China, India Hope To Build Trust Amid Tensions

When Chinese Premier Wen Jiabao arrives in New Delhi for his three-day state visit on Wednesday, he will be the latest in a parade of major world leaders that have visited Asia's second fastest growing economy. But the Chinese premier's visit is one of the most eagerly awaited, analysts say. "Wen Jiabao is coming to India when new tensions and strains have emerged in Sino-Indian relations," says Center for Policy Research Professor Brahma Chellaney. "This relationship is the most important bilateral equation in the world because these two countries make up nearly two-fifths of the global population." The two Asian giants are also the world's fastest growing major economies with a combined military force of 4 million troops. Pricewaterhouse Coopers estimates that the Indian economy could jump ahead of Japan by 2014, making the nuclear-armed neighbors the world's second- and third-largest economies by purchasing power parity.

(CNN)

China's Premier Wen Jiabao (L) toasts with Japan's Prime Minister Naoto Kan (R, arm and glass visible) and Indian Prime Minister Manmohan Singh (C) during a gala dinner happening on the sides of the 17th ASEAN Summit in Hanoi October 29, 2010. The 17th ASEAN summit runs from October 28 to 30.

When Chinese Premier Wen Jiabao arrives in New Delhi for his three-day state visit on Wednesday, he will be the latest in a parade of major world leaders that have visited Asia's second fastest growing economy.

But the Chinese premier's visit is one of the most eagerly awaited, analysts say.

"Wen Jiabao is coming to India when new tensions and strains have emerged in Sino-Indian relations," says Center for Policy Research Professor Brahma Chellaney. "This relationship is the most important bilateral equation in the world because these two countries make up nearly two-fifths of the global population."

The two Asian giants are also the world's fastest growing major economies with a combined military force of 4 million troops. Pricewaterhouse Coopers estimates that the Indian economy could jump ahead of Japan by 2014, making the nuclear-armed neighbors the world's second- and third-largest economies by purchasing power parity.

"When China and India join hands, they can make a positive impact, not just in their respective countries, but on the world at large," China's Ambassador to India, Zhang Yan, said at a press conference in New Delhi on Monday.

Bilateral trade is expected to hit $60 billion this year, making China India's largest trading partner.

Beijing and New Delhi are keen to highlight these shared interests and economic interdependence. Another issue on the table is clarification of China's position on India's bid for a permanent seat on the United Nations Security Council.

Yet recent tensions reveal the Sino-Indian relationship remains fragile and ambivalent.

"There is a very high level of strategic mutual mistrust amongst the highest levels of leadership in both countries," says Srikanth Kondapalli, professor of Chinese Studies at Jawaharlal Nehru University.

Timeline: Key events in Sino-Indian relations

Despite 14 rounds of talks in the past 29 years, territorial disputes remain a perennial source of tension. Much of the 3,225-kilometer (2,000-mile) border between the nations in the Himalayan region remains undefined. In the Kashmir region in north central India, New Delhi says Beijing occupies 33,000 square kilometers of Indian territory.

China claims the Indian-occupied area of Arunachal Pradesh south of Tibet. Last year, China expressed "strong dissatisfaction" when Indian Prime Minister Manmohan Singh visited Arunachal Pradesh and recently denied visas to an official from the "disputed territory," saying a visa was not required as the state is in fact part of China.

India's humiliating defeat by China in a war over border issues nearly 50 years ago continues to instill mistrust in the Indian psyche, analysts say.

"India and China have been engaged in border negotiations since 1981 -- the longest such process between any two countries in modern history. Yet there is little progress to show. In fact, by assertively laying claim to India's Arunachal Pradesh state in recent years, China has reopened the wounds of its 1962 aggression," Chellaney says.

India is also monitoring China's growing relations with India's smaller Asian neighbors, such as Sri Lanka and Myanmar.

"Many in India believe that China is pursuing a strategy to encircle India ... the fact that China is building ports along vital sea lanes of communication and seeking special access arrangements along such lanes validate the 'string of pearls' theory," says Chellaney, referring to a 2006 U.S. Department of Defense report describing the strategic rise of Chinese influence on waterways, ports and airfields stretching from the South China Sea to the Persian Gulf.

China's recent deals with Pakistan to build nuclear reactors and manufacture jet fighters have not gone unnoticed in New Delhi. China, meanwhile, is concerned about India's closer ties with the United States, including a recent multi-billion dollar civilian nuclear deal.

But behind these lingering political issues is a trade opportunity that both countries are keen to draw on, analysts say. This growing economic interdependence will most likely be the focus of Wen's trip.

"Trade is the only area where cooperation is booming," Chellaney says, though the trade relationship is "not flattering for India."

The Chinese premier will arrive with some 400 Chinese business leaders in fields ranging from banking to real estate.

Trade has increased 30-fold since 2000, but the balance of trade is heavily in China's favor. India has a roughly $17-18 billion of trade deficit with China. Over 70% of India's exports to China are raw materials, mainly iron ore, while high value finished products and machinery make up the majority of Chinese exports.

"China's macroeconomic policies, exchange rate policy and other specific non-tariff measures make exports to China uneconomic and cumbersome," Jyotiraditya Scindia, Minister of State for Commerce and Industry, recently told the upper house of Parliament.

India has lodged a record number of antidumping cases against China in the World Trade Organization.

Despite the border issues, Yan, China's Ambassador to India, called on Monday for the nations to move towards a regional free trade agreement, along with measures to remove trade and investment barriers.

"What we need is for China to view India's rise positively and see our relationship as a win-win because that is precisely what it is," said Rajeev Kumar, director general of the Federation of Indian Chamber of Commerce and Industry.