It’s learnt that Nirupama Rao, Indian Ambassador to China, is here and even attended an inter-ministerial meeting on the issue today, where she conveyed the agitated mood in Beijing over the issue.

At the heart of the matter is the history of the company that has controlling stake in the Great Wall Airlines, a joint-venture with Singapore. Initially, 51% stake was with state entity China Great Wall Industry Corporation (CGWIC) while the remaining stakes were with Singapore Airlines Cargo (25%) and Dahlia Investments (24%), a subsidiary of Singapore-based Temasek Holdings.

Last year, CGWIC came under the US scanner and was blacklisted for alleged transfer of missile technology to Iran. As a result of sanctions, the airline folded up operations for close to six months.

It was revived early this year with the controlling stake now with Beijing Aerospace Satellite Applications Corporation (BASA), another Chinese state entity. Now, security agencies argue that change of ownership does not weaken control of Chinese entities involved in sensitive technology.

According to intelligence agencies, even BASA is involved in China’s space and missile programme and the entry of the airline poses a threat in terms of allowing greater access to Chinese officials from these entities.

The Civil Aviation Ministry has made it clear that the airline proposal to commence operations to Mumbai and Chennai are within the parameters of the bilateral air services agreement between both countries.

With agencies unwilling to give up their position, sources said, high-level political intervention will be needed. For this reason, External Affairs Minister Pranab Mukherjee was briefed on the issue.

An upset China is now holding up clearances to Indian carriers to fly to Guangzhou, the new destination in their agreement .