Aug. 24 – India has rejected a loan from the Asian Development Bank of US$60 million for infrastructure project developments in Arunachal Pradesh state as China insisted on clauses within the loan agreement preventing ADB members from recognizing the state as being Indian territory.

This apparently brings to a conclusion the long-standing row between India, China and the ADB over provisions of loans for the area. Following China wielding veto power at the previous request and denying India the loan several months ago, Indian diplomats have been hard at work behind the scenes to persuade ADB members, including the largest shareholders of the United States, Japan and South Korea to approve the infrastructure loan project. India was ultimately able to gain support from all ADB members with the sole exception of China, and an agreement was made by the ADB – including Pakistan – to approve the payment. China however then lobbied hard to obtain a disclosure agreement as part of the loan condition that provision of the financing did not provide acceptance by the ADB that it recognized Arunachal Pradesh as Indian sovereign territory. India subsequently rejected the loan agreement. Arunachal Pradesh is in India’s Northeast and shares a border with Tibet. China regards the region as being part of Tibet and therefore Chinese territory.

The dispute goes back 37 years. The border demarcation was worked out in 1914 between the then governments of British India, and the government of Tibet. China was not a signatory to this agreement at the time. Following China’s claims on and full governance of Tibet in 1951, the Chinese government has viewed the border demarcation previously agreed as retroactively invalid. China’s claims include 90,000 square kilometers of territory – most of the state of Arunachal Pradesh – which is agriculturally fertile.

In response, India has stated that it will no longer seek international financing for the development of sensitive border areas and will finance from internal resources. “There is always an element of uncertainty in international funding, whereas there is certainty with internal funding, External Affairs Minister S.M Krishna stated. “It is now a conscious decision by India to raise funds internally in sensitive areas via internal means.”

China has reacted angrily to the ADB initial decision to approve the loan by stating that the ADB, approved the loan without regard for Beijing’s the major concerns. “China expresses its strong dissatisfaction, the statement said. “The action can neither change the fact that China and India have a huge territorial controversy nor China’s fundamental position on the border issues between China and India.” Indian officials had described China’s actions as a “blockade” against the loan.

Further Reading
China, India Hold Border Talks in Delhi
British Government Redefinition Could Reignite Border Dispute
Arunchal Pradesh – India or South Tibet?