Personally I think China's insistence on claims are far less reasonable than India's even though both have equal right to them since neither side, Tibetans or Nepalis have ever settled on this disputed stretch. It's a wasteland and utterly useless beyond some potentially important strategic posts and positioning that can be allowed for whichever side owns it.
Having said that, allowing this issue to become a wedge in relations do indicate how and what China thinks of India and vice versa. However, being so, sooooooo FAR away from China proper, it was China who could really have simply abandoned its claims and just let India have it. In terms of buffers, well China has plenty beyond plenty. Ceding and giving dispute to India in the past could have set a foundation for better relations but the CCP also felt India to be way too aggressive and arrogant to allow ceding (prior to 1962). It would be considered weakness by India and invite further trouble in future. This is probably the main reason why China's been insistent since the 50s and the border war.