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China Reform Monitor - No. 728

Irked by "absurd" credit terms, Moscow cancels loans from China;
Beijing keeps India border dispute simmering

Edited by Joshua Eisenman
December 17, 2008

November 7:

China’s top envoy, Chen Yunlin, has concluded a historic visit to Taiwan, paving the way for closer cooperation between the traditional rivals. Chen made history when he met Taiwan's President Ma Ying-jeou, making him the most senior Chinese official from Beijing to visit the island since it split from China at the end of a civil war in 1949. But,
the Agence France Presse reports, massive angry protests followed his five-day visit at every turn, overshadowing much of the visit’s immediate diplomatic successes. More than 60 policemen were injured in clashes in Taipei, the National Police Agency said, while more than 20 protestors and reporters were also hurt. Some 2,200 riot police used water cannon to disperse the more than 1,000 protesters that had gathered in front of the Taipei's Grand Hotel where Chen was staying.

November 11:

China’s Foreign Ministry spokesman, Qin Gang, said Beijing has never recognized the “illegal” McMahon Line dividing China and India and that the status of the border areas have “never officially demarcated.” The comments came in response to those made earlier in the week by India’s foreign minister, Pranab Mukherjee, who visited the border state of Arunachal Pradesh and said China was “aware” the region is an integral part of India,
the Press Trust of India reports. “We deeply regret the Indian side’s remarks that take no regard of the historical facts,” Mr. Qin said when asked to comment on Mr. Mukherjee’s comments.

November 12:

Former President of Taiwan Chen Shui-bian has been detained over alleged misuse of state funds and money laundering. While being escorted by police after more than six hours of questioning at the state prosecutor's office, Chen raised his handcuffs and shouted "political persecution" and "go Taiwan!" Prosecutors suspect Chen of corruption, forgery, illegally obtaining funds and accepting bribes, and of violating laws against money laundering. For his part, Chen, and his crowds of supporters, claimed Taiwan’s President Ma Ying-jeou had Chen arrested as a political sacrifice to appease Beijing. "I am the top political prisoner of the Kuomintang and the Chinese Communist Party and the biggest hurdle for the two parties to move toward unification," he told a news conference on the steps of the prosecutors' bureau. "You can lock up my body, but you can't lock up my heart," said the former President
in comments carried by eTaiwan News.

Beijing and Moscow have suspended negotiations on the supply of oil and loans, a Russian source close to the Beijing-based negotiations has told the Petroleum Information Agency, a subsidiary of Russia’s Interfax News Agency. The Chinese side is proposing "absurd conditions of credit financing," he said. "They are not setting a fixed cost of money. They want to provide funds at LIBOR plus five percent. This is a floating rate,” he explained. Beijing is also “demanding multiple guarantees for the loan, guarantees for profit and for oil from oilfields," the source added. According to the MoU on fuel and energy cooperation signed in Moscow in late last month, Chinese banks agreed to loan Russian energy firms Transneft and Rosneft $10 billion and $15 billion, respectively. Long-term supplies of oil from Rosneft and the construction of a branch of the Eastern Siberia-Pacific Ocean oil pipeline to China were to gradually pay back the loan. An informed source close to the management of the China National Petroleum Corporation
explained Beijing’s position to Interfax: "The position presented by China, in particular the increase in the loan rate, is associated with the fact that in the conditions of the global financial crisis Chinese banks have not yet resolved the issue of sources of lending.”

The China National Petroleum Corp. (CNPC) has announced joint ventures with the governments of Chad and Niger and has begun construction on one refinery in each country. The refineries are the first in both countries and will assist with the development of the local oil industries, CNPC said
in comments carried by Russia’s Interfax news agency
. In September 2007, CNPC and the government of Chad agreed to build the refinery in that country, which will process 2.5 million tons of crude oil each year once it starts operation in 2011. Chad has been producing crude oil since 2003 but still relies almost completely on imported oil products. Similarly, in July 2008, CNPC signed an agreement with the Niger government to create a joint refining venture. The upcoming refinery there will process 1 million tons of crude oil per year, according to CNPC. That venture will also include a 2,000-kilometer oil pipeline.