China blocks ADB India loan plan

[FT News]

Beijing used its right to postpone approval of the lender's country partnership strategy for India, which outlines ADB lending to India until 2012.

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.

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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.