. ‘We need to robustly defend ourselves against security threats. But we do still have to deal with them. They are an economic super-power. And we can’t just shut the door.’

But slamming the door shut isn’t the current problem. To many observers – including some inside Keir Starmer’s own Cabinet – the door is being thrown wide open to a veritable People’s Army of Chinese agents of influence.

In response to the news of another delay to a decision on the Super Embassy, the Chinese government issued a thinly veiled threat. The UK must ‘immediately fulfil its obligations and honour its commitments’, a spokesman warned. The statement raised eyebrows, with some MPs querying precisely what ‘commitments’ had been given to China.

‘I think the person best placed to answer that is Rachel,’ one minister told me cryptically.

The Government’s China crisis is not going away. Some serious questions are about to be asked over the role played by the Dragon Lady.