This is a part of their choreography. After all, if we are to keep up the image of being hostile, we need to cook up issues to fight over. Even they are playing to the gallery, (they need to show Pakistan that they are on their side).
If we appear too pro-China then the US will intensify their covert war against us (stone pelting, JNU drama, etc), if we appear too pro-US then China will intensify their transgressions. Even we need to keep up the drama of being offended to keep the US under the belief that India is having issues with China.
In reality, we have no strategic issues with China. CPEC is also a minor tactical issue.
We already lack a straightforward access to Central Asia. So, currently we are paying tributes to the US to pressure Pakistan to *allow* India to access Central Asia (in exchange for our assistance to the US in Afghanistan, through Northern Alliance). So, we were already bribing another power for our access to Central Asia. If CPEC becomes operational, instead of bribing the US, we will have to bribe China for safe passage. But in this case, the US loses all foothold it has in this region right from Central Asia, Afghanistan to the warm waters of Arabian Sea, if China gets to establish itself in the region.
'Experts' are suggesting that we will be encircled by China and they will send tanks to our western borders through CPEC. This is not viable. First, we are at a dominating position in Siachen, and secondly it would take days for China to send tanks form east to west, and they will get noticed. As it is, we are encircled by a US-backed attack-dog called Pakistan. The US has nothing to lose if there is a war in Asia. China will at least have a vested interest in protecting their investments in Pakistan, so they will act as a stabilizing factor.
If India wants to step into the club of powerful nations, it has to bite the bullet and start eroding western influence from Asia on a priority basis, instead of allowing the west to coach us into starting new domestic conflicts with our neighbors over relatively petty issues. (China shielding Masood Azar is much smaller issue than US giving 3 billion dollars to Pakistan every year)
As for Arunachal, it is non negotiable. We can have an alternate non-aggression treaty with China, "we will not interfere when you capture Taiwan, in exchange, you will not interfere when we pursue Cold Start in Pakistan". If China loves Pakistan more than Taiwan is for them to decide.