China blocks ADB India loan plan

China has allowed a long-standing territorial dispute with India to spill over into the international arena by withholding approval for a multilateral development plan for India.

The unusual friction between Asia’s two largest emerging economies occurred ahead of a board meeting of the Asian Development Bank at the end of last month, when China used its right to postpone approval of the lender’s country partnership strategy for India, outlining ADB lending to India until 2012.
The Chinese did not give a reason for their intervention. But the ADB said Beijing was unhappy that its Indian plan proposed lending to projects in the disputed north-eastern region of Arunachal Pradesh. People familiar with the plan said the projects were for flood management, water supply and sanitation. China and India fought a war in 1962 over disputed territory. China declared victory and then pulled back its troops.

The ADB would not provide the financial details of its India plan ahead of board approval, but India was the biggest recipient of ADB lending last year, with almost $2.9bn (€2.2bn, £1.9bn).

“The ADB has never deferred any loan to India. There is nothing like that [in the past],” said an ADB official in New Delhi
China’s reluctance to approve the country plan for India comes at a time when Beijing is lobbying hard for a larger role in the International Monetary Fund and other international organisations. Analysts said this incident could herald future conflicts once China gains the influence it is seeking in multilateral organisations if future initiatives infringe on what Beijing sees as its interests
“This effort [to block the ADB’s plan for India] is a clear signal to partner countries that China sees partnership as sometimes less important than power projection,” said Russell Moses, a Beijing-based political analyst. “There are powerful officials who have no problem injecting strategic considerations into multilateral financial decisions.”

Some analysts also worry that greater Chinese involvement in institutions such as the IMF could allow it to wield veto powers over rescue packages for countries that did not comply with its political demands, especially over issues such as Tibet and Taiwan.

“Of course this [incident within the ADB] makes some people nervous but at this point it doesn’t seem so unreasonable given the fact this is contested territory,” said David Zweig, director of the Center on China’s Transnational Relations at the Hong Kong University of Science and Technology.

“I’d be much more concerned if this was China blocking a development plan for a country whose leader had recently met the Dalai Lama.”

The ADB said it hoped to reschedule a meeting to approve the Indian plan, but at a yet unspecified date.

Pratibha Patil, India’s president, emphasised India’s claim to Arunachal Pradesh during a three-day visit last week. She said the state was “never far from the centre of the nation’s consciousness"