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									ii                               IPRI Factfile


              E DITOR
         D R N OOR UL H AQ

            A SIFA H ASAN
Sino-Indian Relations (2004-2005)                                         iii

                                    C ONTENTS
Preface                                                                  v
1. Two Future Economic Powers: India, China                              1
2. Sino-Indian Ties on the Mend                                          3
3. Pakistan Unaffected by Sino-India Ties                                5
4. Chinese Premier Hails Sino-Indian Relations                           6
5. Mistrust and Cooperation: Analyzing Sino-Indian Relations             7
6. India-China Differences do not Hamper Ties: Natwar                    10
7. China and India Aim to Extend Cooperation                             11
8. Sino-Indian Relations: Perspectives, Prospects and Challenges Ahead   16
9. Chinese Prime Minister’s Visit to India April 2005: A Perspective
    Analysis                                                             23
10. India Sets the Stage for China Visit                                 26
11. India - Chini Buy, Buy                                               29
12. China Vows to Improve Ties with India                                30
13. Aksai Chin May Figure in Wen's Delhi Talks                           30
14. Chinese PM Calls for Technology Axis with India                      31
15. A New Chapter for Sino-Indian Relations                              32
16. Sino-Indian Accord to Solve Border Dispute, Boost Trade              34
17. Wen Jiabao Addresses 55th Anniversary of the Establishment of
    Diplomatic Ties                                                      36
18. India, China Hoping to Reshape the World Order Together              38
19. China, India Forging Strategic Partnership                           40
20. India, China to Form Alliance                                        42
21. Growing Sino-Indian Ties                                             43
22. China, India Issue Joint Statement on Establishing "Strategic and
    Cooperative Partnership"                                             44
23. India-China Border-Treaty Hoped to Improve Ties, Facilitate Trade    47
24. Fuel Enough for Dragon and Elephant                                  48
25. China Misses its Chance with India                                   51
26. Business Defines Sino-Indian Relations                               56
27. China, India Exchange Congratulations on "Five Principles"
    Anniversary                                                          58
28. India has Doubts about a Successful FTA with China                   60
29. Indo-China Trade Relations                                           61
30. India and China                                                      64
iv                                                          IPRI Factfile

31. Will China Overshadow the India-EU Summit?                        65
32. India-China Draft Plan to end Border Row                          66
33. China, India Lead Economic Revolution                             67
34. India-China Trade Exploding to the Upside                         70
35. Is India Capable of Challenging China’s Economic Status?          71
36. Agreements Between China and India on Confidence Building
    Measures                                                          72
37. Text of India-China Agreement                                     77
38. Full Text of Joint Statement of China, India                      80
Sino-Indian Relations (2004-2005)                                                  v

                                    P REFACE
Both China and India are ancient civilizations; together they constitute more
than one-third of the world population. They share a common mountainous
border stretching approximately 3500 kilometers. However, the 1962 border
clash engendered hostilities between the two neighbours.
        Since the 1980s there has been a slow but steady improvement in
China-India relations. However, they once again received a setback in May
1998 when India exploded a nuclear device, leading the Indian Defence
Minister, George Fernandes, to declare China as ‘the number one potential
threat’ to India. At the same point, the Indian Prime Minister Atal Behari
Vajpayee wrote to US President Bill Clinton that ‘the nuclear tests were
necessary in light of China’s aiding and abetting Pakistan’s nuclear ambitions’.
        The Sino-Indian relations started improving for the second time in the
1990s. This not only largely normalized relations between the two countries,
their economic relations particularly trade rose from US$ 1 billion in 2000 to
US$ 13.6 billion in 2004. The growing economic relations made China the
second largest trading partner of India after the US.
        The joint statement issued during the visit of Chinese Premier Wen
Jiabao to New Delhi in April 2005 emphasized the building of the ‘strategic
partnership for peace and stability’ between the two countries.
        Apparently the most significant issue in bilateral relations between the
two countries is China’s strategic relationship with Pakistan, ‘India’s most
important diplomatic goal is to disrupt the Sino-Pakistan axis’. Seemingly,
enduring Sino-Indian relations will require a skilful management of China-
India-Pakistan triangle. Pakistan, however, realizes that China’s influence in
South Asia and its growing relations with India are a positive development
towards peace and stability in the region.
        This Factfile focuses on India-China relations during 2004-05.

31 October 2005                                                    Noor ul Haq
Sino-Indian Relations (2004-2005)                                              1

"The economic dominance of the USA is already over", said Peter Drucker, the
management guru in an interview with the editor-at-large of Fortune, Brent
Schlender. "What is emerging is a world economy, blocks represented by
NAFTA, the European Union and the ASEAN.
         There is no centre in this world economy. India is becoming a power
house very fast. The medical school in New Delhi is now perhaps the best in
the world. And technology graduates of the Indian Institute of Information
Technology in Banglore are as good as any in the world. Also India has 150
million people for whom English is their main language. So India is becoming a
knowledge centre.
         As per Schlender, "In contrast, the greatest weakness of China is its
incredibly small portion of educated people. China has only 1.5 million college
students out of a population of over 1.3 billion. On pro rata basis with America
it should have 12 million or more in colleges."
         There is enormous underdeveloped hinterland with excess rural
population. Thus there is though enormous manufacturing potential. However
the likelihood of the absorption of rural workers into the cities without
upheavals seems very dubious.
         You don't have that problem in India because they have already done
an amazing job of absorbing excess rural population into cities, its rural
population got down from 90 to 54 per cent without any upheavals.
         Everybody says China has eight per cent growth and India little only
three per cent but that is a total misconception as per Peter Drucker. India's
progress is far more impressive than China.
         On the other side, Jeffrey D. Sachs in his article, "Welcome to the
Asian Century", (Fortune January 26, 2004) has projected the future scenario
from his perspective. He says, by 2005 China and may be India will have
overtaken the US economy in size. To friends and foes alike, the US appears to
be unchallenged power in the world. The French call the USA hyper power.
         Neocons believe it is a new Rome. But both greatly exaggerate US
preeminence and its staying power. American power rests on advanced
technology which is increasingly available to the whole world.
         While at present, the economics of China and India are considerably
smaller than that of the US, China is likely to overtake and India to equal the US
economy in size by mid century (2050). As the world's economy centre shifts to
Asia, the US preeminence will inevitably diminish.
         Measured in comparable units of purchasing power the U.S. economy
at $10.7 trillion, is currently almost twice the size of China's 6.3 trillion and
three times the size of India's $3.6 trillion.
2                                                                 IPRI Factfile

         The much higher US per capita income almost eight time that of
China and roughly 11 times that of India is partially offset by the much larger
population of the two Asian countries.
         Both China and India squandered the chance for rapid economic
growth in the first decades after world war II because of Mao's communism
and Nehru's socialism.
         Now the two economies are souring. China's aggregate GNP has
grown by about 10 per cent a year since the late 1970 and India has grown by
about 6 per cent a year since 1991 compared to USA economy growth of
about 3.5 per cent.
         However this soaring growth of China and India will decline as the
income gap with US narrows. Extrapolating on the rule of thump given by
Jeffrey China would reach about half the US per capita income level by 2050
while its projected population of some 1.4 billion will be about 3.4 times the
US population of about 400 million.
         At that point China's GNP would be about 75 per cent larger than
that of the US. By a similar calculation, India's per capita income with a
population four times as large, leading to an overall economy about the same
size as the US. Of course, war, disease political instability and, even less,
tumultuous economic blunders can play havoc with such projections.
         Moreover the US is facing not only China and India but also the rest
of an integrated Asian economy that links Southern Asia, South East Asia and
North East Asia. On the basis of current trends and as rough estimate of
world GNP (up from current one third) could reach about half with about 60
per cent of world population.
         The US share of world population will remain about 5 per cent which
means its overall economic weight could slide from more than one fifth world
GNP today to perhaps half by 2005.
         From a political point of view, the vain glorious vision of the US as
the new Rome will be dashed. A recent attempt of Bush has failed to find
Asian allies to bash China over its exchange rate policies since China's Asian
neighbours clearly understand that China is engine of growth.
         Some US strategists harbour hope that Asia's dynamic rise can
somehow be contained, yet due to our interaction in our fates any serious
Asian crisis would almost surely enmesh the whole world including the USA.
         Assuming Asia's continued success, the 21st century could be an
unprecedented success and scientific advance but one in which the US will
have to learn to be one of many successful economies rather than world's
indispensable country.
         This in turn calls for more enlightened and balanced leadership in the
US than the present group of Neocons headed by Bush who visualize the US
Sino-Indian Relations (2004-2005)                                               3

as reincarnation of the Roman Empire.
                                                         Dawn, 16 February 2004

                   S INO -I NDIAN T IES      ON THE   M END
After 42 years of cold peace, mistrust and hostility, realpolitik and hard-boiled
pragmatism are transforming one of Asia's most important relationships -
bilateral ties between India and China. The decision to boost military ties is the
latest in a series of steps taken by the leaders of the two countries to build
confidence and establish friendly relations.
          In 1988, the two prime ministers, Rajiv Gandhi and Li Peng, agreed to
push the border dispute to one side and not let it stand in the way of
normalizing relations. This wise decision has allowed the development of what
appears to be cordial ties.
          In 2002, Zhu Rongji, the then Chinese prime minister, paid an official
visit to India, and last year his counterpart, Atal Behari Vajpayee, returned the
visit which has in fact laid the foundation of rapprochement between the
world's two most populous nations.
          The most significant part of the joint declaration issued on the
occasion of the Vajpayee visit was: "The common interests of the two sides
outweigh their differences. The two countries are not a threat to each other.
Neither side will use or threaten to use force against the other."
          During the Vajpayee visit, both sides made determined efforts to take
the sting out of their differences. India formally recognized China's
sovereignty over Tibet, and China, in return, extended de facto recognition to
India's sovereignty over the former kingdom of Sikkim. The Chinese are
believed to have agreed to remove the Sikkim from their list of disputed
territories to be made official in 2004.
          An important reason for the strengthening of Sino-Indian relations is
that New Delhi has made a conscious decision to improve relations with
China without reference to Pakistan. But, at the same time, India hopes that its
growing ties with China will lead Beijing to exercise a moderating influence on
the hawks in Islamabad.
          In a new sign of improving ties between New Delhi and Beijing, the
defence ministers of the two countries agreed last month to strengthen links
between their armed forces.
          It was agreed that training including Chinese language training in
defence institutions in India, sports and cultural exchanges and friendly
interaction between border personnel would be increased. They both invited
each other's officers to witness military exercises "in the interest of building
familiarity, trust and confidence."
4                                                                   IPRI Factfile

          Chinese defence minister, Cao Gangchuan, who had held delegation-
level talks with his Indian counterpart said before leaving New Delhi that his
trip was aimed at creating "a peaceful regional, political and security
environment with all Asian countries."
          The mere fact that the Chinese defence minister visited India after
visiting Pakistan is by itself a significant signal that Islamabad no longer
occupies an exclusive place in Beijing's scheme of things and that New Delhi is
back in business.
          Commenting on Defence Minister Cao Gangchaun's recent visit to
Pakistan and India, a spokesman of the Chinese Foreign Office, Kong Quan
said earlier this month that the Chinese defence minister told his hosts during
bilateral talks that Beijing would always support the peace process between
New Delhi and Islamabad. It is now evident that China wants to deal with
South Asia on a regional basis and show a balance in its ties with Pakistan and
          The Chinese prime minister, Wen Jiabao, recently expressed
"confidence" about the possibility of settling the boundary dispute with India
on the basis of the principle of "peaceful co-existence". He even envisioned
the possibility of friendship and partnership between the two countries.
          Addressing a televized press conference at the conclusion of a historic
session of the National People's Congress in Beijing on March 14, Mr Wen
noted that the special representatives of India and China on the boundary
question had already met twice since the "friendly and very important visit" of
Prime Minister Vajpayee to China last June.
          It may be recalled that the prime ministers of India and China had
agreed, at their summit in Beijing on June 23, to appoint a special
representative from each side to explore "the framework of a boundary
settlement" as seen from a political perspective.
          Addressing the Annual Conference on Security Policy in Munich, held
in February this year, the Indian prime minister's national security adviser,
Brajesh Mishra, dealt with the positive changes that had taken place in Sino-
Indian relations and said that they held the promise "of far-reaching geo-
strategic consequences."
          Both India and China are using trade to give substance to their
relations. Trade between the two countries has more than doubled in the past
two years and hit the impressive figure of $7.6 billion in 2003. This figure is
expected to rise to $ 10 billion by the end of 2004. A decade ago, Sino-Indian
trade barely touched the paltry figure of $100 million.
          An interesting development is that initial apprehensions with regard to
harmful effects on Indian business and industry caused by the opening of the
Indian      market      for   Chinese     goods       have   proved      baseless.
With Sino-Indian trade touching the magical figure of $10 billion this year,
India is one of the few countries in the world that would actually have a
Sino-Indian Relations (2004-2005)                                              5

surplus balance of trade with China. What is even more important, Chinese
manufactures have not unduly disrupted the manufacturing industry in India.
          The Indian businessmen are taking full advantage of the relaxation of
restrictions on trade between the two countries. They now see the Chinese
dragon as their most exciting opportunity.
          It is a big change from the days when Indian businessmen used to fear
the influx of Chinese goods in India. The reason is that India is far ahead of
China in two important sectors: information technology and pharmaceuticals.
One can easily judge the aggressive expansion of Indian information
technology from the fact that as many as fifteen Indian IT companies have a
presence in China.
          India's IT exports in 2002 were about $10 billion compared to $1.5
billion from China. What is even more significant, 40 per cent of Chinese IT
exports involve Indian companies based in China.
          Therefore, it is actually the trade more than anything else that is
bringing the two Asian giants closer to each other, helping them overcome
barriers of mistrust and fear. Some Chinese companies are now investing in
India to take full advantage of India's lead in information technology. For
instance, a well-known Chinese telecom equipment maker, Huawei, is
investing $100 million to develop software at its plant in Bangalore.
          If we look at recent developments, it becomes evident that there has
been interaction in Sino-Indian, Indo-US and Sino-US relations. As
Washington and New Delhi draw closer, Beijing is seeking not to be left out.
          Similarly, as the initial antipathy of the Bush administration towards
China fades away, India has been encouraged to intensify its efforts to
improve relations with its big northeastern neighbour.
          "We have an essentially triangular relationship between China, India
and the US, although we deal with each element separately," said Ma Jiali at the
China Institute of Contemporary International Relations, as quoted in the
Financial Times last September.
                                              Afzaal Mahmood, Dawn, 10 April 2004
                                    < >

           P AKISTAN U NAFFECTED             BY   S INO -I NDIA T IES
BEIJING, April 11: Pakistan welcomes China's influence in South Asia and its
relations with India, considering it as a positive development towards peace
and security. This was stated by Foreign Minister Khurshid Mahmood Kasuri
in an interview with China Central Television (CCTV), which was telecast on
         When asked to comment on recent developments between India and
China towards improvement of their bilateral relations, the foreign minister
6                                                                   IPRI Factfile

said: "We welcome China's influence in South Asia. We don't believe these
developments could affect the time-tested and all- weather friendship between
Pakistan and China in any manner whatsoever".
         In fact, he added, if China acquires greater influence in South Asia, it
would be conducive for achieving the ultimate goal of establishing peace and
security in the region. He said: "We have complete faith in the Chinese
         He maintained that when he met the Chinese prime minister and the
foreign minister, they termed their relations with Pakistan as unique one and
they repeatedly told him that the only one country in the world to whom they
describe as their all-weather friend is Pakistan, assuring "nothing could drive a
wedge between them.
         "We believe in every single word what the Chinese leadership told us.
Our faith to this effect is based on our experience. It has proved in the past
that China is a true and loyal friend of Pakistan. China is a country that fast
developing its economy and we are happy, it is securing major successes in the
economic areas. So, we understand China's requirement improving its relations
with India, USA and other countries," he added.
         However, he said, in the ultimate analysis Pakistan-China strategic
interests are common and they are working together taking a similar stand on
various regional and international issues, aimed at creating a favourable
environment for peace and development.
         Commenting on certain apprehensions portraying China's rise as
threat to other countries, Mr Kasuri said, all Pakistanis believed that China's
fast economic progress was a very positive development. "The rise of China is
not threatening at all. China does not believe in hegemony or expansionism.
         Its past is a living proof to the fact," he remarked.
"We believe China is a true friend of third world. We don't consider China as
threat and the China's conduct has proved that it has been helping a large
number of developing countries. Our ultimately, judgement is that the rise of
China is a positive sign for peace and development, not only for the region but
for whole of the world," he added. -APP
                                                                11 April 2004

China hails its relationship with India here Monday at the 50th anniversary of
the establishment of the Five Principles of Peaceful Coexistence. "It serves
the fundamental interests of the two peoples and contributes to peace, stability
and development in Asia and the world over for the two countries to live
together in harmony, remain friends forever, seek common ground while
Sino-Indian Relations (2004-2005)                                               7

shelving differences, and strive mutual benefit and win-win result," said
Chinese Premier Wen Jiabao here Monday. Wen delivered an eight-page
speech at a conference commemorating the 50th anniversary of the Five
Principles of Peaceful Coexistence. Chinese President Hu Jintao and Indian
President Abdul Kalam exchanged messages of congratulations Monday for
the anniversary, and the heads of government of the two countries did the
          He said that the two sides reaffirmed commitment to the Five
Principles of Peaceful Coexistence and expressed resolve to expand and
deepen the long-term constructive and cooperative partnership.
          Both China and India are celebrated ancient civilizations and large
developing countries. "I am confident that with concerted efforts of the two
sides, the annals of China-India friendship and cooperation will be added with
brilliant new chapters," Wen said.
          The Five Principles of Peaceful Coexistence are mutual respect for
sovereignty and territorial integrity, mutual non-aggression, non-interference in
each other's internal affairs, equality and mutual benefit, and peaceful
          Late Chinese Premier Zhou Enlai paid separate visits to India and
Myanmar, during which joint governments statements were issued to define
and initiate what now call the Five Principles of Peaceful Coexistence.
                     Embassy of People’s Republic of China in India, 28 June 2004

                              R ELATIONS

A considerable degree of mistrust normally characterizes Sino-Indian relations.
China sees India as a potential rival to its dreams of major power status in Asia
and systematically tries to depreciate India's standing and capacities in all ways
possible. Thus Indian observers, along with many foreign analysts, believe that
China's long-standing military, political and economic assistance to Pakistan
aims at keeping India tied down in South Asia and preventing it from
expanding its horizons, influence, and capabilities. China essentially ignores
India's drive for greater power and by its silence conveys a condescending,
patronizing attitude toward India that also diminishes its status. Until quite
recently, for example, China essentially dismissed India's position with regard
to the disputed Indo-Chinese border, fully displaying this patronizing stance.
As India's foreign policy is dominated by its ceaseless striving for respect and
greater status in Asia, a certain tension continues to prevail, though both states
have made consistent efforts recently to improve relations.
8                                                                   IPRI Factfile

         These efforts at rapprochement have intensified of late, leading to
surprising twists in Chinese policy. For example, Chinese officials now claim
that there is also no obstacle to the resolution of border issues with India,
indicating an apparent willingness to negotiate until the issue is completely
resolved. While on the international stage, China has publicly come out in
favor of India's wish to join the UN Security Council. (India's application to
the Council is in some measure wrapped up with Japan's similar application, as
China clearly opposes any enhancement of Japanese influence in Asia.) Beijing
also is calling for an intensification of cooperation with Asian states, including
India, against terrorism in Central Asia, especially Xinjiang. Obviously, the
struggle against Islamic fundamentalism and terrorism brings these two states
together, with China advocating new bilateral military cooperation. China has
even allowed the chairman of Xinjiang, Ismail Tiliwandi, to travel to India and
to negotiate a significant expansion of trade and transportation between India
and Xinjiang, including a natural gas pipeline connecting the two countries.
         Similarly, Chinese officials seem more willing to entertain the idea
originated by Yevgeny Primakov of a strategic triangle with Russia and India.
This would mean regular consultations among the three states on points of
agreement in the struggle against terrorism and on behalf of a multipolar world
– though a consensus on what "multipolarity" means or a functioning bloc is
unlikely to result, especially since India is clearly committed to improving ties
with Washington. However, such thinking does illustrate the increasing desire
of both countries to regularize their consultations and to include their mutual
partner, Russia, in these ventures.
         To be sure, none of this means that the rivalry between India and
China, or the competition for influence in Asia, is over – quite the contrary.
India's new agreement with Myanmar, its naval buildup, and its Look East
policy in Southeast Asia are all influenced to some degree by the desire to limit
China's growing influence. Indian observers view China's naval growth and its
exploding economic influence in Southeast Asia and Central Asia as potential
challenges to Indian interests. Therefore they work assiduously to counter that
influence. Likewise, they still maintain that China's support for Pakistan aims
at preventing India from achieving its rightful place in Asia. Nevertheless the
present rapprochement means that parallel with this rivalry in Southeast Asia
and Central Asia, strong countervailing and shared interests are taking root as
         These common interests clearly pertain to the war against terrorism
and China's continuing search for a way to stop the unending challenge to its
rule in Xinjiang, e.g. by expanded international cooperation in the area's
economic development. This approach is based upon the Beijing's belief that
economic distress underlies the insurgency and the fear that foreign
governments may try to funnel support to the separatists. Thus China searches
for means to ameliorate local economic shortages, increase its energy supplies
Sino-Indian Relations (2004-2005)                                              9

from Central Asia and the Persian Gulf (much of which must traverse
Xinjiang) and isolate potential external sources of support by enmeshing them
in economic ties that would gravely suffer if they were caught harboring
Uighur rebels.
         China's new "diplomacy of smiles" builds upon its foreign policies
throughout Asia for the last several years, a policy that has consistently sought
to allay fears of China's growing power and capabilities. This diplomacy of
smiles is encapsulated in the leadership's recent efforts to advance a foreign
policy line relating to China's "peaceful rise." The line is meant to convey the
idea that China's rising power is entirely natural and peaceful and no threat to
any Asian state's interests. But beyond that, China wants to curtail or at least
moderate India's drift towards collaboration with America, which would
decisively restrict its power potential in Asia. (Although, such collaboration
would mitigate the possibility of another Indo-Pakistani war and limit
Pakistan's ability to harbor Islamic radicals who strike at Chinese interests,
either by killing Chinese workers in Pakistan or by fomenting attacks in
Xinjiang.) Support for India's membership in the Security Council also has the
potential to limit the fallout from Japan's membership by balancing it with
another Asian power, or possibly even prevent Japan's entrance altogether.
Either scenario would be more palatable to Beijing than simply having Japan
as a Council member.
         For its part, India has never sought to be part of any U.S. or other
strategy that entails the containment of China. Rather, its elites, for all their
rivalry with and suspicion of China, have always maintained that the steady
growth of Indian power plus a rapprochement with Washington would suffice
to prevent Chinese power from becoming a direct threat to vital Indian
interests. But as is often the case in world politics, closer ties between two
major powers prompts action by a third party to seek better relations with one
or the other, so as not to be left out. New Delhi's visible closeness to
Washington has led Beijing to take it more seriously as a potential rival, to
weigh the costs of that rivalry and decide that a greater stress on bilateral
partnership with India is a more profitable and productive way to go, even if
the rivalry continues in muted fashion. And India has reciprocated in kind.
         This rapprochement is, therefore, from China's standpoint, a timely
move to ward off or at least to limit the dangers that could confront China
either from renewed Indo-Pakistani violence – as seemed to be quite possible
in 2001-02 – or from an Indo-American partnership, a project that many
American analysts who feel threatened by China's rising power may eagerly
embrace. The new friendship with India also indicates just how flexibly
Chinese diplomacy is adapting to the new world order that came into being
after 9/11 and how it is exploiting America's relative inattention to issues
other than Iraq to advance its own diplomatic and economic position across
Asia. Inasmuch as the China-India relationship is one of the most pivotal ones
10                                                                  IPRI Factfile

in Asia and has significant repercussions beyond region, especially if India gets
into the Security Council, this development is one that merits our closest
                                                Lionel Martin, 27 November 2004

NEW DELHI, JAN. 27. India and China are engaged in positive ways to
expand the commonalities while addressing their differences, including the
boundary question, the External Affairs Minister, Natwar Singh, said today.
         "We are doing so in a purposive and mutually acceptable manner.
Despite the differences on the boundary issue, our 3,400-km long land border
with China has largely remained tranquil over the last 25 years. This is by no
means a minor achievement and should be enough to silence those who look
at India-China relations only from an adversarial prism. It is for everyone to
see that we have not allowed our differences to hold development in our
relations across an impressive range of areas," he said.
         "There are many who look at India-China relations with the old
mindset of `balance of power' or `conflict of interests' and see East Asia as a
theatre of competition between these two countries. Such theories are losing
relevance in today's fast-emerging dynamics of Asia's quest for peace and
prosperity," Mr. Singh said.
         Trust and cooperation
         Both were aware that trust and cooperation between them were one
of the most crucial elements that made the region and Asia a vibrant and
energetic fulcrum for growth.
         Addressing the Seventh Asian Security Conference, organised by the
Institute of Defence Studies and Analyses, Mr. Singh said there were
differences between India and China.
         However, there was also an increasingly greater realisation that there
was enough space and opportunity in the region for both to prosper.
         "We also look at our relations in a larger regional and global backdrop
and realise the responsibility we both shoulder in contributing to the well
being of humanity. We are mindful of the overarching importance of a
peaceful surrounding environment for us to pursue our most fundamental task
of national development. Chinese Premier Wen Jiabao's visit to India later this
year will offer another opportunity to us to add further substance to our
relationship, a relationship which both value," he said. India's relationship with
Japan was another important point of anchor in New Delhi's extensive
interaction with east Asia. "As the second largest global economy, Japan has an
important role to play in Asia emerging as a key player in this century." The
Sino-Indian Relations (2004-2005)                                              11

two countries firmly believed that they were legitimate candidates for the
permanent membership of the United Nations Security Council. "We are
looking forward to Prime Minister [Junichiro] Koizumi's visit to India later in
2005 which will help us further upgrade and deepen our relations with Japan."
The traditional friendship with South Korea, he said, was developing on the
strong foundations of shared commitment to democratic ideals and the
common desire to consolidate and diversify exchanges.
Ties with ASEAN
"India has also consciously moved forward to re-establish its age-old ties with
ASEAN countries. This has been duly reciprocated. The ASEAN countries
also recognise the mutual advantage of a wide-ranging partnership with India."
Today, as India strives to add greater substance and depth to her "Look East"
policy, she espoused a vision of an Asian Economic Community, which
encompasses ASEAN, South Korea, Japan, China and India — the five pillars
which may form the initial core to drive Asia's emergence as the centre of
gravity of the global economy.
         "The idea of the Asian Economic Community is built on the
fundamental realisation of the new dynamics in Asia and existing synergies.
This is bringing us closer together in search of greater prosperity and is based
on our common aspirations. These are visions to secure a stable and peaceful
environment and pursue the development objectives that would impart
strength to Asia's global standing," he said.
                                                    The Hindu, 28 January 2005


The first-ever strategic talks between India and China, which took place in
New Delhi on Jan. 24-25, were the outcome of years of efforts by these two
largest Asian nations "to take bilateral engagements into a long-term and
strategic relationship." Chinese Vice-Minister of Foreign Affairs Wu Dawei,
who is also involved in the six-party talks on North Korea's nuclear program,
and Indian Foreign Secretary Shyam Saran raised hopes that the two would
begin to position their bilateral relations in the context of broader regional and
global perspectives.
         One of the most important outcomes which emerged from the
dialogue is the expressed concern of China about deteriorating U.S.-Iranian
relations, triggered by U.S. insistence that Iran's nuclear fuel enrichment
program is a cover for developing weapons of mass destruction. Wu Dawei
made clear that Beijing is pressing Moscow, Paris, and Berlin to take steps to
prevent any U.S. hostility against Iran, saying that China is willing to mediate
with the United States and the West about Iran's nuclear program. New Delhi
12                                                                  IPRI Factfile

urged the Chinese Vice-Minister to impress upon Pakistan not to open its air
space to the U.S. Air Force, in case Washington plans air strikes on Iran.
Regional Cooperation
In early December, to prepare the grounds for the strategic talks, a seminar
was held at the Institute for Peace and Conflict Studies (IPCS) in New Delhi.
Zhang Guihong, the deputy director of the Institute of International Studies,
at Zhejiang University in Hangzhou, pointed out that China and India could
play a major role in regional affairs. He grouped China and India with Pakistan
(nuclear), Japan (economic), Russia (multipolar), and United States (strategic)
to form respective triangles, to basically affirm the two countries' important
place in the world. He also grouped the two with the Association of Southeast
Asian Nations (ASEAN) and Central Asia, to discuss the benefits of a
triangular relationship.
          On Jan. 28, India's Commerce and Industry Minister, Kamal Nath,
told the World Economic Forum at Davos, Switzerland that the
complementarities between the two nations' economies are in the process of
being harnessed, and when that happens, it would result in achieving rapid
expansion of bilateral trade and economic ties.
          "The India-China two-way trade is now US$1 billion a month,
compared to US$1 billion a year a decade ago. This twelve-fold increase in the
last decade only goes to prove that though we are competitors in many
respects, we are also complementary and supplementary to each other," an
official statement said, quoting Kamal Nath. He also pointed out that if one
takes ASEAN, China, Japan, Korea, and India together, the size of such an
integrated market is that of the European Union in terms of income, and
bigger than the North American Free Trade Agreement (NAFTA) in terms of
          While the credit for identifying India as a potential economic partner
should go to former Chinese Prime Minister Zhu Rongji, it is India which
recognized China's value as a possible ally in espousing some developmental
issues in the World Trade Organization (WTO). The current volume of China-
India trade ($12 billion) is of modest proportions by world standards, but the
fervor of the new dialogue cannot be missed. A studied Chinese viewpoint is
that any "Free Trade Arrangement between China and India in the
Information Technology sector will be hard to achieve in the short term,"
because "competition between the two countries" is considered "inevitable,"
despite the fact that India's software sector is much superior to China's at this
          But beyond the direct trade, definite moves have been made by
both—China, in particular-for regional economic development. According to
analyst D.S. Rajan, since June 2004, China's Xinjiang Autonomous Region has
been promoting a nationwide campaign, aimed at achieving economic
Sino-Indian Relations (2004-2005)                                              13

integration of Kashgar (Kashi), a town known for its historic role in China's
trade along the ancient Silk Road, and eight countries in Central and South
Asia: the bordering countries of India, Pakistan, Afghanistan, Tajikistan, and
Kyrgystan, and the other Central Asian republics of Uzbekistan,
Turkmenistan, and Kazakstan.
         Speaking at a seminar in Kashgar on June 29, 2004, the town's deputy
party secretary Zong Jian had alleged that the U.S. entry into Central and
South Asia following 9/11 under the pretext of fighting terrorism, and the
subsequent growth of the influence of forces representing Western powers,
posed a serious threat to the security of China's thinly populated Xinjiang
province. Arguing that economic factors play a stabilizing role in such
situations, Zong pointed out that because of the threats posed by Western
encroachment, Xinjiang wants to forge close and mutually beneficial economic
relations with the Central, South, and West Asian countries.
         On the proposed economic integration of Kashgar with the emerging
Central and South Asia economic grouping, no specific policy announcement
from Beijing has emerged. One of the reasons perhaps is Kashgar's weak
infrastructural facilities. Xinjiang officials have demanded road and air links
between Kashgar and neighboring countries, and establishment of entry/exit
permit-issuing agencies, as well as visa offices of Central and South Asian
countries in that city, to facilitate border trade and attract foreign investment.
In addition, they asked for setting up a Central-South-West Asia University in
Kashgar, which could train personnel capable of meeting the region's
economic development requirements. Some even visualized conversion of
Kashgar into a western "Shenzhen," in the long run.
         Shenzhen, an island in the south, was the booming export-processing-
zone set up by China in the late-1980s. Diplomats in China representing
Tajikistan, Afghanistan, Pakistan, India, and Kazakstan endorsed the proposal,
while taking part in the Kashgar seminars.
         Rajan points out that in the South Asian context, the proposal for
Kashgar's economic integration with the outside world may be of particular
interest to India, which, until the early 1950s, maintained a trade mission in
that town. Proposals for an India-Xinjiang land link; a Delhi-Kashgar air route;
laying a natural gas pipeline from Xinjiang to India through Ladakh, located in
the Indian part of the state of Jammu and Kashmir; and bilateral cooperation
in agriculture and food processing, traditional medicine and herbs, energy and
oil production, and tourism, were put forward by the Chinese hosts. It is
interesting to note that Indian External Affairs Minister Natwar Singh has
been invited to visit Xinjiang.
Defense Cooperation
While economic cooperation between the two nations had begun in earnest in
the year 2000, the most encouraging recent development is in defense
14                                                                  IPRI Factfile

cooperation. In December 2004, India's then-Army chief, Gen. N.C. Vij,
during his week-long visit to China, was given a warm welcome. Chinese state
media reported that during his visit, China and India agreed to deepen defense
cooperation: a sign of warming relations between the giant neighbors and
former foes. Vij capped his visit to China, the first by an Indian Army chief in
a decade, with talks with his counterpart, Liang Guanglie, and Defense
Minister Cao Gangchuan. Cao told the Indian general that "China would like
to step up its cooperation with India in the defense and security sector and
advance the bilateral military ties to a higher level," Xinhua reported. China
and India held their first-ever joint military exercises in March, and Vij said
India may invite Chinese officers to observe its military drills.
          The Indian general's trip to China was the outcome of a high-profile
visit to India by Defense Minister Cao Gangchuan from March 26-30, 2004,
and the first meeting of the newly formed Sino-Indian Joint Study Group
(JSG) on Trade and Economic Cooperation in Beijing on March 22-23.
          In a broader sense, the latest phase of growing trust in China-India
relations can be traced to the success of the visit to China by Prime Minister
Atal Behari Vajpayee in June 2003. The dialogue on the boundary dispute, at
the level of Special Representatives, and the JSG process can be directly linked
to the results of Vajpayee's talks with Hu Jintao, Wen Jiabao, and Jiang Zemin,
former Chinese President and chairman of the Central Military Commission of
the Chinese Communist Party and the government.
          While the Chinese Defense Minister's visit to India, the first in nearly
a decade, can also be seen in the same light, Cao Gangchuan's agenda had
much to do with the process initiated during Indian Defense Minister George
Fernandes's visit to Beijing in April 2003. Fernandes had on that occasion
proposed joint naval exercises, in an effort to allay some of China's suspicions
about India's intentions in its neighborhood. The first such exercise, a
confidence-building measure (CBM), has already taken place. For the Chinese
Navy, the exercise involving India in late 2003 was only the second CBM with
any country (the first was with Pakistan).
          It was Defense Ministers Cao and Fernandes who agreed in New
Delhi, on March 29, 2004, that the two countries would grant each other the
status of an observer during their respective military exercises involving other
powers. That is considered a very definite step forward in establishing mutual
Continuing Irritants
There is little doubt that China and India have come a long way in restoring
their tattered relationship in the wake of the May 1998 Indian nuclear tests
(Pokhran II). India's testing of nuclear weapons then caused a frosty chill on
the bilateral front, mainly on account of the manner in which the Indian
leaders had portrayed China as the critical factor in New Delhi's decision to
Sino-Indian Relations (2004-2005)                                                15

become a "nuclear power." Beijing's interpretation of India's justifications of
its nuclear tests was no less a contributing factor. Soon after Pokhran II,
Beijing made no secret of its view that India was seeking to emerge as a
"regional hegemon," bent upon pursuing a policy of "containment" of China.
          Despite the remarkable improvements in bilateral relations, serious
obstacles remain. These include the unresolved boundary issue, Tibet, and the
Sino-Pakistan nexus. The boundary issue involves more than 125,000 square
kilometers in disputed territories. According to observers, for some time, the
discussions on the boundary issue have been put on the back burner. This
could well have been the right approach to build an atmosphere conducive for
dealing with this contentious issue. But at the same time, both sides seem to
realize that the issue remains a festering sore, liable to erupt at the slightest
provocation. On the other hand, the Tibet issue is becoming less of an irritant,
since the former Indian Prime Minister Atal Behari Vajpayee, during his 2003
China visit, made clear that Tibet is a part of China. Still, India's hosting of the
Dalai Lama, his entourage, and 120,000 Tibetan refugees, including the titular
heads of two major Tibetan-Buddhist sects, is eyed by some in China with
considerable suspicion. At the same time, there are some tentative signs of
improvement in Beijing's relations vis-à-vis the exiled Tibetans abroad,
following the recent initiation of dialogue between the Dalai Lama's emissaries
and Beijing.
          Perhaps the most explosive issue in bilateral relations is China's
strategic relationship with Pakistan. India continues to fret about China's
alleged nuclear and missile assistance to Pakistan. According to Western
diplomatic sources, Beijing had conveyed to Washington years ago that
Pakistan's strategic value to China in the South Asian context was comparable
to Israel's critical relevance to the United States in the West Asian context.
          The China-Pakistan relationship predates Beijing's contact with India's
other neighbors, and goes back to the early 1960s. About 80% of Pakistan's
Armed Forces are armed with Chinese equipment, as are 60% of its military
aircraft. This long-standing relationship continues, and the changed Sino-
Indian relations are unlikely to change it in the near future.
          There are indications, however, that Beijing, having joined the
Nuclear Suppliers Group (NSG), is in the process of diminishing its nuclear
relationship with Islamabad. Answering a question from the floor at the IPCS
seminar in New Delhi, Zhang Guihong pointed out that China's relationship
with Pakistan in the future would be limited to economic and military matters.
In addition, while China maintains its military contacts with Pakistan, it has
begun to distance itself politically from Pakistan; it no longer gives Pakistan
unconditional support in Pakistan's dispute with India over Kashmir, but urges
discussion and moderation.
                                  Executive Intelligence Review, 18 February 2005
               < >
16                                                                  IPRI Factfile

                     C HALLENGES A HEAD
April 2005 marks the 55th anniversary of the establishment of diplomatic
relations between China and India. It is a major milestone for the two ancient
civilizations, neighbors, and rising powers. Over the past five and half decades,
the bilateral relationship has witnessed the warm "Hindi-Chini bhai-bhai"
brotherhood and the famous Panch Sheel or the Five Principles of Peaceful
Coexistence in the 1950s but has also been overshadowed by the 1962 border
war and the acrimonious spat in the wake of India's May 1998 nuclear tests.
          Sino-Indian relations today are enjoying a period of stability and
growing economic ties. Chinese Premier Wen Jiabao's forthcoming visit to
India between April 9-12 will build on the positive momentum generated by
the June 2003 visit by the then Indian Prime Minister Atal Bihari Vajpayee.
However, there remain unresolved disputes and emerging conflicts between
the two countries -- ranging from boundary issues to energy security -- that
require strategic vision, diplomatic skill and mutual accommodation.
Rebuilding the Bilateral Relationship after the Pokhran II
Nuclear Tests
Beijing reacted strongly to New Delhi's accusation that the Chinese threat was
the key rationale behind its May 1998 nuclear tests. China retaliated by
canceling the scheduled Joint Working Group meeting on boundary issues and
played an active role in pushing through United Nations Security Council
Resolution 1172 calling for nuclear rollback in India and Pakistan. Beijing's
relentless diplomatic campaigns to isolate New Delhi eventually induced the
latter to seek rapprochement. Sino-Indian relations gradually thawed and
Indian policymakers publicly retracted from the China threat rhetoric.
         In May 1999, Kashmiri militants, with the support of the Pakistani
military, crossed the Line of Control into the Kargil area in the India-
controlled state of Jammu and Kashmir. The Indian army launched military
operations seeking to repel the intrusion. As the conflict escalated, threatening
a major military confrontation between the two nuclear states, both New Delhi
and Islamabad were seeking international support. Pakistani Prime Minister
Nawaz Sharif and Foreign Minister Sartaj Aziz went to Beijing soon after the
crisis broke out and sought to secure Chinese support; however, their requests
were turned down. Instead, the Chinese leaders advised the Pakistani visitors
to seek a peaceful settlement with India. Indian Foreign Minister Jaswant
Singh subsequently visited China in June 1999 as the Kargil crisis reached the
boiling point.
         International pressure on Pakistan, including unequivocal warnings by
the Clinton administration to Sharif, eventually brought the crisis to an end in
July. China's apparent neutrality in the dispute gained much appreciation from
Sino-Indian Relations (2004-2005)                                             17

India. The two sides have since then on many occasions publicly announced
that they do not view each other as a security threat. Improvement in the
bilateral relationship continued with Indian President K.R. Narayanan's visit to
China in May 2000 to mark the 50th anniversary of the establishment of Sino-
Indian diplomatic relations. Chinese parliamentary head Li Peng and Premier
Zhu Rongji visited India in January 2001 and 2002, respectively, further
consolidating the bilateral relationship.
          Of all the key events over the past few years, perhaps the most
important would be Indian Defense Minister George Fernandes' week-long
visit to China in April 2003 and Prime Minister Atal Bihari Vajpayee's June
2003 visit. The former was more symbolic while the latter ushered in
important milestones. Fernandes' China trip was significant in three respects.
First, the visit was the first by an Indian defense minister to China in more
than a decade. Second, the visit, coming from someone who five years earlier
had been widely quoted by the media as describing China as India's "security
threat number one" just prior to the Indian nuclear tests, signified just how
much the two countries had mended their fences. Third, at a time when China
was embroiled in the crisis over S.A.R.S. and when many international events
originally scheduled to be taking place in China had been canceled, Fernandes'
visit was much appreciated by his Chinese hosts.
          While no major breakthrough was achieved during Vajpayee's visit --
and indeed no such expectation had ever been entertained -- there was
nevertheless significant progress in four areas that deserve closer scrutiny. The
first is the growing consensus and converging interests between Beijing and
New Delhi covering a wide range of bilateral, regional and global issues. The
two countries issued a joint declaration on principles for relations and
comprehensive cooperation and vowed not to view each other as a security
threat. They reaffirmed their determination to resolve their disputes through
peaceful means. This is a far cry from the suspicions and hostility between the
two Asian powers in the wake of India's May 1998 nuclear tests.
          This stabilizing and maturing relationship is clearly marked by the two
countries' converging interests in developing a fair, equitable, international
political and economic order, the role for the United Nations, and support of
global disarmament, including efforts to prevent the weaponization of outer
space. Beijing and New Delhi are seeking to promote greater equality and fair
distribution of wealth between the rich and poor by working to improve the
current international economic system. As developing countries, both China
and India are interested in gradually integrating their economies into the global
trading system in ways that provide the necessary protection and transition
time for their industries to adjust; in addition, Beijing and New Delhi are also
calling for greater economic assistance from the northern industrialized
countries to the vast majority of developing countries in the South.
18                                                                  IPRI Factfile

          Likewise, both are critical of U.S. unilateralism and seek to promote a
multipolar world where they can play a more important role in global affairs.
India is looking forward to securing a seat in the proposed expansion of the
U.N. Security Council, to which aspiration China has already indicated its
support. India has long championed for nuclear disarmament, a goal shared by
China. Beijing and New Delhi are also interested in promoting the peaceful
use of outer space as both are developing their emerging civilian space
programs. Weaponization of outer space could well put into jeopardy these
programs, threaten existing peaceful use such as environmental monitoring
and weather forecasting, and risks inducing an arms race in this new frontier.
          Second, by each appointing a special representative to oversee the
political framework of border negotiations, the two countries have clearly
demonstrated their determination to speed up the process of resolving the
territorial disputes. This reflects a consensus reached by Chinese and Indian
leaders that to reach the full potential of bilateral relations requires the
satisfactory closure of this issue. So far, four rounds of meetings have already
been held and the change of government in India has not affected the process.
          Third, China and India have made important -- although largely token
-- gestures toward each other. New Delhi has shown greater appreciation of
Beijing's sensitivity over the Tibetan issue by affirming for the first time that
the Tibetan Autonomous Region is part of the territory of China. Beijing, on
the other hand, has extended de facto recognition of Sikkim being a state of
India, something that Beijing had refused to do ever since the small Himalayan
kingdom acceded to India in 1975. While Chinese diplomats continue to
characterize the issue as a historical legacy that takes time to resolve, the fact
that official Chinese maps are showing Sikkim as part of India suggests that
Beijing considers the issue closed. Indeed, New Delhi is confident that de jure
recognition will not be long in forthcoming.
          Finally, Vajpayee's visit was marked by its economic orientation. A
large entourage of Indian business executives accompanied the Indian prime
minister; further, of Vajpayee's three important speeches delivered during his
visit, two were addressed at business venues. Indeed, bilateral trade grew to
$7.6 billion annually by 2003 and is projected to reach $10 billion in 2004 and
surpass $15 billion by 2007, if not earlier. That target may be achieved earlier
as the bilateral two-way trade already reached $13 billion in 2004, surpassing
the original goal by over 30 percent. A Sino-Indian Joint Study Group on
Trade and Economic Cooperation was formed in March 2004. In addition to
growing bilateral economic ties, the two countries are also active in exploring
potentials for regional economic cooperation, including the sub-regional
"Kunming Initiative."
          The momentum generated by the Vajpayee visit has continued. There
have been more high-level exchanges between the two countries, with the
Chinese defense minister visiting India last, the first in almost a decade, and
Sino-Indian Relations (2004-2005)                                                19

the first joint Indian-Chinese naval exercises. India's chief of army staff also
visited China in late 2004 and the commander of the Indian 4th Army Corp,
the unit that was involved in the 1962 war and is now stationed in the areas
along the Line of Actual Control, paid a visit to the Tibet Military District
Command in Lhasa.
Rivalry or Partnership: Challenges Ahead
The coming months and years will testify if the good will and momentum
generated by Vajpayee's successful June 2003 visit can be maintained. While
the two countries are on good terms for now and, indeed, their domestic
priorities -- economic development and prosperity -- provide strong incentives
for them to avoid conflict, obstacles remain and sustained efforts at the
highest political level are required to steer the ship of bilateral relationships
without hitting any major shoals. These include the intractable territorial
disputes, even though the Line of Actual Control has been relatively peaceful
during the last 40 years, mutual suspicions and the potentials for competition
and rivalry, China's relationship with Pakistan in the regional context, the
China-India-U.S. strategic triangle, India's eastward diplomacy, and the
emerging energy security issue along with potential trade disputes.
          Despite the generally benign atmosphere between the two countries,
there remain lingering suspicion and distrust; the scar of the 1962 war has yet
to be healed. India claims the Chinese-controlled Aksai Chin of approximately
35,000 square kilometers as part of the territory in Ladaakh, Kashmir. Beijing,
on the other hand, disputes New Delhi's possession of more than 90,000
square kilometers in what is now the Indian state Arunachal Pradesh. Without
a satisfactory resolution of the territorial disputes, there can never be a "full
and complete" normalization of bilateral relations. Since the early 1980s, eight
rounds of border negotiations and 14 rounds of Joint Working Group
meetings have taken place. During Vajpayee's visit to China in June 2003, the
two governments designated their respective special representatives to provide
the political impetus to the process. Four rounds of meetings have been held
so far. However, a solution remains elusive due to fundamental differences
over the mechanisms of settlement. Clearly, final resolution of the issue
requires not only political decisions at the highest level in both capitals but also
the political skills to sell it to their respective domestic constituencies.
          A stable Sino-Indian relationship requires the effective management
of the delicate China-India-Pakistan triangle. For more than forty years, and
specifically in the wake of the 1962 China-India war, Beijing and Islamabad
have developed a close political-security relationship. Through the years, China
has provided both moral and material support in assisting the latter's rivalry
with India. This "all-weather" relationship was a key component of China's
South Asia policy as Beijing sought to tie down India and extend its influence
to the subcontinent. Since the early 1980s, as China and India embarked on
20                                                                   IPRI Factfile

the path of normalization, Beijing has shifted to a policy of balance and made
greater efforts to address New Delhi's legitimate concerns regarding Sino-
Pakistani ties, particularly in the defense area.
          While China's neutrality during the 1999 Kargil crisis demonstrates a
more balanced Chinese South Asia policy, that gesture has yet to translate into
good will and confidence on India's part that the Sino-Pakistani relationship is
not targeted at India. Indeed, Sino-Pakistani ties, in particular in the security
area, remain a serious concern to India as reports suggest continued Chinese
missile assistance to Pakistan. New Delhi remains suspicious of the Sino-
Pakistani relationship and their resilient security ties, ranging from the
construction of a strategic outlet for Pakistan in the Gwadar Port and
continuous supplies of military equipment, reinforce the specter of strategic
encirclement of India. While China's continuing support of Pakistan is partly
due to containing India, it is also aimed at maintaining a stable relationship
with an important Islamic country -- and a nuclear weapons state -- and
therefore retains its influence over the government in Islamabad out of
concerns regarding the Islamic unrest in its own territory, especially in
          Despite progress in bilateral relations during the past few years,
mutual suspicions remain. Partly this is due to the dynamics of the security
dilemma and structural conflicts between the two Asian giants; it is also
because of the lack of institutionalized and regular high-level official
exchanges. India has watched China's phenomenal growth in the economic
and military sectors with both envy and alarm. Beijing's defense budgets have
grown at double digits for more than a decade and Chinese acquisitions of
advanced weaponry from Russia has resulted in improved aerial and naval
capabilities of the two-million strong People's Liberation Army.
          In addition, China is also modernizing its strategic nuclear forces. If
there is one single lesson that New Delhi's security analysts have drawn from
the 1962 war, it would be this: power and strength are the only ticket to the
club of great powers. For many of them, the very fact that China continues to
lead India on many indicators of power poses a greater threat than its military
defeat 40 years ago. China is also paying close attention to India's growing
military power and its nuclear and missile development. New Delhi is
purchasing advanced Russian fighter aircraft, submarines and an aircraft
carrier. In addition, India is expanding its defense contacts with Israel and has
acquired the Phalcon early warning system that was denied to China.
Jerusalem's proposed sale of the Phalcon system to China was effectively
blocked by Washington in 2000 out of concerns about its use by the Chinese
military against U.S. interests in the region, especially around the Taiwan Strait.
          Chinese security analysts are also debating the significance and
implications of a warming U.S.-India relationship. Prior to September 11, there
were growing concerns that the new and growing ties between Washington
Sino-Indian Relations (2004-2005)                                             21

and New Delhi could have negative security implications for China, especially
the apparent attempt by Washington to enlist New Delhi as a potential
counterweight, if not part of a containment strategy, against China. Within this
context, the growing security ties, including U.S. military sales to India, joint
military exercises, and regular defense consultations between the two are of
particular concern to China. Washington and New Delhi were drawing closer
to each other than ever before. There were regular high-level visits to each
capital, and the Bush administration briefed the B.J.P.-led government on
major policy initiatives, treating India almost as an ally. New Delhi, in return,
openly endorsed U.S. missile defense positions. Indeed, even many U.S. allies
were concerned with the strategic implications of Washington's decisions.
          Washington's current focus on combating global terrorism and the
post-September 11 policy shift brought a renewed engagement of Pakistan and
an emphasis on great power cooperation; this reduced Beijing's worries about
an Indo-U.S. entente against China. But a China-India-U.S. strategic triangle
has clearly emerged in that policymakers are increasingly aware of and attentive
to policies taken in the other two capitals and how these may affect its own
security interests. Within this complex structure, Washington and New Delhi
share normative values (democracy) and strategic interests while Beijing's ties
with both are more driven by contingent rather than structural interests.
          Beijing is wary of New Delhi's eastward strategy of developing greater
economic and military ties with Japan and the Association of Southeast Asian
Nations (A.S.E.A.N.). India has in recent years launched a new post-Pokhran
offensive diplomacy of engagement and entente with countries beyond New
Delhi's traditional strategic domain: Japan, Vietnam and, to a broader extent,
members of A.S.E.A.N., many of which have ongoing disputes with China.
The Indian defense minister visited Japan in January 2000, the first such visit
since India gained independence. Japanese Prime Minister Yoshiro Mori
visited India in August 2000 and Vajpayee paid an official visit to Japan in
February 2001. Japanese Prime Minister Junichiro Koizumi's upcoming visit to
India this month will further consolidate such ties.
          India has also broadened its relationship with A.S.E.A.N. countries
and improved relations with Myanmar. Chinese analysts note that New Delhi's
Southeast Asia diplomacy could add complexity to China-A.S.E.A.N. relations.
For example, growing Indian and A.S.E.A.N. naval cooperation could impinge
upon China's maritime interests, making a final resolution of the territorial
disputes in the South China Sea even more difficult. The Indo-Vietnamese
defense cooperation is viewed with suspicion given that China has unresolved
territorial issues with both countries.
          China-India trade has experienced significant gains in the last few
years, totaling $13 billion in 2004. However, given the size of both economies,
the level of economic interdependence remains low. Both countries have
registered significant growth over the last decade. There is intense competition
22                                                                  IPRI Factfile

for, and protectionism against, each other in the areas of foreign direct
investment (F.D.I.) and market access. China is now in a comfortable lead,
with $60 billion F.D.I. -- twelve times India's total -- in 2004. While leaders in
both countries have touted the complementarities of their industries -- India's
software and China's hardware -- they have yet to make significant investments
in each other's economy. How to promote and expand greater economic
contacts and manage competition for markets and investment and technology
imports would also test the leadership skills and entrepreneurship in both
countries so that their projected growth could both benefit from and generate
more win-win cooperation instead of falling into the trap of zero-sum games.
         Finally, India and China are both energy consumers and importers. A
net oil importer since 1993, China today is the number two oil consumer after
the United States, depending on imports for two-thirds of its total
consumption. While ranking sixth in the global petroleum demand, India's fast
growing economy and its lack of domestic energy sources mean that it is
bound to move up the imports ladder, projected to occupy fourth place by
2010. On energy security issues, the two could compete as well as cooperate.
Indian and Chinese oil companies are already involved in overseas oil field
exploitation, extractions and acquisitions from the Middle East, to the Persian
Gulf, to Latin America. An uncoordinated competition from the world's most
energy-thirsty countries could drive up prices and rivalry in yet another field.
         Beijing and New Delhi would both do well in working with each other
to find energy security. Already the two countries are seeking to cooperate
rather than to compete directly with each other since the latter strategy is
bound to drive up oil prices. India hosted the first-ever meeting between
major Asian oil importing countries, including China, and the Middle Eastern
oil exporting countries such as Saudi Arabia. Chinese and Indian oil companies
have acquired equity stakes in Iran's Yadavaran oil field. In addition, China and
India are also discussing a potential natural gas pipeline.
The Sino-Indian relationship is bound to be one of the most important
bilateral relationships in the coming decades simply by the sheer weight of
numbers: combined, they represent 40 percent of the world's population and
their continuing economic growth will project them to second and third place
within the next two decades. How they manage their relationship will have a
tremendous impact on peace and stability in the regional and, increasingly,
global context.
                                 Power and Interest News Report, 30 March 2005
Sino-Indian Relations (2004-2005)                                            23

                 P ERSPECTIVE A NALYSIS
Introductory Observations- China Misses a Historic Opportunity:
Chinese Prime Minister Wen Jiabao’s visit to India scheduled from April 9-12,
2005 could have become a historic and dramatic one had China confined the
South Asia visit to India only. It would have dramatically conveyed the
following symbolism:
        •    China and India, as Asia’s rising powers, had dispensed with their
             painful past, and now stood poised to commence a new
        •    China and India, as Asia’s rising powers, were poised to explore a
             mutually beneficial long-term strategic partnership.
        •    China confining the Chinese Prime Minister’s visit to India only
             in South Asia could have conveyed forcefully by deed and not by
             rhetoric, that China recognizes India as the regional power in
             South Asia.
         China has therefore missed a historic opportunity, by clubbing
Premier Jiabao’s visit to Pakistan, Bangladesh and Sri Lanka along with the
India visit. China should recall that it would insist that visits by American
Presidents to China should not be clubbed with visits to Japan. India expects
the same from China with regards to Chinese Premiers visits to South Asia.
         At all these South Asian stops, the Chinese Premier cannot but get
drawn into South Asian regional controversial games and accruing Chinese
statements in consequence could be construed as unfriendly in India.
         The Chinese slip is already showing before the Chinese Prime
Minister’s visit to South Asia, when the Chinese Foreign Ministry
Spokesperson stated that: “ The supply of F-16s to Pakistan by the United
States will contribute to “regional stability”.
         India’s Foreign Ministry with a “Nehruvian” as the helmsman would
like to project during and after the visit that the Chinese Premier's visit to
India in April 2005 has been a success based on some Chinese handouts of
greater economic cooperation and exchange of boundary maps pertaining to
the Ladakh-Aksaichin Sector.
         Since the forthcoming visit already stands relegated by China from
the “historic” to the routine, the following questions need to be addressed
briefly for a perspective analysis of the Chinese Premier's visit:

        •    China’s End-game in South Asia.
        •    China’s Strategic Nexus With Pakistan Does Not Seem to
24                                                                 IPRI Factfile

        •   China-India Relations- Can Economics and Trade Growth
            Supersede Strategic Determinants of India’s National Security.
        •   China Towards New Horizons in South Asia.
China’s End-Game in South Asia:
China’s demonstrated performance in terms of statements as a prelude to the
India visit or any other visible indicators do not seem to convey that China
has given up its earlier end-game in South Asia, namely:
         • India needs to be restrained within South Asian confines.
         • Regional spoiler states like Pakistan and Bangladesh are to be
         • “Balance of power” politics to be keynote of China’s policies in
             South Asia.
         China finds resonance in all these three objectives with United States
objectives in South Asia. No wonder the endorsement officially by China this
week of United States re-armament of Pakistan through F-16s and the rest.
         China however as an off-set of the above, to prevent India falling a
prey to United States policies of strategic containment of China, would
calibrate its South Asian policies in a manner, that while the above is impeded
by tactical strategic inducements to India (border talks progress), the overall
Chinese end-game in South Asia continues.
China’s Strategic Nexus With Pakistan Does Not Seem to
While the percentage of Pakistan’s share in China’s South Asia trade has fallen
considerably, with India becoming the predominant partner, a similar trend in
China’s strategic nexus with Pakistan is not visible.
           How is it that Pakistan is able to carry out Intermediate Range
Ballistic Missile Tests every three-to-four months as witnessed recently? With
no drug money readily available (after United States take over of Afghanistan)
to finance its so-called indigenous missile programme and with a limited
supply of Chinese missile components, how does Pakistan implement all
           Strangely, China does not seem to have ever commented lately, that
such Pakistani missile tests do not contribute to South Asian regional
           The United States cannot hopefully replace 75-85% of China-origin
military hardware in Pakistan’s military inventories. China’s strategic nexus
with Pakistan is likely to continue for a long time with detriment to India’s
national security and South Asia regional stability.
Sino-Indian Relations (2004-2005)                                            25

China-India Relations- Can Economics and Trade Growth
Supersede Strategic Determinants of India’s National Security:
It is being debated and maintained vociferously in many lobbies in India that
the “China Economic Miracle” and the burgeoning two way China-India
trade can bring about a radical change in China-India relations.
          The above contention is debatable because of the following reasons:
        •    China’s reappraisal of India took place after India’s nuclear
             weapons tests in 1998.
        •    Thereafter there was a year or two of Chinese hysterical reactions
             and condemnation of India.
        •    China-India trade rising from $1 billion in 2000 to $ 13 billion
             today has been a consequence of India’s strategic assertion in
             1998. So was the case with USA-India relations.
       India's national security determinants led to her strategic assertion in
1998 and rising China-India trade was a consequence of it. For greater
enhancement in China-India economic prospects, China would have to
modulate its South Asian policies to respect India's strategic sensitivities.
China Towards New Horizons in South Asia:
Chinese Prime Minister Wen Jiabao, being astute as all Chinese political
leaders are, should have assessed that China’s end-game in South Asia based
on “regional balance of power” and "regional spoiler states” has not achieved
the intended Chinese objectives. India is rising despite the above strategic
impediments by China and the United States.
         China’s new horizons in South Asia should realistically incorporate
the following:
        •    India’s pre-eminence in South Asia and as a rising key global
             power should be the stimulii for a reformulation of China's
             South Asian strategic objectives and policies.
        •    The dynamics of the international security environment dictate
             that China and India must jointly work for the evolution of a
             long term China-India strategic relationship.
        •    China cannot sustain a China-India confrontation in South-Asia.
             It will strategically distract China from the challenges of
             America’s strategic hemming-in of China in East Asia and
             Central Asia.
Concluding Observations:
The Chinese Prime Minister will come and go. India can expect to be treated
by both Premiers to jaded clichés like 'ancient bonds', 'Panch-sheel' and the
'Bandung Spirit'. Some insubstantial breakthroughs on the economic front
26                                                                   IPRI Factfile

and boundary issues would be hailed as major breakthroughs, probably in the
form of guidelines for future discussions.
         China-India relations could have headed for a 'symbolic major
breakthrough' by a singular India and India-centric visit of Premier Jiabao.
China-India relations need a new horizon from China’s side. Why China?
Because India has never played “balance of power” games with China to the
detriment of China’s national interests. It has been China which has done so
and now China requires to set it straight in South Asia if it values a long term
strategic relationship with India.
         China needs to realize that both in Asian security and global affairs,
China plus India is a two-some but China minus India, leaves China a loner,
(The author is an International Relations and Strategic Affairs analyst. He is the
Consultant, Strategic Affairs with South Asia Analysis Group.)
                                                Dr. Subhash Kapila, 1 April 2005

NEW DELHI - Furious work is in progress in preparation of perhaps the
most high-profile visit short of US President George W Bush arriving in India.
Chinese Prime Minister Wen Jiabao will be in India from April 9-12 to tie up
several ends, the least being the consequences of the pro-India overtures by
the Bush dispensation, as well as to discuss a grand alliance of Asian nations
spanning Russia-China-India on the lines of the North Atlantic Treaty
Organization (NATO) to take on the Atlantic alliance and the US.
         It is not without reason that in his first meeting with Indian Prime
Minister Manmohan Singh last year, Wen remarked, "When we shake hands,
the whole world will be watching." Reiterating his earlier pledge, Wen has
already described his India visit as the most important event in his calendar
this year.
         In his first comment, Manmohan said Wednesday that he was looking
forward to Wen's visit. Speaking in Mauritius, where he is currently visiting,
Manmohan said he hoped China and India could agree on guiding principles
for resolving the two countries' border issues and that there should be a joint
effort to find common ground. Manmohan said the populations of China and
India accounted for about one-third of the planet, and the establishment of
friendly relations between the two countries would have a great impact on Asia
and the world.
         Chinese officials have laid virtual siege at the Foreign Ministry in
Delhi, spanning out in teams to discuss various aspects of the slew of treaties
and agreements that Wen and Manmohan are due to sign. The omnipresent, if
Sino-Indian Relations (2004-2005)                                               27

not overbearing, presence of the US is very much evident. As one official
remarked, "The Chinese have been observing the US's intentions of closely
engaging India by transferring nuclear technology for energy, arms supplies,
talks on missile defense as well as stepping up economic relations. The
response of China will be equally powerful. Instead of taking on the US single-
handedly, China will seek to work out a grand alliance of nations including
India and Russia that will be able to take on the economic and military might
of US. People right now talk of a unipolar world, by the quarter of this century
the world will be bipolar, with China as the power to be reckoned with, and by
the half of the century tripolar with India in the picture."
          It is obvious that China is still smarting from the visit of US Secretary
of State Condoleezza Rice and the highlighting of issues that always raise the
hackles of the Chinese establishment - democracy, human rights and Taiwan.
Rice espouses the cause of India as a counterweight to rising Chinese power in
Asia and the imprints of her views are only being more clearly established.
China is concerned about an anti-China "Asian NATO" front with Japan,
Australia and India joining the US to "contain" China.
          There is more than one reason China wants to build its relationship
with India. It is looking to sign a "friendship treaty" similar to the one with
Russia with the intention of checking expanding US and European military as
well as economic global influences. India, which follows a "one China" policy
is keen to engage with any nation that brings about a structural change to its
          Economic synergies Indeed, if there is one defining aspect that has
tilted India toward building bridges with China, it has been trade. With a high
level of growth and rising incomes, the Indian economy presents enormous
potential, and so do the Chinese for India.
          With US$13 billion in bilateral trade, up from $1 billion a year a
decade back, an India-China joint group has been studying the synergies of a
possible free-trade agreement (FTA), which is being opposed by certain
quarters of Indian industry - which is also against regional FTAs with Thailand
and the Association of Southeast Asian Nations - due to the fear of Chinese
dumping on the Indian market. The feeling, though, is that Indian industry is
driven by a protectionist instinct that they need to shun and learn how to stand
up to international competition.
          Further economic synergies are being worked out in light of Sino-
Indian joint bidding in international energy projects, particularly in third
countries. The energy ministers will appoint a joint task force to work out the
details, and if there is convergence, an agreement could well be in the offing.
In an indication of Chinese willingness to study as well as cooperate with
India's hugely successful information-technology sector, the Chinese leader
will touch down first in Bangalore on April 9 from Sri Lanka. Wen will visit
the offices of Huawei Technology, a Chinese IT company, and the Indian
28                                                                    IPRI Factfile

Space Research Organization in Bangalore before arriving in New Delhi the
next day.
          The Indian Express comments, "Manmohan Singh and Wen Jiabao
now have an opportunity to approach the future bilateral relationship with a
positive and pragmatic mindset. For a change, they have a growing economic
relationship marked by booming trade, which reached US$14 billion last year
from almost nothing in the mid-1990s. There is talk of comprehensive
economic cooperation, if not a free-trade area, between the two Asian giants ...
India and China should be looking to increase the volume of two-way trade ...
to about $25 [billion to] $30 billion in about five years."
          Boundary question The boundary dispute, however, still remains the
main stumbling block to a complete overhaul of the Sino-Indian entente.
Although the two countries have agreed not to get bogged down by territorial
disputes, it goes without saying that there is a need to set up a framework
within which the two countries can operate in order to move things forward.
The two governments have already appointed special representatives who have
been negotiating over the past two years. The joint working committee set up
by the two countries on the boundary issue is scheduled to meet this week in
Beijing in a bid to narrow differences. Foreign Secretary Shyam Saran and
Chinese Vice Minister Wu Dawei will head their respective delegations.
          Matters have come a long way since the 1962 border war and the
diplomatic spat that followed India's nuclear tests in 1998. Wen is expected to
announce China's formal acknowledgement of the north Indian state of
Sikkim as a part of the Indian union. The process of resolving differences over
Sikkim was initiated during then Indian prime minister Atal Bihari Vajpayee's
landmark visit to China in 2003, when the two countries agreed to start trade
across Sikkim's border. Wen is expected to end any uncertainty on China's part
by publicly acknowledging Sikkim as an Indian state.
          Officials, however, talk of one key area that needs to be resolved
before a final resolution can be reached. China wants major territorial
concessions on Tawang in Arunachal Pradesh (in northeastern India), which
India is in no position to concede. It is important for India and China to
explore the Tawang question in a manner that throws up solutions that can
finally result in creating a sound political foundation to the economic one that
is already being laid.
          The talk is that India may formally announce its support to the anti-
secession law passed by Chinese parliament to check any move by Taiwan to
declare independence unilaterally, if there is progress in the boundary talks.
Some 40 countries, including Russia and Pakistan, have supported the
legislation, while India has not issued any statement so far.
                                                           Asia Times, 3 April 2005
Sino-Indian Relations (2004-2005)                                                29

                          H INDI -C HINI B UY , B UY

India will certainly need to prepare itself to take on China in terms of trade
 A free trade agreement between China and India would be an event of
breathtaking proportions. To commit two of the world’s most populous
countries to a free movement of goods and services would be a momentous
undertaking indeed. It would render their border disputes and historical
animosities irrelevant. It would create the kind of link between the two
civilisations that has no precedent in history. It would signal a determination to
put the benefits of economic interdependence ahead of other aspirations. Yet,
this is what China’s premier, Wen Jiabao, has proposed. This is exactly what
Manmohan Singh has been arguing for.
China has strategic reasons to promote this idea. While China’s coastal areas
have gained enormously from globalisation, its land-locked hinterlands remain
underdeveloped. The ensuing inequalities pose a significant threat to the
Chinese experiment. But these regions can prosper only if their natural trading
zones are opened up and they can access ports outside China. Hence China
has had a southward thrust in it trade policy for some time. Second, China is
looking for a diversified market for its manufacturing and believes that free
trade agreements (FTAs) are a faster way of securing these markets than WTO
negotiations. But this is precisely what makes negotiating an FTA with a
country like China tricky. Indian industry will be seriously split on the issue.
Companies like the Tatas that are ready to take on the world will welcome the
move. But others may be more uncertain.
India will certainly need to be better prepared to take on China. But rather
than let some of these concerns derail progress on trade, India would do well
to use this as an opportunity to make its economy more competitive. India
cannot forever postpone its day of reckoning with the Chinese economy. The
last few years should give us more confidence. India will also be concerned
about the security implications of all this. The Chinese have made no secret of
the fact that they want to trade intensively with our sensitive border areas,
stretching from Ladakh to the Northeast. But trade will enhance our security
not diminish it. By restoring their natural trade routes, these regions will be
able to develop better. More importantly, if India and China join hands, our
neighbors will have little choice but to lock their economies into this
arrangement. An India-China FTA has the potential for revolutionising the
nature of international society, as we know it. It is still a dream but now is an
opportune moment to work towards it.

                                                   The Indian Express, 4 April, 2005
               < >
30                                                                  IPRI Factfile

            C HINA V OWS      TO I MPROVE       T IES   WITH I NDIA

BANGALORE, April 9: Chinese Premier Wen Jiabao on Saturday expressed
the hope for narrowing differences on a lingering border dispute and taking
the ties to a “new height” between the two emerging economic powerhouses.
Mr Wen was speaking after arriving here at the last leg of a four-nation South
Asia tour.
         “The Chinese government attaches great importance to developing
good relations and friendly cooperation with India,” Wen said in a statement.
“Bearing in mind the larger picture (the Chinese government) it will expand
and deepen exchanges and cooperation in all areas and properly settle
questions left over from history with a view to bring China and India ties to a
new height,” he said.
         However, as Mr Wen touched down from Sri Lanka, after visiting
Pakistan and Bangladesh, about 120 Tibetan students who have been put
under house arrest began a 24-hour hunger strike to protest the visit.
“Until and unless the Chinese premier leaves the city we will continue the
hunger strike to register our protest,” said Tenzin Jangchup, vice-president of
the Tibetan National Democratic Party.
         Police said two Tibetan leaders had been taken into custody to ensure
a smooth stay for Wen.
         “The purpose of my visit is to enhance friendship between China and
India and expand mutually beneficial cooperation and promote bilateral
relations. I hope and believe my visit will induct fresh vigour and vitality into
relations between China and India,” he said.
         Chinese prime minister’s engagements in Bangalore include a visit to
the offices of Tata Consultancy Services, India’s biggest software services
exporter, the Indian Space Research Organisation and Chinese telecom major,
Huawei Technologies.—AFP
                                                          Dawn, 10 April 2005
                               < >

       A KSAI C HIN M AY F IGURE          IN   W EN ' S D ELHI T ALKS
NEW DELHI, April 10: Chinese Premier Wen Jiabao arrived here from
Bangalore on Sunday to hold wide-ranging talks with Indian Prime Minister
Manmohan Singh on trade and border dispute that inevitably involves
Pakistan, official sources said.
         Indian Foreign Minister Natwar Singh, who played a lead role in the
1988 Sino-Indian rapprochement, received Mr Wen and his 100-strong
Sino-Indian Relations (2004-2005)                                            31

         Official sources said that the issue of Aksai Chin, a territory under
Chinese control which India claims as part of Jammu and Kashmir and the
Shaksgam Valley, which Pakistan ceded to China and which is claimed by New
Delhi to have been discussed at Agra summit in July 2001, make Pakistan's
role in the resolution of the border dispute important.
         Mr Wen had visited India earlier in 1994 at the head of a delegation
from the International Liaison Department of the Communist Party of China.
Over a dozen agreements are expected to be inked during the visit. They
include political announcements, pacts for enhancing economic cooperation, a
new cultural-exchange programme besides those in the fields of civil aviation,
customs and water resources. The two sides will also sign an accord for setting
up of a financial-dialogue mechanism. Before the visit, Mr Wen had suggested
that India and China should handle their relations from a "strategic high
ground" and said that a solution to the boundary issue was possible if the two
sides showed mutual accommodation "while taking the reality into account".
         The Hindu reported on Sunday that the Indian prime minister met his
predecessor Atal Bihari Vajpayee on Saturday to discuss the visits of the
Chinese premier and later on April 16 by President Gen Pervez Musharraf.
                                                             Dawn, 10 April 2005

        C HINESE PM C ALLS             FOR   T ECH A XIS   WITH I NDIA

BANGALORE, April 10: Chinese Premier Wen Jiabao visited India's
technology hub on Sunday and said the two Asian giants could team up to
become world leaders in information technology.
         Chinese PM arrived in Bangalore on Saturday on a four-day visit to
India aimed at easing a decades-old border dispute and boosting trade between
the world's two most populous countries. He visited Tata Consultancy
Services (TCS), India's largest software exporter, at a gleaming technology park
symbolizing India's growing prowess in information technology.
         "It is true India has the advantage in software and China in hardware.
If India and China cooperate in the IT industry, we will be able to lead the
world...and it will signify the coming of the Asian century of the IT industry,"
he said.
         Mr Jiabao also visited the Indian Space Research Organization, the
Indian Institute of Science and the office of China's largest telecoms
equipment maker, Huawei Technologies, that plans to invest $100 million in
         Huawei, which employs 800 Indians and 30 Chinese in India, is a rare
Chinese player among more than 1,200 software units in Bangalore. Wen
Jiabao was scheduled to leave for Delhi later on Sunday.
32                                                                  IPRI Factfile

          Mr Jiabao said his Indian visit would hold "significance in history".
His visit symbolizes both the rivalry and the cooperation between two of the
world's fastest growing economies who are mulling a free trade area.
          China, whose exports in software and back-office services total less
than a fifth of India's estimated $17.3 billion, is boosting English-language
skills in schools to help mount a challenge to workers in Bangalore's software
          On the other hand, TCS and Infosys Technologies, India's top two
software firms, have set up centres in China with local staff, while Wipro plans
to start one soon, aiming for a slice of China's $30 billion software market.
          Chinese PM begins official talks on Monday in Delhi, when he is due
to meet Prime Minister Manmohan Singh. Apart from the long-standing
border dispute, talks were to focus on trade with the aim of eventually
establishing a free trade area (FTA).
          "Definitely there will be something coming out on this (FTA) in this
trip," Sun Yuxi, China's ambassador to India, told "Business World" magazine.
"If we can develop a free trade area between China and India, we will be the
biggest in the world."
          Two-way trade has been growing at 30 per cent a year for the past
eight years, and could surpass $30 billion by 2010 from the current $13 billion.
That would put China ahead of the United States as India's largest trading
                                                          Dawn, 10 April 2005

It is possible for a dragon and an elephant to be on good terms with each
         And that is the current case with China and India. Premier Wen
Jiabao, on his first visit to India, reached a consensus with his host on keeping
the issue of border disputes on the backburner.
         They have decided to reinforce the pragmatic cooperation path that
the two countries have embarked on.
         Wen's Indian visit, an important part of his South Asia tour, is
expected to drive forward the 55-year modern relationship between the two
         The border disputes remain unsettled. But they will not become a drag
on the progress of their relations. While working out a mechanism for a
peaceful settlement of the issue, the two countries realize there is much to be
gained by cooperation, and by expanding commerce and trade relations.
Sino-Indian Relations (2004-2005)                                               33

          Big does not necessarily mean rivalry. There are a lot of things that
bring us together. Both of us prefer a world order that is more multipolar and
takes greater account of our roles. The Chinese are no stranger to their
neighbor's Bollywood movies and curries.
          We have always looked on our big neighbor on the other side of the
Himalayas as our partner. We are happy to read the same message from them.
          People of the two countries have been getting to know each other
better, which helps build trust. This lays a solid foundation for healthy
progress in bilateral relations and more cooperation.
          The warm ties are going to bring concrete results. China and India are
to open a free trade zone, an initiative China proposed to India when State
Councilor Tang Jiaxuan visited the country last October.
          Efforts will be taken to reduce the areas of friction between the two
countries, such as establishing a coordination mechanism to avoid hostile
competition over energy. There is no doubt that trade is the engine driving
Sino-Indian relations forward.
          However, there is a lot to be desired with the two countries' trade
links. Bilateral trade stood at US$13.6 billion in 2004.
          That is only 1 percent of China's global trade, and 9 percent of India's.
This indicates the huge opening for hard work from the two countries.
          Cooperation will help our individual economies. Bilateral investment
flows are small, but growing.
          Chinese information technology companies want to learn from India's
success in the service sector. Premier Wen started his four-day India visit in
Bangalore, the country's "Silicon Valley."
          China's manufacturing prowess is attractive to Indian companies.
China now is a destination for some Indian software and services companies.
          China's new leadership has fine-tuned foreign policy for better getting
along with our neighbors, considering them as our partners.
          The two countries' economic growth and potential for faster
development have fueled outsiders' curiosity concerning a race between the
          But the two are not rivals on any front, including the political and
economic. Progress in the two countries will consolidate the building blocks
for further cooperation.
          The ups and downs of bilateral relations over the past 55 years have
offered a plethora of lessons for the two countries' leaders. They are building a
more mature relationship based on rationality and pragmatism.
          As early as in 2003 the two countries set up a joint study group on
how their economies could benefit from each other and mapped out a
blueprint for developing bilateral economic and trade links.
          This positive momentum on the economic front gave wings to the
advancement of bilateral ties.
34                                                                  IPRI Factfile

           Since 1990 every visit of Chinese and Indian high-ranking officials
has pushed bilateral relations one stride forward.
           And there are now high hopes over what Premier Wen's visit to India
will yield for Sino-Indian relations.
                                                        China Daily, 11 April 2005

                                    T RADE
China and India, the two rising Asian giants, are now on a course of
rapprochement, a blessing not only to Asian region but also the whole world.
          In the presence of visiting Chinese premier Wen Jiabao and Indian
Prime Minister Manmohan Singh on Monday, the two states signed a historic
accord setting out "guiding principles" to resolve their decades-old border
dispute. Analysts hail the move as a boost to bilateral economic cooperation
and political relations.
          The border accord sets out a roadmap to settle the dispute without
use of force, insiders said.
          China and India have also set themselves a target of increasing
bilateral trade to 20 billion dollars by 2008 from a current 13.6 billion dollars,
they said in a joint statement.
          India hailed Wen's four-day visit, which ends Tuesday, saying a
"strategic partnership with China for peace and prosperity has been
          "It was an extremely successful visit with results that will be far-
reaching in character," Indian Foreign Secretary Shyam Saran told reporters.
"India and China are partners, and they are not rivals," he added. "We do not
look upon each other as adversaries."
Border Deal
The "three-tiered" border deal, described by India's National Security Adviser
M.K. Narayanan as "one of the most significant documents" signed by the
neighbours, will allow special envoys to negotiate territorial claims as experts
delineate the boundary on a map and on the ground.
          The boundary dispute is the result of a brief but bitter border conflict
in 1962 that left ties between the world's most populous countries in shreds.
A formal ceasefire line is yet to be established but the unsettled frontier has
remained lpeaceful, thanks to agreements signed in 1993 and 1996.
"For the first time we see a commonality on both sides to find a solution," said
Narayanan who worked out the finer points of the pact with Chinese Vice
Foreign Minister Dai Bingguo on Sunday.
Sino-Indian Relations (2004-2005)                                              35

         The border agreement commits Beijing and New Delhi to "safeguard
due interests of their settled populations in the border areas," while arriving at
a solution.
         Another accord, to minimize tensions between the two militaries and
increase interaction between them, was also initialed, India's foreign ministry
         In addition, other agreements aimed at improving bilateral relations in
general -- including in trade, civil aviation, water resources management,
culture, films, increasing air links and people-to-people contact -- were inked.
         A joint statement signed by prime ministers Singh and Wen noted the
"the process of building trust and understanding had gained momentum".
         India and China agreed that "relations have now acquired a global and
strategic character" and have decided to "establish an India-China Strategic
and Cooperative Partnership for Peace and Prosperity," the statement said.
         The two countries today have upgraded their ties to strategic
cooperation and partnership for peace and prosperity through common
understanding and a raised level of maturity," Indian Foreign Secretary Shyam
Saran said after the pacts were signed.
Trade Agreement
"The two sides agree that their relationship has acquired global dimensions
and impact," he said, adding that Wen and Singh in their talks had accorded
"considerable focus" on bilateral trade.
         The two sides accepted a recommendation by a joint commission set
up by New Delhi and Beijing two years ago for an India-China Regional
Trading Arrangement.
         China is now India's second-largest trading partner, after the United
States. Chinese-made toys, refrigerators and televisions have been welcome on
the Indian marketplace. India exports raw materials for China's booming
construction industry.
         India and China will begin a financial dialogue to conclude bilateral
investment promotion and protection agreements, the statement said.
         China also formally buried its decades-old dispute on New Delhi's
claims over the former British protectorate of Sikkim while India reiterated
Beijing's sovereign right over Tibet. The two sides had already agreed to this
formulation during a visit by then prime minister Atal Behari Vajpayee to
Beijing in 2003.
         At the same time China agreed to trade with India through the
strategic Nathu La pass in Sikkim.
                                                     China Daily, 12 April 2005
36                                                                  IPRI Factfile

                    C HINA AND I NDIA
On the evening of April 11, 2005, Chinese Premier Wen Jiabao of the State
Council attended the commemoration ceremony of the 55th anniversary of the
establishment of diplomatic ties between China and India held in India. Wen
Jiabao and Indian Prime Minister Manmohan Singh together lightened the
bronze lamp symbolizing luck and blessings for the commemoration
          In his address, Premier Wen said that China and India are close
neighbors and friendly nations. The exchanges between the two countries are
ever lasting and have never stopped for over 2000 years. These are important
chapters in the history of human civilization. In recent years, the two peoples
sympathize with and help each other cordially in the process of fighting for
national independence and people's liberation and have therefore forged
profound friendship. Mahatma Gandi once said that China and India are real
friends in need. The renowned Indian poet Tagore also said that China and
India are old and close brothers. Dwarkanath Kotnis, a famous Indian doctor
devoted his young life to the liberation cause of China. His name is popular
and respected in China. Wen Jiabao said that the new China is faced with lots
of difficulties when it was founded 55 years ago. The Indian government and
people handed out their helping hand timely by announcing that India
recognized the new China. It is the most precious support to China which the
Chinese people will always bear in mind. Since the establishment of diplomatic
ties, the leaders of both countries advocated the five principles of peaceful co-
existence and the slogan that the Chinese and Indian people are brothers was
deeply rooted in people's minds. Being friendly neighbors is the mainstream of
China-India relations. In 1996, China and India established the 21st-century-
oriented constructive partnership. In 2003, the Chinese Premier and the Indian
Prime Minister signed the Declaration on Principles for Relations and
Comprehensive Cooperation between the People's Republic of China and the
Republic of India, indicating that China-India relationship entered a new stage
of compressive cooperation. Last year, China and India commemorated the
50th anniversary of the establishment of five principles of peaceful co-
existence, reflecting the cooperation and consensus on major international
affairs between China and India. Wen said that China and India are the two
biggest developing nations in the world. The development of friendly relations
and close cooperation between China and India not only accord with the
fundamental interests and common aspirations of the two peoples but also
Sino-Indian Relations (2004-2005)                                                37

exert great influence to the peace and development in Asia and the world at
          Wen said that the purpose of his visit to India is to strengthen bilateral
friendship and cooperation and plan the development prospects for bilateral
relations. During his visit, both sides achieved a series of important results
with the concerted efforts of both sides.
          Wen said," firstly, Manmohan Singh and I signed the joint statement
and declared establishing the strategic partnership for peace and stability
between China and India. We have sent out a clear and positive signal to the
whole world, that is China and India decide to raise the level of bilateral ties
and join hands to look into the future. Secondly, we announced the Five-Year
Plan for Comprehensive Economic and Trade Cooperation between China
and India, launched the joint feasibility studies on regional trade arrangements
between China and India and set up a goal to raise the trade volume between
two nations to US$ 20 billion or even more by 2008. Thirdly, we have reached
the political guiding principles for resolving the boundary issue between our
two nations, laying a foundation for resolving the issue left over from history.
We reaffirmed that the normal development of bilateral ties should not be
affected before the boundary issue is resolved. "
          Wen noted that China will adhere to the road of peaceful
development and pursue the foreign policy of "being a good neighbor and
partner". Developing friendly cooperation with India is the established policy
of China. We are willing to work together with India to promote exchanges,
dialogues and cooperation between the two nations and enrich the content of
long-term constructive partnership between China and India on the basis of
five principles of peaceful co-existence. Wen is convinced that with the joint
efforts of both sides the friendly cooperation between the two nations and
peoples will shine out resplendent splendors and bear more fruits.
`         Wen said, "to celebrate the 55th anniversary of the establishment of
diplomatic ties Singh and he himself declared jointly that both sides would
hold a series of commemoration activities including China-India Cultural
Month from now on. The cultural performance tonight drew the curtain of the
commemoration activities and served as a prelude for China-India friendship
in the new era. In the history of China's cultural relations with foreign nations,
the cultural exchanges between China and India that started in Han Dynasty
(206 BC-220 AD) is the largest and earliest cultural exchange of China. The
Chinese name Fa Xian and Xuan Zang and the Indian name Damo live as long
as China-India friendship. Today, I would see that the flower of China-India
friendship beyond the times blooms again. China and India are two countries
advocating love and union. I wish the cultures of both countries be more
brilliant". Singh said in his address that the exchanges between China and
India in the flied of science, technology, culture and trade have lasted for
several thousand years. The civilizations of both countries are complementary
38                                                                IPRI Factfile

to each other. Today both countries have witnessed the cultural influence to
each other. Singh said that India and China needs further cooperation. Today
both sides signed the historic joint statement, marking the commencement of
this process.
                                                                12 April 2005

                                T OGETHER
Once-Hostile Giants Sign Accords on Border Talks, Economic Ties,
Trade and Technology
NEW DELHI, April 11 -- India and China announced a new "strategic
partnership" Monday, pledging to resolve long-standing border disputes and
boost trade and economic cooperation between two rising powers that
together account for more than a third of the world's population.
         The announcement came after a summit between Indian Prime
Minister Manmohan Singh and his Chinese counterpart, Wen Jiabao, who
began a four-day visit to India with a weekend stop in Bangalore, the center of
India's booming information-technology sector.
         The agreements signed Monday mark an important shift in relations
between the Asian giants, which fought a brief border war in 1962 and have
long regarded each other with suspicion. The prospect of a more cooperative
relationship has significant global implications, given the vast economic
potential of India and China and their voracious appetites for energy and other
natural resources.
         "India and China can together reshape the world order," Singh said at
a ceremony welcoming Wen to India's presidential palace.
         On a practical level, the two governments agreed to a framework for
addressing long-standing differences over their 2,175-mile border, promising
to resolve the dispute through "peaceful and friendly consultations." They also
signed agreements on trade, economic cooperation, technology sharing, civil
aviation and other matters.
         As a goodwill gesture, China formally abandoned its claim to the tiny
Himalayan province of Sikkim, presenting Indian officials with a map showing
the area as part of India. Chinese officials also delighted their hosts by
pledging explicitly, and for the first time, to support India's bid for a
permanent seat on the U.N. Security Council, Indian and Chinese officials
         "There is a raising of the level of the relationship between the two
countries," India's foreign secretary, Shyam Saran, said at a news conference
Sino-Indian Relations (2004-2005)                                            39

Monday afternoon. "We do not look upon each other as adversaries but we
look upon each other as partners."
         India's differences with China go back decades. In 1962, the countries
fought the brief border war that China is generally acknowledged to have won.
India has long been wary of China's close ties to India's neighbor and arch
rival Pakistan. But in recent years, India and China have begun to draw closer,
recognizing their common interest in trade, regional stability and, more
recently, containing the threat of Islamic extremism.
         In 2003, Atal Bihari Vajpayee, then India's prime minister, pledged
during a visit to Beijing to respect China's sovereignty over Tibet and not to
allow "anti-China political activities" in India, a reference to the Tibetan
government-in-exile in Dharmsala, led by the Dalai Lama. That commitment
was reiterated in the joint declaration on Monday.
         "The two sides agreed that India-China relations have now acquired a
global and strategic character," the statement said. It also said both
governments had agreed to establish a "strategic and cooperative partnership
for peace and prosperity."
         In the short term, the most significant of the agreements signed
Monday calls for resolving the border dispute on the basis of historical
records, geography, security needs and the interests of people who live in the
area, among other factors. Indian officials acknowledged that resolution of the
issue was some years off.
         In geopolitical terms, the consequences of a rapprochement between
the world's two most populous countries could be profound. "In the same way
that commentators refer to the 1900s as the American Century, the early 21st
century may be seen as the time when some in the developing world, led by
India and China, come into their own," said a December 2004 study by the
U.S. National Intelligence Council.
         Such "arriviste" powers, the study noted, "could usher in a new set of
international alignments, potentially marking a definitive break with some of
the post-World War II institutions and practices." The report also said that
India "could emerge as the world's fastest-growing economy" by 2020,
overtaking China.
         In pursuing closer ties, each country is clearly eager to capitalize on
the other's economic strengths -- manufacturing and computer hardware in
China, services and software in India -- while boosting trade that by all
accounts has remained far below its potential. Last year, trade between the two
countries came to $13.6 billion, compared with about $20 billion between
India and the United States. India and China pledged Monday to boost their
         trade to $20 billion by 2008.
         "If India and China cooperate in the IT industry, we will be able to
lead the world," Wen said in Bangalore on Sunday. "It will signify the coming
of the Asian century in the IT industry."
40                                                                  IPRI Factfile

         Economic motives aside, China also wants better relations with India
because it is competing for influence in New Delhi with the United States,
which was several years ahead of Beijing in recognizing India's potential as a
military and economic power and has greatly increased its cooperation with
India in both spheres.
         This week alone, India's foreign minister, Natwar Singh, will travel to
Washington for meetings, while two senior U.S. officials -- Adm. William J.
Fallon, commander of the U.S. Pacific Command, and Transportation
Secretary Norman Y. Mineta -- will be visiting the Indian capital.
         "Everybody started talking about the rise of China a long time ago,
and now they're talking about the rise of India, so I think there's a shared
sense that something terribly important is now happening," said Vinod C.
Khanna, a former Indian diplomat who served in China and once ran the East
Asia division of the Indian Foreign Ministry.
         Khanna added, "If you had asked me in 2001 if this was where we'd
be in 2005, I would have said, 'That's terrific, but aren't you being
overoptimistic?' "
                                    John Lancaster, Washington Post, 12 April 2005
     < >

China and India began forging a strategic co-operative partnership, yesterday,
and stepped closer to making a final settlement of their border disputes.
          The results, together with a consensuses on expanding "friendly and
mutually-beneficial co-operations," came after nearly 3 hours of talks between
Premier Wen Jiabao and his Indian counterpart Manmohan Singh yesterday
afternoon, Foreign Ministry spokesman Kong Quan said last night.
          Hailing Wen's historic tour a "landmark" event, Singh said relations
with China constitute a key component of India's foreign policy.
          In turn, Wen said a good relationship between the two countries was
vital for the future Chinese and Indian generations.
          Development of trade and diplomatic links between the two, he said,
is in the interests of both nations, and contributes to regional and world peace
and stability.
          To push forward their relationship, Wen said both sides should
deepen and strengthen their "long-term constructive partnership."
          Singh said India has always considered the relationship with China in
both a regional and world context, and to continuously bolster relations with
China has become a consensus for all walks of life. It is also an objective
requirement for ensuring India's national development and people's welfare,
he said.
Sino-Indian Relations (2004-2005)                                            41

Border a 'link'
The most eye-catching bilateral issue to be touched on during Wen's four-day
trek to India was that on the vexed boundary questions between the two
          The results are clear: The two governments inked an agreement on
political guiding principles on solving the border issue, Kong said.
          This is the first political document signed by the two countries since
1981 when the two countries started the negotiations to settle border disputes.
But details of the document are not immediately available.
          China's Vice-Foreign Minister Wu Dawei, who is accompanying
Chinese Premier Wen on the visit, said the agreement has laid foundations for
solving the border issue between the two countries.
          Wen said China will push forward demarcation talks with India, and
both sides should maintain peace along the border.
In the spirit of mutual understanding and mutual accommodation, and
respecting both historical and actual conditions, the two sides should seek a
fair, reasonable and mutually acceptable solution to the boundary question
through consultations on an equal footing, Wen said.
          Such efforts boil down to making the border a link for peace,
friendship and co-operation between the two countries, he said.
          The Sino-Indian border has remained tranquil with no confrontation
or military action since 1993.
South Asia situation
Premiers also discussed regional issues.
         Wen said China welcomes the easing of Pak-Indian relations, noting
the improvement caters to the countries' own needs for development and has
bearings on regional peace, stability and growth.
         "China would like to see India-Pakistan relations further relaxed, and
support all efforts leading to eradicating tension and safeguarding peace," he
         China does not seek self-interest in South Asia, and when it develops
relations with a South Asian country, it does not target a third nation, Wen
         "China is willing to continue to play a constructive role in promoting
peace and development throughout South Asia," he said.
         Apart from the pact on the border issue, the two countries yesterday
also inked a batch of other documents on civil aviation, plant quarantine,
finance and customs.
Other meetings
Meeting with Indian Parliament Speaker and Vice-President Bhairon Singh
Shekhawat, Wen said parliamentary exchange is an important channel through
42                                                                 IPRI Factfile

which to improve the people-to-people relationship, and China encourages
more such exchanges with India.
        The premier thanked the speaker for his substantial work in
promoting Sino-Indian relations.
        Shekhawat said the Indian parliament is willing to further relations
with China and its people, adding he believed the premier's visit will lend new
dynamics to the bilateral relationship.
        Wen last night attended an art performance to mark the 55th
anniversary of the establishment of diplomatic relations.
                                                      China Daily, 12 April 2005

                  I NDIA , C HINA   TO FORM     A LLIANCE
NEW DELHI -- India and China, the world's two most populous countries,
agreed Monday to form a strategic partnership to end a border dispute and
boost trade in a deal marking a major shift in relations between the Asian
         The agreement, signed by both premiers, eases decades of mutual
distrust between the nations, which share a mountainous, 2,500-mile border
and fought a war in 1962. Parts of the border still are not demarcated.
         "India and China can together reshape the world order," Indian
Prime Minister Manmohan Singh said at a ceremony for his Chinese
counterpart, Premier Wen Jiabao, at India's presidential palace.
         Together, the two nations account for one-third of the world's
         The agreement outlined steps to demarcate the disputed boundary
through a "fair, reasonable and mutually acceptable solution, through equal
and friendly consultations," a statement on the partnership said.
         The agreement does not involve defense arrangements, so it will not
give Chinese ships the use of Indian ports.
         An 11-point plan to settle the border dispute was finalized Sunday at
a meeting between India's National Security Adviser M.K. Narayanan and
China's Vice Foreign Minister Dai Bingguo, the leader of the Chinese
delegation to the talks.
         The plan states that the countries would consider historical factors,
geographical features, people living in the area, security and whether the area
was currently under Indian or Chinese control when marking the border.
         China is Pakistan's main trading partner and a big backer of its
military, while it has tense but improving relations with India, with whom
Pakistan has fought three wars.
Sino-Indian Relations (2004-2005)                                               43

         Chinese engineers are helping fund and engineer a $248 million port
in the remote southwestern Pakistani town of Gawadar. The project will
decrease Pakistan's reliance on its main port in Karachi.
         China also is helping fund a new nuclear reactor in Pakistan to be
used to generate electricity.
         India and China agreed to boost bilateral trade to $20 billion by 2008.
Last year, trade totaled $13.6 billion, with India recording a $1.75 billion trade
surplus, according to India's trade ministry.
         The statement, while giving few details, said the agreement would
promote diplomatic relations, economic ties and help the nations in "jointly
addressing global challenges and threats."
                                                              12 April 2005

                      G ROWING S INO -I NDIAN T IES
THE Chinese endorsement of the Indian ambition to become a permanent
member of the UN Security Council represents an important victory for New
Delhi in its campaign to convince the global community that it deserves the
honour of participating in its deliberations, not on two-year stints but on a
continuing basis. Interestingly, though, the statement issued after Mr Wen
Jiaboa, currently on a visit to India, had met Dr Manmohan Singh did not
elaborate whether Beijing's agreement to support India's permanent
membership would entitle it to exercise the veto power. It should be noted
that an overwhelming majority of UN member countries are not in favour of
the veto power being given to any new UNSC member if its expansion were to
take place to keep the world body in tune with the new realities that have
emerged since the end of World War II. If anything, these countries would
very much like the present veto-wielding powers to forgo that distinctive
advantage. The veto power is in sharp conflict with democratic principles the
whole world wants applied in every sphere of human life and disdains the very
of idea of privilege. It would be extremely unfortunate if Beijing were to ignore
these widespread sensitivities. Besides, it would constitute a major setback to
our policy on this issue.
         Although China's priorities in the present context of giving
extraordinary importance to economic and commercial factors would oblige it
to show a tilt towards India, Islamabad should establish immediate contact
with Beijing as a friend of long standing and impress upon it to reconsider its
decision about according the veto to India, if it has taken one to that effect.
         Once New Delhi gets the veto power it would become still more
inflexible in its posture on the Kashmir dispute, eliminating all chances of its
ever getting resolved in line with the UN resolutions. Islamabad's policy
44                                                                  IPRI Factfile

should not be to oppose the Security Council's expansion, which seems
inevitable, but campaign more actively against the grant of the veto to any new
entrant. Pakistan should strongly advocate for representation for the Muslim
world, through the OIC, on this body whose decisions have a worldwide
          India's acceptance of Tibet as part of China, and China's of Sikkim as
part of India, should not surprise observers. This quid pro quo had been
expected for some time. Chinese cartographers already show Sikkim as Indian
territory, following the example of their websites, which started excluding it
from Chinese maps in 2003. Similarly, India has not been allowing Tibetan
dissidents to continue their activities from its soil. The other border disputes
between the two countries have been left to their Special Representatives to
settle. However, the spirit of compromise underlines the deep desire on the
part of both parties to come closer, which finds expression in the agreement
that "Indo-China relations have now acquired a global and strategic character."
Islamabad should not be unduly perturbed over this equation, but develop
stronger ties with Beijing and persuade it to use its good offices in Pakistan's
effort to settle disputes with New Delhi equitably.
                                                        The Nation, 13 April 2005

China and India have agreed to establish a "strategic and cooperative
partnership for peace and prosperity" between them, according to a joint
statement signed by premiers of the two countries in New Delhi Monday.
         The statement, signed by visiting Chinese Premier Wen Jiabao and
Indian Prime Minister Manmohan Singh, said that the two premiers agreed
that China-India relations have now acquired a "global and strategic
         Wen is paying an official visit to India from April 9 to 12 at Singh's
invitation, the last leg of his four south Asian nation tour which has also taken
him to Pakistan, Bangladesh and Sri Lanka.
         "The leaders of the two countries have, therefore, agreed to establish a
China-India Strategic and Cooperative Partnership for Peace and Prosperity,"
the statement said.
         "Such a partnership is based on the principles of Panchsheel, mutual
respect and sensitivity for each other's concerns and aspirations, and equality;
provides a sound framework for an all around and comprehensive
development of bilateral relations based on mutual and equal security,
Sino-Indian Relations (2004-2005)                                             45

development and prosperity of the two peoples; and contributes to jointly
addressing global challenges and threats," the statement said
          According to the statement, the two sides agreed that China-India
relations have entered a new stage of comprehensive development.
          The two sides also reiterated their intention to promote regular
ministerial-level exchanges and make full use of the China-India strategic
dialogue and other bilateral dialogue mechanisms, the statement added.
          The statement said the year of 2005 marks the 55th anniversary of the
establishment of diplomatic relations between China and India, and to mark
the occasion, the two countries will organize a series of commemorative
          China and India have agreed that an all-round expansion of economic
cooperation between the two countries constitutes an important dimension of
their stronger relationship and they should make joint efforts to increase
bilateral trade volume to 20 billion US dollars or higher by 2008.
          The two sides welcomed the report of the Joint Study Group (JSG)
that was set up to examine the potential complementarities between the two
countries in expanded trade and economic cooperation.
          The JSG in its Report has identified a series of measures related to
trade in goods, trade in services, investments and other areas of economic
cooperation, and recommended their expeditious implementation to remove
impediments and facilitate enhanced economic engagement between China
and India.
          The Prime Ministers agreed to appoint a Joint Task Force to study in
detail the feasibility of, and the benefits that may derive from, the China-India
Regional Trading Arrangement and give recommendations regarding its
content, the statement said.
          The two sides also agreed to further promote the cooperation in the
spheres of education, science and technology, healthcare, information,
tourism, youth exchange, agriculture, dairy development, sports and other
fields on the basis of mutual benefit and reciprocity.
          The statement also said that the two sides noted the useful exchanges
and interaction in the military field and decided to further promote such
exchanges and interaction.
          China and India have reiterated their readiness to seek a fair,
reasonable and mutually acceptable solution, through equal and friendly
consultations and proceeding from the overall interests of bilateral relations in
the settlement of the boundary question.
          The two sides expressed satisfaction over the progress made in the
discussions between the Special Representatives of the two countries and
welcomed the conclusion of the Agreement on the Political Parameters and
Guiding Principles for the Settlement of the Boundary Question.
46                                                                   IPRI Factfile

          Pending a final resolution, the two sides will continue to make joint
efforts to maintain peace and tranquillity in the border areas in accordance
with the Agreements of 1993 and 1996, the joint statement said.
          Both sides agreed that while continuing the discussions between the
Special Representatives, it is also important that the Joint Working Group
(JWG) continues its work to seek an early clarification and confirmation of the
Line of Actual Control (LAC).
          Progress made so far on the clarification of the LAC in the China-
India border areas was noted. It was agreed to complete the process of
exchanging maps indicating their respective perceptions of the entire
alignment of the LAC on the basis of already agreed parameters, with the
objective of arriving at a common understanding of the alignment, as soon as
possible, the statement said.
          The two sides expressed satisfaction at the progress achieved in the
implementation of the agreements of 1993 and 1996 and agreed to fully
implement them expeditiously.
          Towards that end, they concluded a Protocol on Modalities for the
Implementation of Confidence Building Measures in the Military Field along
the Line of Actual Control in the China-India Border Areas.
          In the joint statement, the Indian side reiterated that it recognized the
Tibet Autonomous Region as part of the territory of the People's Republic of
China and that it did not allow Tibetans to engage in anti-China political
activities in India.
          The Indian side recalled that India was among the first countries to
recognize that there is one China and its one China policy remains unaltered.
The Indian side stated it would continue to abide by its one China policy.
          Both sides reviewed with satisfaction the implementation of the
memorandum on the border trade through the Nathula Pass between the
Tibet Autonomous Region of the People's Republic of China and the Sikkim
State of the Republic of India.
          The two large Asian neighbors have expressed in the joint statement
their desire to develop "closer and more extensive" understanding and
cooperation in regional and international affairs.
          "Aware of their linked destinies as neighbors and the two largest
countries of Asia, both sides agreed that they would, together, contribute to
the establishment of an atmosphere of mutual understanding, trust and
cooperation in Asia and the world at large, and facilitate efforts to strengthen
multilateral coordination mechanisms on security and cooperation," said the
          As two large developing countries, China and India were both aware
of each other's important role in the process of promoting the establishment
of a new international political and economic order, it said.
Sino-Indian Relations (2004-2005)                                                  47

         The statement noted that the two sides are supportive of
democratization of international relations and multilateralism, stand for the
establishment of a new international political and economic order that is fair,
rational, equal and mutually beneficial, and promote North-South Dialogue
and South-South Cooperation.
         They agreed in the statement that reform of the United Nations
should be comprehensive and multi-faceted and should put emphasis on an
increase in the representation of developing countries.
         According to the document, the Indian side reiterated its aspirations
for permanent membership of the UN Security Council, and the Chinese side
also reiterated that India is an important developing country and is having an
increasingly important influence in the international arena.
         The two sides resolutely condemn terrorism in any form, admit that
the struggle between the international community and global terrorism is a
comprehensive and sustained one.
                                                                       13 April 2005
                    India-China border-treaty hoped to improve ties, facilitate trade>

                             FACILITATE TRADE

A new treaty settles long time border disputes between China and India.
India and China have settled long-time border disputes, and with freed up
cross-border traffic look to creating what would be the largest trading bloc in
the world, between the two most populous nations on the planet. During a
recent visit by Chinese Premier Wen Jiabao to the Indian capital of Delhi, a
border was finally agreed on paper.
         "India and China can together reshape the world order," Indian Prime
Minister Manmohan Singh said Monday.
         "China has a large manufacturing base. I believe it is the world's
factory. And India with its development in software and other areas, I feel, is
the world's office. What I am suggesting is to bring together the factory and
the office," Chinese Ambassador to India, Sun Yuxi, had said ahead of the
         The agreement is the first official document for the 3,500 km disputed
border between the two countries, in more than 20 years. The dispute erupted
into war in 1962, followed by a 14 years freeze in diplomatic relations.
         China would give up claims on 90,000 square kilometers to the North-
East of India, formally recognising as parts of India, Sikkim — a Himalayan
kingdom that merged with India in 1975 — and Tawang — an area in
Arunachal Pradesh which China had repeatedly claimed.
48                                                                   IPRI Factfile

         India would be formally recognising Tibet as a part of China, giving
up Aksai Chin, uninhabited land on the Tibetan plateau that Beijing seized
from the Indian states of Jammu and Kashmir in 1962. India agreed also "not
to allow Tibetans to engage in anti-China political activities on its soil",
according to a report in The Economic Times of India.
         A new cross-border trade route would be allowed through Nathula, in
Sikkim, and significant road work was to facilitate higher traffic, at least on the
Chinese side.
         Eleven guiding principles and political parameters for resolving the
disagreement, were put forth in the document, including a committment to
enhance bilateral trade from the present US$13.6 billion to US$30 billion by
2010 — trade which only a decade ago was worth just US$1 billion.
         "This matter tells us that as long as the two sides bear sincerity, and
patience, the border between China and India will become a bridge linking the
friendship of the two sides," Wen said of the document he signed with Singh.
         "A growing and stable China is in the interest of India. Similarly, a
growing and stable India is in the interest of China," the Chinese Premier said.
"It shows a lot of give and take on both sides," said National Security Adviser
M.K. Narayanan, India's special representative for the border talks.
         The treaty "respect[s the] status quo, and is tantamount to accepting
the Line of Actual Control as the border between the two countries," said
Swaran Singh, a China expert at the Jawaharlal Nehru University in New
         "The next two years are very crucial to determine how much the two
sides put the guiding principles into practice for the actual demarcation of the
frontier," he cautioned.
         Feasibility of a China-India Free Trade Agreement would be examined
— with China eager, but India tentative .
                                                                    13 April 2005

           F UEL E NOUGH       FOR    D RAGON     AND    E LEPHANT
A recurring theme in most writings on the emerging international energy
scenario is the pressure that rising Chinese and Indian demand for oil and gas
is exerting on world prices. Though oil prices have risen and fallen through the
better part of the past two decades and cyclical movement still exists, there is
little doubt that we are entering a period of a secular upward trend in the price
level. The reasons for this are not hard to find. On the supply side, despite the
many great discoveries of the past 10 years, most oil majors like Shell and
Chevron-Texaco are having difficulty finding fresh reserves to replace those
Sino-Indian Relations (2004-2005)                                             49

they extract in any given year. And on the demand side, despite the
sluggishness still evident in Japan and Western Europe, the rapid economic
growth witnessed across most of Asia is leading to a rapid surge in net imports
of oil into the region.
Rising demand and dwindling supply
China alone accounts for 40 per cent of the growth in world oil demand since
2000. Asian gas imports too are rising, though the scale of the new discoveries
in Iran, the Persian Gulf, Central Asia and other smaller fields in Myanmar,
Bangladesh and India means landed prices will depend less on rising demand
than on any economies of scale effected in the mode of transportation, such as
multi-destination pipelines.
         Against such a background of rising demand and dwindling supply, it
is tempting to assume India and China are rivals in the quest for new — but
eventually finite — sources of oil. Even if the possibilities for cooperation are
substantial, it is a fact that China has been much more focussed than India on
the hydrocarbons front. At the Asian energy conference in New Delhi this
January, Prime Minister Manmohan Singh sounded a warning: "China is ahead
of us in planning for its energy security." "India can no longer be complacent,"
he said. Despite generating substantial internal production, China has been a
net importer of oil since 1993. According to reliable estimates, its internal
reserves at Daqing and elsewhere are likely to run out by 2020. Though there
is some possibility of exploiting oil in the Tarim basin, the costs involved are
substantial. With the Chinese economy continuing to grow, its need for
imported oil will only go up.
Chinese response
The Chinese response to this scenario has been multi-pronged. First, it is
building U.S.-style strategic petroleum reserves at four locations in Zhejiang,
Shandong, and Liaoning provinces with the aim of having at hand 30-75 days
consumption as reserve. Alongside this, it is paying closer attention to security
issues along its vital sea lines of communication (SLOCs). Beijing's areas of
concern are the Straits of Hormuz and Malacca (where 80 per cent of Chinese
imports pass through), Luzon, and Taiwan. The Chinese presence in Gwadar
in Pakistan and the Myanmar coast is linked more to energy security concerns
than to any threat from — or challenge to — India. China today is extracting
oil in more than 12 countries around the world. In addition, it recently entered
into a $100 billion 25-year agreement for supply of LNG from Iran. When
Canadian Prime Minister Paul Martin went to China in January 2005, the two
countries agreed on an energy partnership for the 21st century that might give
China access to the Athabasca tar sands. Also in January, following Chinese
Vice-President Zeng Qinghong's visit to Caracas, Chinese firms signed a $400
million investment deal involving as many as 15 Venezuelan oil fields. The last
two deals have sent alarm bells ringing in Washington, which fears losing its
50                                                                  IPRI Factfile

power as a monopsonist: More than 95 per cent of Canadian oil exports today
go to the U.S., which is also Venezuela's single largest customer.
         As for land-based supply routes, work has already started on a 1,000
km pipeline from Atasu in Kazakhstan to Alataw in Xinjiang. When
completed, China can bring in as much as 10 million tonnes of oil annually
through this route. The Chinese side was also keen on a 2,400 km pipeline
from Angarsk in eastern Siberia to Daqing. But the Japanese, who have their
own energy needs to worry about, want the Siberian pipeline to go to
Nakhodka on the Sea of Japan. For the moment, Tokyo appears to have
convinced Moscow about the viability of this route, though Beijing has also
mooted a cooperative plan that would help both countries. It stands to reason
that energy figures prominently amongst all the issues underlying the recent
increase in tension between China and Japan.
         Given China's large global footprint in the energy sector, what kind of
policy should India have? ONGC Videsh Ltd (OVL) faces strong competition
from Chinese firms in most territories and lost out the chance to buy Shell's 50
per cent share in Angola's lucrative Block 18 when the Angolan state
company, Sonagol, exercised its pre-emption rights to hand the stake over to
CNPC. In pursuing this deal, the Chinese Government backed up CNPC's bid
with an offer of $2 billion worth of development assistance. All India could
offer was concessional funding for a $200 million rail deal. While the Indian
side laments the lack of transparent audit procedures in China — which
enables Beijing to be more `flexible' in sealing up contracts outside — it is also
true that Indian companies are not aggressive enough. Despite India wanting a
share of Kazakhstan's booming energy sector, for example, no Indian energy
sector company has seen fit to open an office in Almaty or Astana to scout for
Focussed partnership
But if India and China have squared off in Angola and also Indonesia and
Sudan, there are also examples of cooperation. Both countries have a
partnership in the Yahavaran oil field in Iran, as well as the Greater Nile oil
project in Sudan. There is also talk of collaboration in Russian projects where
India could take an equity stake with a view to supplying not its own but
Chinese markets. Going beyond specific corporate tie-ups, there is
tremendous strategic sense in India and China evolving a focussed partnership
on the energy security front. Indeed, one may argue that as far as Central
Asian energy resources are concerned, India and China are natural allies
because both share an interest in ensuring that the battle over export routes is
settled in favour of Asia rather than Europe or the United States. When
Central Asia has an energy surplus and South and East Asia have energy
deficits, it is logical that transportation routes be established between these
two regions over the shortest possible distance.
Sino-Indian Relations (2004-2005)                                            51

         If the U.S. has its way, oil and gas from Turkmenistan, Uzbekistan
and Kazakhstan will travel westward through the Caspian Sea, Georgia and
Turkey. And India and China, which currently pay an `Asian premium' for oil
from West Asia, will find themselves paying more for Central Asian resources.
Thus the two countries have a stake in ensuring that the energy resources of
Asia are used within the continent. Specifically, this means working together to
ensure that the U.S. effort to isolate Iran is frustrated. No doubt there are
other mutually beneficial routes.
         When Xinjiang Autonomous Region chairman Ismail Tiliwandi visited
New Delhi last year, he broached the subject of a direct gas pipeline from
China to India. And there is also a suggestion, made recently by Sudha
Mahalingam of TERI, for the export of hydro-electricity from Kyrgyzstan to
India via High-Voltage Direct Current (HVDC) lines through Xinjiang. But a
pipeline through Iran remains the best bet for India, not just because it will
eventually let us tap into Central Asian gas but also because of the positive
geopolitical spin-offs.
Proposed pipeline
Most tantalising of all is the proposal floated by India's Petroleum Minister,
Mani Shankar Aiyar, for the Iran-Pakistan-India gas pipeline to be extended
across north India, Assam and upper Myanmar all the way into China's
southern Yunnan province. Because it is equidistant from Central Asia and
China's eastern seaboard, Yunnan is perhaps the region hardest for Beijing to
supply. For the Chinese side, such a pipeline would be a good alternative to
the proposed pipeline from Sittwe on the Myanmar coast to Kunming in
Yunnan. And for India, having China as an end user for Iranian or Central
Asian gas would lessen the chances of Pakistan ever turning off the tap. The
21st century will not be an `Asian century' unless the two biggest countries in
the continent work as partners. And what better place to start than energy, the
control of which helped the U.S. establish the previous century as an
American one?
                                 Siddharth Varadarajan, The Hindu, 14 April 2005

              C HINA M ISSES        ITS   C HANCE   WITH I NDIA

The only sure rule in analysing China-India relations is never to take what is
apparent as real. In the weeks preceding the April 9-12 visit of Chinese
premier Wen Jiabao to India, there were several 'informed' analyses, each
putting forward as fact what in fact was merely a wish list of certain lobbies
active in the Indian system case.
52                                                                    IPRI Factfile

         China and India cannot be de-hyphenated from the US. Beijing has
taken full advantage of the Cold War, allowing itself to become an accomplice
in covert measures taken to weaken and eventually destroy the USSR.
         Even today, several within the Chinese strategic establishment seek a
strategic partnership with Washington that would enable Beijing to displace
Tokyo as the lead ally in Asia. In exchange for such a privilege -- the Chinese
historically have always regarded the mere possession of their goodwill as a
priceless gift -- Beijing expects the US to nudge Taiwan into accepting a 'Hong
Kong status' and continue sourcing as much of manufactures as possible from
Chinese ogre has a giant appetite
There are many statues of Chairman Mao in China but none of Sam Walton,
the founder of Walmart, who has done as much for Chinese prosperity as any
other individual. Some estimates claim that as much as 13 per cent of Chinese
GDP is accounted for by Walmart.
          Unfortunately, for Beijing, rather than embrace the PRC, Washington
appears to be moving in the direction of attempting to co-opt New Delhi into
serving as a counter to China. When this writer spoke of such an inevitability
in the early 1990s, he was debunked by those analysts who regarded anything
not retailed either by South Block or Embassy Row as being fallacious and
          Several wrote as though a solution to the boundary dispute was
imminent. The reality is that the boundary dispute is nowhere near settlement.
The other fact is that it is the Chinese side that is the spoiler this time, whereas
in the 1950s, it was Jawaharlal Nehru who refused the settlement offered by
Zhou Enlai in 1961.
          The Zhou offer was practical and, in view of ground realities, fair.
Even after the 1962 conflict, when an Indian Army that had been weakened by
nine years of fiscal neglect and sacrificed by political direction even at the
tactical level had been pushed back by Chinese troops, Beijing withdrew to the
lines that its forces had been in occupation of prior to the conflict.
          Today, were there to be a boundary settlement based on the status
quo, both in India as well as in China public opinion would accept it in the
interests of the two 'Giants of Asia' abandoning their animosity towards each
'China no longer a threat'
Had the Chinese side followed up on the opening created by Rajiv Gandhi in
1988 and P V Narasimha Rao seven years later, by now there could have been
a boundary settlement. Unfortunately, in order to placate the generals in
Islamabad, the Chinese leadership has sacrificed its national interest by
refusing to even demarcate on maps the true position of the respective forces
on the Line of Actual Control.
Sino-Indian Relations (2004-2005)                                             53

         Had such a process got completed, it could have been quickly
followed by a legal acceptance by both sides of the current effective boundary
between the two countries. Instead, despite several rounds of talks,little
progress has been made on substantive issues.
         While this would be hard to discern from the raft of rosy reports
about the Wen visit, the reality is that it has been a disappointment to those
looking for an India-China strategic alliance. For the first time since 1962, the
Chinese had a chance to demonstrate that they were sincere when claiming
that they sought an equal partnership with India. All that needed to be done
was for Prime Minister Wen to state unequivocally that Sikkim was a part of
India, the way Atal Bihari Vajpayee had in the case of Tibet in 2003.
         Instead, the Chinese statements on Sikkim were watery and
prevaricating when contrasted with Vajpayee's position on Tibet.
         Apart from repaying India for its conciliatory attitude on Tibet by a
similar show of grace over Sikkim, there was a second benchmark for judging
whether the Chinese show of comradeship could be taken at face value, and
this was the United Nations Security Council.
The dragon's preferred option
It was hoped that Wen Jiabao would clearly position China on the side of
Russia, France and the United Kingdom in asserting that it backed New
Delhi's joining an expanded Security Council. Instead, what he uttered were
words so general and anodyne as to lack commitment. While the Chinese have
always insisted on clear statements from India, it was clear that they felt no
compulsion to repay the favour.
          Wen Jiabao came to India only as part of a general tour of South Asia,
that naturally began in Pakistan and continued on to Bangladesh and Sri Lanka
before finally reaching India. It is no coincidence that the only two countries
with which China has a defence pact are Bangladesh and Pakistan, both of
which (under their current dispensation) have only one country as a potential
target, India.
          Adding salt to the wound caused to India's security by Chinese
assistance to Pakistan's nuclear programme, an enhancement of Pakistani
capabilities thanks to Chinese help was announced during the Wen visit to
Pakistan, while a nuclear cooperation agreement was signed in Bangladesh.
Only the naive will accept the comment that all such activities fall within the
parameters of the International Atomic Energy Agency guidelines. If that were
so, there would not be the visits by Chinese military personnel to nuclear sites
in Pakistan, nor would there have been a transfer of missiles to Bangladesh,
neither of which has yet been covered in the Indian media.
          Given that China has supplied an entire missile factory to Pakistan --
at Fatehjung -- and is now equipping the Bangladesh forces with missiles that
can reach Lucknow and Kolkata, it is noteworthy that the foreign ministry in
54                                                                  IPRI Factfile

Beijing has publicly warned against the prospect of India getting the Patriot II
anti-missile system from the US.
The Road Ahead
The official spokesperson claimed to be concerned about an 'arms race' in
South Asia in a context when both the Bangladesh as well as the Pakistan
forces have their main supplier in China. Far from Wen Jiabao backing away
from such full-throated support to the jihad factories in Bangladesh and
Pakistan, his officials have announced a slew of fresh military and
nuclear/missile assistance that has only India as the intended victim.
          Even more distressing to those eager for an alliance with China, the
bulk of the weapons supplied to both these countries are offensive in nature.
That the US too has been coddling Islamabad is not reason enough to ignore
such transfers.
          In the countries around India's periphery, Chinese diplomats and
military personnel warn local elite informally about the 'hegemonistic'
ambitions of New Delhi. Recently, such warnings have shifted to the
economic sphere as well. The Sri Lankan authorities have been privately
warned by Beijing 'not to encourage' Indian oil companies, 'as otherwise they
may monopolise the sector'.
          In Myanmar, local authorities recently withdrew from an MoU about
surveying for oil, after pressure from Beijing. Similarly, behind-the-scenes
efforts are on by the China lobby in both Taiwan as well as in India to abort
nascent efforts at cooperation between the cash-rich island's petro product
companies and Indian entities.
          It is not only the UN Security Council that China seeks to keep free of
contamination by India. Despite repeated requests, Beijing remains cool to the
idea of an Indian entry into the Shanghai Cooperation Council or to any role
by New Delhi in East Asia. Indeed, the Chinese foreign ministry has been
explicit that 'India has no locus standi in talks involving the Korean peninsula.'
Future friends?
This from a country that seeks to join SAARC as a full member. While Beijing
has been energetically prodding and pushing in India's neighbourhood, it
resents the 'Look East' policy initiated by Narasimha Rao and is unhappy at
India's increased visibility in ASEAN, just as it is with the increase in contacts
between New Delhi and the Central Asian republics.
         The fear in Beijing is that India will team up with the US to increase
its leverage in these regions, thus effectively checkmating China. The
economic muscle of the US and the cultural and geographical advantages of
India can form a combination impossible to resist, although it must be said
that an India-China coalition would be almost as potent. Ironically, Beijing
itself would be delighted to continue to partner the US, were it invited by
Sino-Indian Relations (2004-2005)                                               55

Washington to do so. The Communist Party leadership in Beijing is aware that
prosperity in China hinges on continued access to US markets and technology.
Although Europe is emerging as an alternative destination, the numerous
market restrictions preventing genuine competition within the European
Union mean that the US will continue to be needed to provide buyers for
Chinese products.
          Sadly, the hand being played by the Manmohan Singh government has
been severely weakened by past actions of the former National Security
Adviser and principal secretary to the prime minister, Brajesh Mishra.
          The reflective and usually efficient M K Narayanan has not even
bothered to quiz Mishra about why he gave oral instructions to the top brass
at the R&AW headquarters not to arrest CIA agent Rabinder Singh, despite
repeated requests to him by the agency. Neither has the former National
Security Adviser been asked to explain the circumstances in which he
apparently -- and again orally -- offered to 'be generous' on water sharing with
Pakistan and on the question of the retention of Indian control over sections
of liberated Kashmir.
          What concerns this particular narrative is Brajesh Mishra's
involvement in the secret talks with China, a factor that almost resulted in --
but for the May 2004 electoral defeat -- unilateral Indian concessions. Mishra's
attempts at generosity have created expectations in the Chinese that have
resulted in an intransigence by them towards reasonable solutions.
          It was Mishra who, according to senior officials, first gave the
impression that India would make concessions on the Tawang tract. It was
Mishra who ensured in June 2003 that Vajpayee made a total surrender to the
Chinese position on Tibet without any return concession from Beijing, much
less a matching one. It was again Mishra who sought to slow down the efforts
by those less prejudiced to engage with Taiwan, an island that exports nearly
$5 billion of capital a year, and which is looking for an alternative to China as a
manufacturing hub. In nanotechnology and several other fields that India
needs help in, Taiwan is a world-beater.
          As a result of the Mishra interlude, there is now a ratcheting up of
Chinese pressure on New Delhi to place onerous conditions on the Dalai
Lama, so that he either returns to China or leaves for a third country. The
effect of this would be to create disaffection among the 680,000 inhabitants in
the sensitive border regions who owe spiritual allegiance to the Dalai Lama,
apart from turning into enemies the significant groups of individuals and
institutions worldwide who revere the Tibetan spiritual leader.
          Under Mishra's personalised rule, several decisions got taken by the
PMO that were never even brought before the Cabinet Committee on
Security, much less taken after consultations with its members.
          Fortunately, both under J N Dixit and now M K Narayanan, the
administration has made clear that any oral commitments made by Brajesh
56                                                                   IPRI Factfile

Mishra cannot bind the Government of India. As a result, Beijing is coming to
realise just how big an opportunity it missed by promising so much and
delivering so little during the Wen Jiabao visit. It is no accident that the India-
US engagement has accelerated just hours after Wen's Air China jetliner left
Indian skies for home.
                                                                    2 May 2005


Until recently, China was a worthy rival to India, not only in the political
domain but also in the business arena, as Beijing aggressively pushed global
trade. This was a cause for concern to New Delhi, as the trade pattern of the
two countries are complementary.
          However, till two years ago, no one would have imagined that China
would emerge the engine for India's export growth.
          In 2004-05 (April-November) China was India's second biggest trade
partner and the second biggest destination for India's exports. In 2002-03, it
was ranked the sixth export destination.
          Interestingly, during these three years, India's exports logged highest
growth. In 2002-03 and 2003-04, India's exports grew at over 20 per cent and
in the first nine months of the current year, they soared to 29 per cent, though
the global trade was dismal.
          China had become the catalyst for India's peak export growth, as
evident from its contribution reaching 2.3 per cent during 2002-03 to 2004-05
(April-November) compared to the US' 1.4 per cent.
          What has made China the major destination for Indian exports?
          It was China's hunger for raw materials, intermediates and
          Exports of iron ore to China more than doubled this year, pushing
Japan to the second place.
          Iron ore constitutes around 40 per cent of India's exports to China.
The other major exports were plastic materials, steel, chemicals and soyabean
          The sudden predominance of China in India's exports has, however,
raised two crucial issues: Whether the exports to China will sustain and
whether they will exceed that to the US.
          It is not unrealistic to forecast that if its economy continues to be as
robust, China will, in the near future, overtake the US.
          Which means, the demand for imports of raw materials, intermediates
and components and parts will continue to rise.
Sino-Indian Relations (2004-2005)                                           57

         According to a forecast by The Economist of London, China's imports
are expected to surge at the rate of 17-18 per cent a year till 2008.
         China and the US are the two engines of world economy, which grew
by 3 per cent in 2002, 3.9 per cent in 2003 and is projected to grow by 4.6 per
cent in 2004, according to the IMF.
         China contributed 27.7 per cent to the global economic growth in
2003, the highest among all nations.
         The global trade increased by 16.1 per cent in 2003 and China was the
top contributor. In 2003, China contributed 10.9 per cent to the global export
growth and 11.2 per cent to the world import growth. In 2003, China's exports
increased by 34.6 per cent and imports by 39.9 per cent.
         China's imports are likely to remain high, considering its growing
GDP. The Economist forecast China's GDP to grow between 7.7 per cent and
8.7 per cent from 2004 to 2008.
         Alongside, exports are expected to surge 14-20 per cent during this
         Then, China has the advantage of a huge domestic demand. So the
country is well insulated from any over-heating.
         The Economist has forecast that the upward in FDI (foreign direct
investment) flows to China will be sustained and help in gearing up the
economy this decade. It estimated that FDI would touch $79 billion by 2008,
up 44 per cent from $55 billion in 2003.
         The cheap labour and good infrastructure are the main attractions for
foreign investors.
         China has been attractive enough for MNCs to shift their
manufacturing there. A number of Japanese firms relocated their factories to
China to produce goods cheap.
         Interestingly, a large part of the goods produced in these relocated
factories went to meet the domestic demand of Japan and expand the exports
of the Japanese MNCs.
         Thus, China's potential as world's biggest manufacturing hub is
unlikely to be affected in the near future.
         Not just for India, China has turned friendlier towards a number of
South-East Asian countries.
         For instance, for Asean-4 (Thailand, Malaysia, Indonesia and the
Philippines), China has emerged the next generation export market after
Beijing entered the World Trade Organisation.
         The combined exports of Asean-4 to China soared by 196 per cent
from 2001 to 2003.
         In fact, for these four, China has emerged the engine for export
growth, replacing the US as their biggest export market.
58                                                                 IPRI Factfile

         China's ubiquitous growth in trade and economy and its
predominance in global trade turn it into a springboard for several developing
and developed countries.
         The air is taken out of the fears of a Chinese bubble as the country
rests on the strong pillars of large domestic demand and cheap labour.
         Its saving ratio is as high as 40 per cent, which insulates it from any
fears of foreign investments flying away.
         And, China's entry into the WTO has opened up numerous areas with
huge investment potential.
         In this perspective, India should create an atmosphere to foster closer
trade and economic ties with China.
         The difference between China and Pakistan is that while for
Islamabad politics dictates business, for Beijing it is business that takes the
         Also, China appears quite eager to partner India to conquer Asia Inc.
Boundary disputes can wait.
                                                        S. Majumder, 6 May 2005
< >

                     P RINCIPLES " A NNIVERSARY
BEIJING, June 28 (Xinhuanet) -- Chinese President Hu Jintao and his Indian
counterpart, Abdul Kalam, exchanged congratulations Monday on the 50th
anniversary of the Five Principles of Peaceful Coexistence.
         The formation of the Five Principles of Peaceful Coexistence, initiated
jointly by China and India 50 years ago, was a pioneering effort in the 20th-
century history of international relations and an important contribution to the
cause of peace and development of the humanity, Hu said in his
congratulatory messageto Kalam.
         Over half a century, the Five Principles has withstood the testof
history, won extensive recognition from the international community, and
become a major set of norms governing state-to-state relations. At present, the
Five Principles is still of tremendous relevance as a guide for action for world
peace and common development, said the Chinese president.
         Jointly developing and deepening the long-term constructive
andcooperative partnership between China and India on the Five Principles
conforms to the fundamental interests of the two peoples and will
continuously contribute to peace, stability and development in Asia and the
entire world, he stressed.
         "China will firmly pursue the independent foreign policy of peace,
forge and develop friendship and partnership with neighbors and remain
Sino-Indian Relations (2004-2005)                                               59

committed to the good-neighborly and friendly relations and mutually-
beneficial cooperation with surrounding countries," Hu said.
          He stated that China would like to make joint efforts with all other
countries including India to continuously enrich and carry forward the spirit of
the Five Principles so as to make fresh contributions to human peace and
          Kalam, in his congratulatory telegram to Hu, said that the
FivePrinciples has not only become an integral part of the two nations' foreign
policies, but also been widely accepted by the international community.
          Thanks to the vision of the two states' leaders, the relevance of the
Five Principles has endured the passage of time and the dramatic changes in
the international scene and showed the world the path to universal peace and
harmony, he noted.
          He said the Five Principles has been part of the important guiding
principles of the Indian-Chinese ties and will continue to play an important
role in the future.
          "On this historic occasion, I wish to reiterate that in the years to
come,        we      shall      endeavor     to     maintain,      and       indeed
accelerate the steady growth of friendship and cooperation between our two
countries," Kalam stated in the message.
          On the same day, Chinese Premier Wen Jiabao and Indian Prime
Minister Manmohan Singh also exchanged congratulations on the anniversary.
          In his message to Singh, Wen said the Five Principles is a political
foundation for China-India relations and a fundamental guarantee for the
relations to progress healthily and steadily. The Chinese government, Wen
said, highly values its good-neighborly relations and friendship with India and
is ready to work together with the Indian side to further enhance the mutual
understanding and trust, reinforce exchanges and cooperation in various fields
and properly handle and resolve the issues left over by history so as to
continuously add new strength to the bilateral relationship.
          "I'm convinced that, through the concerted efforts of both sides,
there will be an even brighter future for the long-term constructive and
cooperative partnership between China and India," he said in the message.
          Singh, for his part, also emphasized that the Five Principles will always
serve as an important guiding principle of the India-China relations.
          India will remain committed to expanding and diversifying its
relations with China and to further developing the bilateral long-term
constructive and cooperative partnership, he said.
          India also looks forward to working with China in regional and global
forums for peace, stability and development in Asia and the world, Singh
                            Embassy of People’s Republic of China, 28 June 2004
60                                                                   IPRI Factfile

India feels that a free trade agreement with China will not work as it is not a
market economy. But India wants its relations with China to shift from the
political to the commercial domain and has suggested both sides should ensure
that they are not played against each other by the rest of the world.
          “For a free trade agreement with China, both countries should have
market economies. India will be ready with China for an economic co-
operation agreement as China moves to become a market economy,”
commerce minister Kamal Nath said.
          Asked about the possibility of establishing a Free Trade Area (FTA)
between India and China, he said that since China was not a ‘market
economy,’ it will not work.
          Nath, who was here to attend the WTO informal ministerial meeting
said China wants ties with India to flourish for which the relations must move
from the political to the commercial domain.
          “This is the century of Asia and the partnership of India and China
must flourish,” he said. “As China slowly moves towards a market economy,
both countries will have to strengthen their relations to ensure that one is not
played off against the other by the rest of the world,” the minister said.
          Nath, who had a successful meeting with Chinese commerce minister
Bo Xilai here, noted that Sino-Indian bilateral trade had touched an all-time
record at $13.6bn in ’04-05.
          “Our bilateral trade has moved up from $1bn per annum to $1bn per
month,” he said, adding that the synergy between both countries need to be
          He noted that during Chinese premier Wen Jiabao’s visit to India in
April, the two governments had agreed to appoint a joint task force to study in
detail the feasibility and the benefits that may derive from a Sino-Indian
Regional Trading Arrangement (RTA).
          The RTA was recommended by the joint study group (JSG) that was
set up to examine the potential synegies between the two countries in
expanded trade and economic co-operation following the visit to China by the
then prime minister Atal Bihari Vajpayee.
          The JSG had recommended a Sino-Indian RTA, comprising trade in
goods and services, investments, identified understandings for trade and
investment promotion and facilitation, and measures for promotion of
economic co-operation in identified sectors.
          The JSG in its report has also identified a series of measures related to
trade in goods, trade in services, investments and other areas of economic co-
operation, and recommended their expeditious implementation to remove
Sino-Indian Relations (2004-2005)                                                61

impediments and facilitate enhanced economic engagement between India and
                                                Economic Times (India), 15 July 2005

                    I NDO -C HINA T RADE R ELATIONS
Among the most encouraging recent developments in India-China ties is the
rapid increase in bilateral trade. A few years ago, India Inc had a fear of being
swamped by Chinese imports. Today, India enjoys a positive balance of trade
with China. In 2004, India's total trade to China crossed US $13.6 billion, with
Indian exports to China touching $ 7677.43 million and imports from china at
US $ 5926.67 million.
         But major industry players in India feel there is no need to give the
Chinese a free ride into the domestic market so early. This is particularly, when
India and China have been directly competing across several product
categories. And that too, when both the applied and bound import tariffs are
higher in India compared with China. Indian industry's ambivalence over the
proposed Indo-China FTA stems from concerns over previous FTAs signed
by the government. There's a feeling that some of these FTAs were signed in
haste, and without adequate homework. Result: There has been confusion
about the country of origin issue as well as the items to be put in the early
harvest lists.
         China and India established diplomatic relations on April 1, 1950.
India was the second country to establish diplomatic relations with China
among the non-socialist countries. In 1954, Chinese Premier Zhou Enlai and
Indian Prime Minister Nehru exchanged visits and jointly initiated the famous
Five Principles of Peaceful Coexistence. Indian Prime Minister, Rajiv Gandhi's
visit to China in December 1988, facilitated a warming trend in relations. The
two sides issued a joint statement that stressed the need to restore friendly
relations on the basis of the Panch Sheel and noted the importance of the first
visit by an Indian prime minister to China since Nehru's 1954 visit. India and
China agreed to broaden bilateral ties in various areas, working to achieve a
"fair and reasonable settlement while seeking a mutually acceptable solution"
to the border dispute.
         Rajiv Gandhi signed bilateral agreements on science and technology
cooperation, on civil aviation to establish direct air links, and on cultural
exchanges. The two sides also agreed to hold annual diplomatic consultations
between foreign ministers, and to set up a joint ministerial committee on
economic and scientific cooperation and a joint working group on the
boundary issue. The latter group was to be led by the Indian foreign secretary
and the Chinese vice minister of foreign affairs. As the mid-1990s approached,
62                                                                   IPRI Factfile

slow but steady improvement in relations with China was visible. Top-level
dialogue continued with the December 1991 visit of Chinese premier Li Peng
to India and the May 1992 visit to China of Indian president Ramaswami
         Border trade resumed in July 1992 after a hiatus of more than thirty
years, consulates reopened in Bombay (or Mumbai in the Marathi language)
and Shanghai in December 1992, and, in June 1993, the two sides agreed to
open an additional border trading post. Though, Rajiv Gandhi's visit to China
in December 1988 is usually identified as a turning point and break-through in
India-China relations, it should also be noted that many years of previous
effort had a contribution to it.. In 1976, the two countries decided to restore
ambassadorial-level diplomatic ties after a gap of 15 years. The next major step
was foreign minister Vajpayee's visit to China in February 1979 –
         The first high-level visit between the two countries since 1960. In
1984 India & China signed a Trade Agreement, providing for Most Favoured
Nation Treatment. In 1994 the two countries signed the agreements on
avoiding double taxation. Agreements for cooperation on health and medical
science, MOUs on simplifying the procedure for visa application and on
banking cooperation between the two countries have also been signed.
         The Chinese economy was decentralized in 1978 and major economic
reforms were introduced which created conditions for rapid economic growth
and structural changes in China. In 1980, China's share in world trade was less
than one percent, and it started permitting foreign direct investment (FDI). In
1999, China had grown to become the world's second largest economy after
US in terms of GDP. The high growth rate of China is attributed to high levels
of trade and greater investment effort. Strong exports growth from China has
helped push China's economy to 9.1% growth rate in 2003-2004. China is the
world's second largest recipient for FDI with total FDI inflows crossing US $
53 billion in 2003. Growth in Special Economic Zones (SEZ) has also helped
China increase its productivity.
         Recently Chinese premier Wen Jiabao visited India, where he said that
India and China must take their trade to $30 billion level by 2010. Seeing the
whopping growth in Sino-Indian trade, China outlined a five-point agenda,
including reducing rade barriers and enhancing multilateral cooperation to
boost bilateral trade.
         Chinese Premier Wen Jiabao said "We have set an objective (in the
joint statement) to increase the two-way trade volume from 13.6 billion dollar
at present to 20 billion dollar by 2008.....we plan to take it to 30 billion dollar
by 2010." Addressing Indian business leaders at New Delhi on April 11, he
said that the two countries agreed for a joint feasibility study for a bilateral
Free Trade Agreement.
         India and China have also agreed to work together in energy security
and at the multilateral level at the WTO to support an "open, fair, equitable
Sino-Indian Relations (2004-2005)                                                63

and transparent rule-based multilateral trade system", the joint statement
signed by Prime Minister Manmohan Singh and Wen said. Wen also offered to
cooperate with New Delhi in its infrastructure programme.
        Indian Commerce Minister Kamal Nath said China was poised to
become India's largest trade partner in the next two-three years, next only to
the US and Singapore.
        TRADE PATTERN (value in USD millions)

                                                         China's Imoprts from
  Year                  China's Exports to India
  2000                  1560.75                     1353.48
  2001                  1896.27                     1699.97
  Percent Growth        21.5                        25.6
  2002                  2617.73                     2274.18
  Percent Growth        40.9                        33.8
  2003                  3343.59                     4251.49
  Percent Growth        22.2                        87
  2004                  5926.67                     7677.43
  Percent Growth        77.3                        80.6

         According to a CII study, special focus on investments and trade in
services and knowledge-based sectors, besides traditional manufacturing, must
be given, in view of the dynamic comparative advantage of India. Indian
companies could enter the $615 billion Chinese domestic market by using it as
a production base.
         Presently, Iron ore constitutes about 53% of India's total exports to
China. Among the potential exports to China, marine products, oil seeds, salt,
inorganic chemicals, plastic, rubber, optical and medical equipment and dairy
products are the important ones. The study said that services and knowledge
trade between India and China have significant potential for growth in areas
like biotechnology, IT and ITES, health, education, tourism and financial
         Value added items dominate Chinese exports to India, especially
machinery, including electrical machinery, which together constitute about
36% of exports from that country. The top 15 Chinese exports to India have
recorded growth between 29% (organic chemicals) and 219.89% (iron and
                                                                       August 2005
64                                                                 IPRI Factfile

                            I NDIA   AND   C HINA
PROFESSOR Yang Baoyun, deputy director of the Centre for Asia-Pacific
Studies at the University of Beida in Beijing said: “We have much in common
with India, we both have brilliant civilisations, a humiliating experience of
occupation and a large population.” In listing these features, he sought to
show that similarities between the Asian giants are much more important than
the sources of conflict.
         The countries with the largest populations in the world, India with 1.2
billion and China with 1.3 billion, are endeavouring to renew the ties of their
shared past. In the 18th century they were jointly responsible for almost 50%
of the goods produced in the world (China 33%; India 16%). But the links
between them are much deeper.
         Economist and Nobel prize winner Amartya Sen has written (1) that
those links were based originally on trade - not Buddhism; 2,000 years ago
Indian consumer habits, particularly among the wealthy, were deeply
influenced by innovations from China. He cites many sources and remarks on
the influence of Indian mathematicians and astronomers on Chinese culture,
particularly in the sixth and seventh centuries. So there were mutual benefits.
         Both experienced an industrial decline, starting in the 19th century,
and in the 20th century competition gave way to conflict (over Tibet), even
war over borders (in 1962), and to the race for nuclear power (1964 in the case
of China, 1974 in India). Since the end of the cold war the nations have
resumed their dialogue and developed trade relations. China wants to make up
its technological deficiencies in areas in which India excels: computers
(software) and services (call centres, accounting systems). It is even moving to
abolish all customs barriers and establish a free-trade area. Indian authorities
and businessmen have reservations about this, since India’s gross domestic
product is just over a third of China’s, and China is now second in the list of
suppliers after the US.
         Relations between the giants have changed profoundly. Discussions
on the border disputes have started under the terms of a wider framework
agreement on a strategic partnership for peace and prosperity, signed on 11
April 2005. On 14 November 2004 more than 1,500 officers and men of the
countries took part in joint military manoeuvres - unimaginable, even three
years ago. Peaceful relations are being established, but that does not preclude
competition, both economic and diplomatic.
         New Delhi is adept at exploiting the closer links it has forged with
Washington which even proposed, on 19 July 2005, to lift the sanctions
imposed on India in 1995 and enter into cooperation in the civil nuclear power
sector. This proposal is a source of anxiety in Beijing.
                                             Le Monde diplomatique, 3 August 2005
Sino-Indian Relations (2004-2005)                                             65

      W ILL C HINA O VERSHADOW            THE I NDIA -EU      S UMMIT ?
Will China galvanise Prime Minister Manmohan Singh’s meeting with the
President of the European Union (EU) on September 7, in New Delhi?
Although the event is officially described as the sixth India-EU summit, it is
likely to be a humdrum affair, even though the Prime Minister will be
welcoming Tony Blair, as the holder of EU’s rotating presidency until the end
of this year. But Tony Blair could just invigorate the summit agenda by adding
China to it.
          The fact is that he will be arriving in New Delhi straight from his
summit meeting with the Chinese leadership, and sufficiently excited, perhaps,
to tear down the wall EU officials insist on maintaining between India and
China. The two Prime Ministers will endorse the action plan for building the
strategic partnership between India and the EU that was launched a year ago.
The plan does refer to the global challenges facing India and the EU, but they
are viewed in the multilateral framework of the UN.
          And yet, one of the most promising, but also potentially destabilising,
relationships facing India and the EU is the triangular India-EU-China
relationship. You have only to glance at the headlines in the European media
to see how sharply the EU business community is divided right now over such
a simple, everyday item as trousers from China.
          The sixth India-EU summit offers the two Prime Ministers an
exceptional opportunity to discuss between themselves how best to take
advantage of the tremendous economic, but also political, opportunities
offered by an effective India-EU-China relationship. Tony Blair could certainly
take the lead here, taking advantage of the fact that the EU is developing a
strategic partnership with both India and China. But both India and the EU
also maintain close and cordial relations with the world’s remaining
superpower, the US.
          Manmohan Singh’s meeting with President George W Bush in
Washington in July marked a dramatic stage in India-US relations. It coincided
with the completion of the Next Steps in Strategic Partnership (NSSP)
initiative, which was launched in January 2004. The India-US Joint Statement
refers to “their joint resolve to transform the relationship between their
countries and establish a global partnership (and) provide global leadership.”
          At first sight, therefore, the two PMs could develop a strategy aimed
at creating a fresh trilateral relationship — India-EU-US — which, if
successful, could in time transform India from a EurAsian to a truly global
power. Except that going down this particular road will face India with some
very hard choices, not least that of having to choose between the US and
66                                                                   IPRI Factfile

          India has had a close and cordial relationship with the EU which goes
back to 1962, when New Delhi posted its first ambassador to the six-nation
European Economic Community (EEC) that is now the 25-nation EU. India’s
relations with the US, in contrast, have been marked by suspicion, hostility and
mutual distrust over much of the last 50 years. The Bush administration’s
current enthusiasm for India reflects its deep distrust, perhaps even fear, of
China as much as anything else.
          Putting to one side the rhetoric which characterises India’s relations
with both the EU and the US (constant references to commitment to
democracy and shared values, for example), there are some important
differences between the two relationships.
          Take India’s relations with the EU and the US as regards high-tech
industries and space. There is plenty of scope for India to cooperate with both.
But while the EU welcomes greater cooperation with India in the key sector of
biotechnology, and there is agreement to set up an India-EU working group
on pharmaceuticals and biotechnology, the US is silent on this subject.
          Given India’s urgent need for secure energy supplies, President Bush’s
offer to work towards full civil nuclear energy cooperation with India has
attracted a good deal of attention. But the cooperation is dependent on the
Indian government taking a number of steps (such as allowing the IAEA to
monitor and inspect Indian nuclear facilities) and, more importantly, on the
US Congress agreeing to modify certain laws.
          Clearly, a triangular relationship between India, the US and the EU
would bring substantial economic and political benefits to India. But it would
also jeopardise India’s emerging relationship with China, and the possibility of
a triangular relationship involving the EU also. Surely, this is the relationship
to which India should give priority.
          Therefore, let Prime Minister Manmohan Singh and Tony Blair use at
least some of the very limited time at their disposal to see how their respective
bilateral relations with China can be made the basis for a trilateral relationship.
                                           The Financial Express, 3 September, 2005

Asian giants India and China enter the toughest leg of their attempts to settle a
decades-old border row as envoys of the two countries hold talks this week to
draw up a plan to mark their large frontier. Indian Prime Minister Manmohan
Singh held talks with Chinese President Hu Jintao on the sidelines of the UN
General Assembly in New York this month and agreed to pursue a reasonable
solution to the dispute with a greater urgency.
Sino-Indian Relations (2004-2005)                                             67

          “The two sides feel that they have an opportunity to pursue a
pragmatic solution based on the political parameters agreed between them,” an
Indian foreign ministry official said ahead of the talks which start on Monday.
          “The talks in Beijing between special representatives of the two sides
will take this process forward.”
          Indian National Security Adviser M.K. Narayanan and Chinese Vice
Foreign Minister Dai Bingguo will meet for two days.
          Relations between the world’s two most populous nations, who
fought a brief but brutal border war in 1962, have greatly improved, largely
due to burgeoning economic ties. But the border dispute remains a sticking
          The neighbours share a 3,500-km border, largely along the icy
Himalayan mountains. Both sides claim the other is occupying parts of its
          New Delhi disputes Beijing’s rule over 38,000 sq km (15,000 square
miles) of barren, icy and uninhabited land on the Tibetan plateau, which China
seized from India in the 1962 war.
          China claims 90,000 square km of territory ruled by India in the
eastern part of the border, mostly in the state of Arunachal Pradesh.
          Earlier this year, when Chinese Premier Wen Jiabao visited India, the
two countries agreed on an 11-point roadmap to settle the border row
politically, rather than technically, keeping in mind the growing warmth
between them.
          This, some analysts say, is an attempt towards accepting the status quo
and hammering out a swap where the Chinese give up claims in the east in
return for Indian recognition of Chinese sovereignty in the strategic Aksai
Chin area in the west.
                                                        Dawn, 26 September, 2005


Asia's re-emergence as a world power centre is good for Australia,
says Allan Gyngell.
GLOBALISATION is here to stay, and it is developing an increasingly Asian
face. Under the right circumstances, Australia and Victoria are well placed to
         Globalisation is the result of a technological revolution over the
course of the second half of the 20th century, a revolution in transport, mobile
telephony and digital communications such as personal computers and the
internet. But you can boil all that down to one simple fact: technology slashed
68                                                                  IPRI Factfile

the cost of transferring things — and particularly information — around the
         The cost of a three-minute trans-Atlantic telephone call fell from
about $US250 in 1930 to a few cents today. And the internet brings
communications costs close to zero.
         Governments slowly came to understand that dismantling the barriers
to trade and investment from the outside would generate a substantial
economic benefit. The most lasting result of this was that in the last quarter of
the 20th century, 1 billion people in China, another billion in India and 400
million in the former communist states of eastern Europe began to embrace
market capitalism.
         One of the measures of what is happening is that trade in goods and
services now accounts for half of all global output. Fifty per cent compared
with just 38 per cent as recently as 1990. And much of this is trade within
companies as part of those global supply lines.
         Another measure of globalisation's impact is the huge increase in
foreign direct investment, which now represents about a fifth of global output.
As a share of the world economy, FDI rose from 9 per cent in 1990 to nearly
23 per cent in 2003.
         You can add to these economic measures the transforming cultural
implications of rapid and open flows of news and information through the
internet and satellite television — the CNN effect — as well as the freer
movement of people that cheaper transport has facilitated. About 200 million
people now work outside their own country. A million Australians are
overseas at any one time.
         You can measure the size of economies in a couple of ways, but if you
use purchasing power parity, which is best for comparing wealth between
nations, the US is the largest economy in the world but three Asian countries
— China, Japan and India — fill the next spots.
         In the past five years, China has more than doubled its share of world
merchandise trade. It is now the single most important contributor to the
overall growth in world trade. It was the largest recipient of foreign direct
investment in 2003, and more than half its exports are now produced by
foreign-owned companies or joint ventures.
         The rise of India has been less dramatic than China's, partly because
of the constraints of democracy. But it is still impressive. Reform began in the
early 1990s and economic growth averaged 6 per cent a year in the decade
from 1996. India's growth model is based on services rather than
manufactures, taking advantage of some of its people's language and technical
         Globalisation is really just returning China and India to their former
positions of importance in the global economy, as you would expect from two
countries with a combined population not far off 2.5 billion. In 1820, China
Sino-Indian Relations (2004-2005)                                            69

and India together were worth almost 50 per cent of world trade, but by 1950
that had dropped to only 7 per cent. In 2001, the figure had risen to almost 20
per cent.
         Japan remains a huge economy and is Australia's largest export
market. After 15 years of economic stagnation as a result of structural
problems in its economy, with a declining population, faced with the rising
power of China, Japan is making a basic reassessment of its future.
         It is hard to avoid the conclusion that by the middle of this century
the economic importance of China and India in the world will have increased
substantially. Measured by purchasing power, China had 13 per cent of the
world's gross domestic product last year. By 2050 it is expected to reach 20 per
cent. India will grow from 6 per cent to 12 per cent, the US will slip from 21
per cent to 14 per cent and Europe from 21 per cent to 10 per cent. Australia
will decline more modestly from 1.1 per cent to 0.7 per cent.
         So far we have been talking just about economic growth. But
economic growth forms the foundation for two sorts of national power —
hard power, which is military weight and the willingness to use it, and soft
power, which is the capacity to influence people culturally and through ideas.
More of both of these elements of power are likely to come from Asia in the
years ahead.
         Australia has done well out of globalisation. With the great raft of
economic reforms in the 1980s and '90s, we positioned ourselves to benefit
from the new opportunities globalisation was offering. The result was that as
our economy opened up we became richer. Average effective rates of
manufacturing assistance in Australia fell from 22 per cent in 1984-85 to 5 per
cent in 2000-01. And by 2001-02, according to the Department of Foreign
Affairs and Trade, Australians were about 55 per cent better off than we had
been in 1979-80, with real GDP per capita of $36,000 compared with $23,000.
Asia's re-emergence as a global power centre is excellent news for us. Much of
what we sell has gone up in price, much of what we buy has become cheaper.
Our economies are largely complementary. We have resources and energy
supplies that Asia needs; we have services ranging from education and tourism
to accountancy and architectural design that Asia wants.
         In many ways, Australia has done the easy things, the obvious
reforms. But the pressures on us will not diminish. For example, one
important result of globalisation has been to make services jobs tradable. Not
just things such as back-office work and call centres but high-end services such
as design, education and medical services. Like all developed and older
developing economies, we will face substantial adjustment strains as China and
India attract both blue-collar and white-collar jobs (though less than might
have been the case before our reforms).
         It is possible that India will do to service industries what China has
done to manufacturing industry. The lesson for us is that all Australian
70                                                                  IPRI Factfile

businesses are going to have to continue operating at the highest levels of
innovation and efficiency. They are going to have to understand not just what
is happening in the local market but in the global one.
         It's an exhausting thought. But if we press ahead with economic and
social reform, keep ourselves open to the world, maintain our infrastructure, if
our businesses are innovative and we deepen our scientific base and improve
our education systems, the trend in economic power back towards Asia will
bring great benefits.
         Allan Gyngell, executive director of the Lowy Institute for
International Policy, spoke yesterday to the Victorian Employers' Chamber of
Commerce and Industry. This is an edited version of his speech.
                                                                7 October 2005

India and China is seeing booming bilateral trade between the two Asian
          Bilateral trade between India and China during the first eight months
of this year has touched US$12.2 billion and is all set to cross the record of
US$13.6 billion achieved in 2004.
          During January-August period, total bilateral trade was worth US$12.2
billion, up by 40.37 per cent over the same period last year, the latest Chinese
customs statistics said.
          India's exports to China grew by 28.27 per cent to US$6.7 billion
while the country's imports from China witnessed a hefty 58.66 per cent
increase to touch US$5.5 billion.
          India enjoyed a trade surplus of US$1.2 billion during the first eight-
month period in 2005 compared to US$1.7 billion last year, it said.
          "If such high growth rates can be kept, the aim of increasing the
bilateral trade volume to US$20 billion or higher by 2008 will be realised soon
if not this year," a trade analyst said.
          He also noted that the upcoming ''Made in India'' trade exposition in
Shanghai, China's eastern metropolis and financial hub, would be a good
opportunity for the Indian industry to showcase their manufacturing prowess
and enhance bilateral trade volume as well as diversify the trade basket.
          The third MII, scheduled from October 17 to 20, organised by the
Confederation of Indian Industry in cooperation with the Consulate General
of India in Shanghai is expected to offer an important window for mutual
synergies between Indian and Chinese businesses.
                                                    India Daily, 8 October, 2005
Sino-Indian Relations (2004-2005)                                                 71

                                      S TATUS ?
India’s economic growth rate reached 7.3 percent in the current fiscal year. In
addition to major developments in the agricultural industry, India’s
manufacturing and services industries also prospered. As Japan’s sluggish
economy has been unable to promote economic development in Asia, will it
be possible for India to become another big Asian country capable of
challenging China’s economic status?
India’s Fast Economic Growth
According to NikkeiBP Inc., the Confederation of Indian Industry reported
that from April 2005 to June 2005, i.e., the first quarter of the current fiscal
year, India’s economic growth rate was 7.3 percent. The economic growth rate
forecasted in June was not far from the actual 7.3 percent.
         The Confederation of Indian Industry said in a statement, “The
economy would clock an impressive 7.3 percent GDP growth for the fiscal
2005-06 on the back of strong prospects of Kharif crop (sown in summer
months) and reasonably buoyant industrial and services sector performance.”
The statement also mentioned a Confederation survey of 1,410 manufacturing
companies revealed their sales in the April-June quarter increased 18 percent
from a year ago, while net profit grew 15 percent in the same period. The
margins were much higher for the services sector, the statement claimed. The
combined sales and profit of 474 service companies, excluding banks and
finance firms, increased 33 percent and 42 percent respectively in the same
Does India’s Development Potential Surpass China’s?
India had its reform ten years later than China. However, since the severe
international balance-of-payment crisis broke out in 1991, India gave up its
planned economic model and gradually became market-oriented, which led to
large increase in national income. This in turn flourished the real estate and
commercial market. In addition, the continuous increase in the trade volume
of exports progressively injects new life into India’s manufacturing companies.
Mr. Fred Hu Zuliu, managing director and chief economist of Goldman Sachs
(Asia) LLC as a new economic power in Asia said that India has advantages in
soft areas such as rule of law, qualities of private corporations and financial
departments, while the shortcomings in hard areas including infrastructure and
manufacturing sector are not difficult to overcome. Compared with China,
India’s stable democratic political system, free media and rule of law all lay a
solid foundation for its long-term economic growth.
         Hu believes that for a country with so many religions, castes and
languages, and filled with poverty and illiteracy, it is a miracle that India is able
to establish a mature and stable democratic political system. Regardless of how
72                                                                 IPRI Factfile

sharp the conflicts become among religions, ethnic groups and within the
society, there has never been any military coup or civil war in India. Political
power was peacefully and smoothly transferred through election among
multiple parties. Such kind of political stability reduces “political risk” for
investment in India, and provides a necessary condition for long-term
economic growth.
         India’s rule of law and free media are far more advanced than most
developing countries. The degree of English popularization among its citizens
also provides a competitive advantage for India in today’s era of globalization.
India’s knowledge-based innovative industries, especially the software industry,
have already occupied the first place in the world. Moreover, compared with
China, India’s private corporations have shaped well. On average, India’s
private sectors (including banks) have better management with more
standardized and efficient than Chinese enterprises.
Is India Capable of Challenging China’s Economic Status?
In the recent 20 years of economic development, China had its reform and
opening-up 10 years earlier than India. Hence, China is better than India in
attracting foreign investment and GDP growth in international trade.
However, India’s advantages such as rule of law, free media, mature
democratic political system, qualities of private corporations and financial
departments make its current shortcomings in infrastructure and manufacture
not difficult to overcome. India has already become an economic power in
Asia that should not be ignored.
         In the next few years, how China and India deal with rising energy
cost and maintain fast economic development growth will decide who
becomes the new economic superpower in Asia.
                                                               20 October 2005

The Government of the People's Republic of China and the Government of
Republic of India (hereinafter referred to as the two sides),
        Believing that it serves the fundamental interests of the peoples of
China and India to foster a long-term good-neighbourly relationship in
accordance with the Five Principles of mutual respect for sovereignty and
Sino-Indian Relations (2004-2005)                                               73

territorial integrity, mutual non-aggression, non-interference in each other's
internal affairs, equality and mutual benefit and peaceful co-existence,
          Convinced that the maintenance of peace and tranquillity along the
line of actual control in the China-India border areas accords with the
fundamental interests of the two peoples and will also contribute to the
ultimate resolution of the boundary question,
          Reaffirming that neither side shall use or threaten to use force against
the other by any means or seek unilateral military superiority,
          Pursuant to the Agreement between the Government of the People's
Republic of China and the Government of Republic of India on the
Maintenance of Peace and Tranquillity Along the Line of Actual Control in the
China-India Border Areas, signed on 7 September 1993,
          Recognizing the need for effective confidence building measures in
the military field along the line of actual control in the border areas between
the two sides,
          Noting the utility of confidence building measures already in place
along the line of actual control in the China-India border areas,
          Committed to enhancing mutual confidence and transparency in the
military field,
          Have agreed as follows:
Neither side shall use its military capability against the other side. No armed
forces deployed by either side in the border areas along the line of actual
control as part of their respective military strength shall be used to attack the
other side, or engage in military activities that threaten the other side or
undermine peace, tranquillity and stability in the China-India border areas.
The two sides reiterate their determination to seek a fair, reasonable and
mutually acceptable settlement of the boundary question. Pending an ultimate
resolution of the boundary question, the two sides reaffirm their commitment
to strictly respect and observe the line of actual control in the China-India
border areas. No activities of either side shall overstep the line of actual
The two sides agree to take the following measures to reduce or limit their
respective military forces within mutually agreed geographical zones along the
line of actual control in the China-India border areas:
1. The two sides reaffirm that they shall reduce or limit their respective military
forces within mutually agreed geographical zones along the line of actual
control in the China-India border areas to minimum levels compatible with
friendly and good-neighbourly relations between the two countries and
consistent with the principle of mutual and equal security.
2. The two sides shall reduce or limit the number of field army, border defence
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forces, para-military forces and any other mutually agreed category of armed
force deployed in mutually agreed geographical zones along the line of actual
control to ceilings to be mutually agreed upon. The major categories of
armaments to be reduced or limited are as follows: combat tanks, infantry
combat vehicles, guns (including howitzers) with 75 mm or bigger calibre,
mortars with 120 mm or bigger calibre, surface-to-surface missiles, surface-to-
air missiles and any other weapon system mutually agreed upon.
3. The two sides shall exchange data on the military forces and armaments to
be reduced or limited and decide on ceilings on military forces and armaments
to be kept by each side within mutually agreed geographical zones along the
line of actual control in the China-India border areas. The ceilings shall be
determined in conformity with the requirement of the principle of mutual and
equal security, with due consideration being given to parameters such as the
nature of terrain, road communication and other infrastructure and time taken
to induct/deinduct troops and armaments.
In order to maintain peace and tranquillity along the line of actual control in
the China-India border areas and to prevent any tension in the border areas
due to misreading by either side of the other side's intentions:
1. Both sides shall avoid holding large scale military exercises involving more
than one Division (approximately 15,000 troops) in close proximity of the line
of actual control in the China-India border areas. However, if such exercises
are to be conducted, the strategic direction of the main force involved shall
not be towards the other side.
2. If either side conducts a major military exercise involving more than one
Brigade Group (approximately 5,000 troops) in close proximity of the line of
actual control in the China-India border areas, it shall give the other side prior
notification with regard to type, level, planned duration and area of exercise as
well as the number and type of units or formations participating in the
3. The date of completion of the exercise and deinduction of troops from the
area of exercise shall be intimated to the other side within five days of
completion or deinduction.
4. Each side shall be entitled to obtain timely clarificatigf from the side
undertaking the exercise in respect of data specified in Pargragh 2 of the
present Article.
With a view to preventing air intrusions across the line of actual control in the
China-India border areas and facilitating overflights and landings by military
1. Both sides shall take adequate measures to ensure that air intrusions across
the line of actual control do not take place. However, if an intrusion does take
place, it should cease as soon as detected and the incident shall be promptly
Sino-Indian Relations (2004-2005)                                               75

investigated by the side operating the aircraft. The results of the investigation
shall be immediately communicated, through diplomatic channels or at border
personnel meetings, to the other side.
2. Subject to Paragraphs 3 and 5 of this Article, combat aircraft (to include
fighter, bomber, reconnaissance, military trainer, armed helicopter and other
armed aircraft) shall not fly within ten kilometres of the line of actual control.
3. If either side is required to undertake flights of combat aircraft within ten
kilometres from the line of actual control, it shall give the following
information in advance to the other side, through diplomatic channels:
          (a) Type and number of combat aircraft;
          (b) Height of the proposed flight (in meters);
          (c) Proposed duration of flights (normally not to exceed ten days);
          (d) Proposed timing of flights; and
          (e) Area of operations, defined in latitude and longitude.
4. Unarmed transport aircraft, survey aircraft and helicopters shall be
permitted to fly up to the line of actual control.
5. No military aircraft of either side shall fly across the line of actual control,
except by prior permission. Military aircraft of either side may fly across the
line of actual control or overfly the other side's airspace or land on the other
side only after obtaining the latter's prior permission after providing the latter
with detailed information on the flight in accordance with the international
practice in this regard.
          Notwithstanding the above stipulation, each side has the sovereign
right to specify additional conditions, including at short notice, for flights or
landings of military aircraft of the other side on its side of the line of actual
control or through its airspace.
6. In order to ensure flight safety in emergency situations, the authorities
designated by the two sides may contact each other by the quickest means of
communications available.
With a view to preventing dangerous military activities along the line of actual
control in the China-India border areas, the two sides agree as follows:
1. Neither side shall open fire, cause bio-degradation, use hazardous chemicals,
conduct blast operations or hunt with guns or explosives within two
kilometres from the line of actual control. This prohibition shall not apply to
routine firing activities in small arms firing ranges.
2. If there is a need to conduct blast operations within two kilometres of the
line of actual control as part of developmental activities, the other side shall be
informed through diplomatic channels or by convening a border personnel
meeting, preferably five days in advance.
3. While conducting exercises with live ammunition in areas close to the line of
actual control, precaution shall be taken to ensure that a bullet or a missile
76                                                                   IPRI Factfile

does not accidentally fall on the other side across the line of actual control and
causes harm to the personnel or property of the other side.
4. If the border personnel of the two sides come in a face-to-face situation due
to differences on the alignment of the line of actual control or any other
reason, they shall exercise self-restraint and take all necessary steps to avoid an
escalation of the situation. Both sides shall also enter into immediate
consultations through diplomatic and/or other available channels to review
the situation and prevent any escalation of tension.
In order to strengthen exchanges and cooperation between their military
personnel and establishments in the border areas along the line of actual
control, the two sides agree:
1. To maintain and expand the regime of scheduled and flag meetings between
their border representatives at designated places along the line of actual
2. To maintain and expand telecommunication links between their border
meeting points at designated places along the line of actual control;
3. To establish step-by-step medium and high-level contacts between the
border authorities of the two sides.
1. Should the personnel of one side cross the line of actual control and enter
the other side because of unavoidable circumstances like natural disasters, the
other side shall extend all possible assistance to them and inform their side, as
soon as possible, regarding the forced or inadvertent entry across the line of
actual control. The modalities of return of the concerned personnel to their
own side shall be settled through mutual consultations.
2. The two sides shall provide each other, at the earliest possible, with
information pertaining to natural disasters and epidemic diseases in contiguous
border areas which might affect the other side. The exchange of information
shall take place either through diplomatic channels or at border personnel
In case a doubtful situation develops in the border region, or in case one of
the sides has some questions or doubts regarding the manner in which the
other side is observing this Agreement, either side has the right to seek a
clarification from the other side. The clarifications sought and replies to them
shall be conveyed through diplomatic channels.
1. Recognizing that the full implementation of some of the provisions of the
present Agreement will depend on the two sides arriving at a common
understanding of the alignment of the line of actual control in the China-India
border areas, the two sides agree to speed up the process of clarification and
confirmation of the line of actual control. As an initial step in this process,
Sino-Indian Relations (2004-2005)                                              77

they are clarifying the alignment of the line of actual control in those segments
where they have different perceptions. They also agree to exchange maps
indicating their respective perceptions of the entire alignment of the line of
actual control as soon as possible.
2. Pending the completion of the process of clarification and confirmation of
the line of actual control, the two sides shall work out modalities for
implementing confidence building measures envisaged under this Agreement
on an interim basis, without prejudice to their respective positions on the
alignment of the line of actual control as well as on the boundary question,
Detailed implementation measures required under Article I to Article X of this
Agreement shall be decided through mutual consultations in the China-India
Joint Working Group on the Boundary Question. The China-India Diplomatic
and Military Expert Group shall assist the China-India Joint Working Group
in devising implementation measures under the Agreement.
This Agreement is subject to ratification and shall enter into force on the date
of exchange of instruments of ratification. It shall remain in effect until either
side decides to terminate it after giving six months notice in writing. It shall
become invalid six months after the notification.
         This Agreement is subject to amendment and addition by mutual
agreement in writing between the two sides.
         Signed in duplicate in New Delhi on 29 November 1996 in the
Chinese, Hindi and English languages, all three texts being equally authentic.
In case of divergence, the English text shall prevail.
                                                               16 January 2002

                 T EXT   OF I NDIA -C HINA     A GREEMENT
This is the text of the agreement between the Government of the Republic of
India and the Government of the People's Republic of China on the Political
Parameters and Guiding Principles for the Settlement of the India-China
Boundary Question.
         The Government of the Republic of India and the Government of the
People's Republic of China (hereinafter referred to as the two sides),
         Believing that it serves the fundamental interests of the peoples of
India and China to foster a long-term constructive and cooperative partnership
on the basis of the Five Principles of Peaceful Co-existence, mutual respect
and sensitivity for each other's concerns and aspirations, and equality,
78                                                                 IPRI Factfile

          Desirous of qualitatively upgrading the bilateral relationship at all
levels and in all areas while addressing differences through peaceful means in a
fair, reasonable and mutually acceptable manner,
          Reiterating their commitment to abide by and implement the
Agreement on the Maintenance of Peace and Tranquillity along the Line of
Actual Control in the India-China Border Areas, signed on 7 September 1993,
and the Agreement on Confidence Building Measures in the Military Field
along the Line of Actual Control in the India-China Border Areas, signed on
29 November 1996,
          Reaffirming the Declaration on Principles for Relations and
Comprehensive Cooperation between India and China , signed on 23 June
          Recalling that the two sides have appointed Special Representatives to
explore the framework of settlement of the India-China boundary question
and the two Special Representatives have been engaged in consultations in a
friendly, cooperative and constructive atmosphere,
          Noting that the two sides are seeking a political settlement of the
boundary question in the context of their overall and long-term interests,
          Convinced that an early settlement of the boundary question will
advance the basic interests of the two countries and should therefore be
pursued as a strategic objective,
          Have agreed on the following political parameters and guiding
principles for a boundary settlement:
Article I
The differences on the boundary question should not be allowed to affect the
overall development of bilateral relations. The two sides will resolve the
boundary question through peaceful and friendly consultations. Neither side
shall use or threaten to use force against the other by any means. The final
solution of the boundary question will significantly promote good neighbourly
and friendly relations between India and China.
Article II
The two sides should, in accordance with the Five Principles of Peaceful
Coexistence, seek a fair, reasonable and mutually acceptable solution to the
boundary question through consultations on an equal footing, proceeding
from the political perspective of overall bilateral relations.
Article III
Both sides should, in the spirit of mutual respect and mutual understanding,
make meaningful and mutually acceptable adjustments to their respective
positions on the boundary question, so as to arrive at a package settlement to
the boundary question. The boundary settlement must be final, covering all
sectors of the India-China boundary.
Sino-Indian Relations (2004-2005)                                             79

Article IV
The two sides will give due consideration to each other's strategic and
reasonable interests, and the principle of mutual and equal security.
Article V
The two sides will take into account, inter alia, historical evidence, national
sentiments, practical difficulties and reasonable concerns and sensitivities of
both sides, and the actual state of border areas.
Article VI
The boundary should be along well-defined and easily identifiable natural
geographical features to be mutually agreed upon between the two sides.
Article VII
In reaching a boundary settlement, the two sides shall safeguard due interests
of their settled populations in the border areas.
Article VIII
Within the agreed framework of the final boundary settlement, the delineation
of the boundary will be carried out utilising means such as modern
cartographic and surveying practices and joint surveys.
Article IX
Pending an ultimate settlement of the boundary question, the two sides should
strictly respect and observe the line of actual control and work together to
maintain peace and tranquillity in the border areas. The India-China Joint
Working Group and the India-China Diplomatic and Military Expert Group
shall continue their work under the Agreements of 7 September 1993 and 29
November 1996, including the clarification of the line of actual control and the
implementation of confidence building measures.
Article X
The Special Representatives on the boundary question shall continue their
consultations in an earnest manner with the objective of arriving at an agreed
framework for a boundary settlement, which will provide the basis for the
delineation and demarcation of the India-China boundary to be subsequently
undertaken by civil and military officials and surveyors of the two sides.
Article XI
This Agreement shall come into force as of the date of signature and is subject
to amendment and addition by mutual agreement in writing between the two
         Signed in duplicate in New Delhi on 11 April, 2005, in the Hindi,
Chinese and English languages, all three texts being equally authentic. In case
of divergence, the English text shall prevail.
         For the Government of the Republic of India
         For the Government of the People's Republic of China
                                                        New Delhi, 11 April, 2005
80                                                                  IPRI Factfile

      F ULL T EXT     OF   J OINT S TATEMENT        OF   C HINA , I NDIA
The following is the full text of the Joint Statement of the People's Republic of
China and the Republic of India signed by Chinese Premier Wen Jiabao and
Indian Prime Minister Manmohan Singh in New Delhi Monday:
         Joint Statement of the People's Republic of China and the Republic of
I. H.E. Mr. Wen Jiabao, Premier of the State Council of the People's Republic
of China, is currently paying a state visit to the Republic of India from 9 to 12
April 2005 at the invitation of H.E. Dr. Manmohan Singh, Prime Minister of
the Republic of India. During the visit, Premier Wen Jiabao held talks with
Prime Minister Dr. Manmohan Singh, called on President Dr. A.P.J. Abdul
Kalam and Vice President Shri Bhairon Singh Shekhawat and met with
Chairperson, United Progressive Alliance Smt. Sonia Gandhi. External Affairs
Minister Shri K. Natwar Singh and Leader of Opposition, Lok Sabha Shri L.K.
Advani will call on him. Premier Wen paid a visit to Bangalore and will deliver
a speech at the Indian Institute of Technology in New Delhi .Leaders of the
two countries had an in-depth exchange of views in a sincere, friendly and
constructive atmosphere and reached broad consensus on bilateral relations
and international and regional issues of common concern.
II. The two sides reviewed the friendly contacts and progress in their bilateral
relations in recent years and agreed that China-India relations have entered a
new stage of comprehensive development. Both sides noted with satisfaction
that with the frequent exchange of visits between leaders of the two countries,
the process of building trust and understanding has gained momentum. Rapid
growth of trade and economic cooperation has been coupled with the
expansion of exchanges and cooperation in other fields. The two sides have
made incremental progress in addressing outstanding issues. The two sides
have also maintained good communication and collaboration in international
and regional affairs. Both sides agreed that China and India have made
satisfying progress in developing their long-term constructive and cooperative
partnership.The two sides recalled the Declaration on Principles for Relations
and Comprehensive Cooperation between the two Prime Ministers on 23 June
2003 and reiterated that the Declaration provided a shared vision of bilateral
relations and an agreed framework for cooperation.
III. In the light of the development of their bilateral relations, in order to
promote good neighborliness, friendship and mutually beneficial cooperation
and taking into account the profound changes in the regional and international
situation, the two sides agreed that China-India relations have now acquired a
global and strategic character. The leaders of the two countries have, therefore,
agreed to establish an China - India Strategic and Cooperative Partnership for
Peace and Prosperity. Such a partnership is based on the principles of
Sino-Indian Relations (2004-2005)                                              81

Panchsheel, mutual respect and sensitivity for each other's concerns and
aspirations, and equality; provides a sound framework for an all around and
comprehensive development of bilateral relations based on mutual and equal
security, development and prosperity of the two peoples; and contributes to
jointly addressing global challenges and threats. It reflects the readiness of the
two sides to resolve outstanding differences in a proactive manner without
letting them come in the way of the continued development of bilateral
IV. The two sides agreed that high-level exchanges between the governments,
parliaments and political parties of the two countries play an important role in
expanding overall bilateral cooperation. They conveyed their determination to
maintain and strengthen the momentum of such exchanges in future and
agreed to hold regular meetings between the leaders of the two countries. In
this context, the two sides also reiterated their intention to promote regular
ministerial-level exchanges and make full use of the China-India strategic
dialogue and other bilateral dialogue mechanisms.
V. The year of 2005 marks the 55th anniversary of the establishment of
diplomatic relations between China and India. To mark the occasion, the two
countries will organize a series of commemorative activities. It was noted that
"Cultural Festival of China" was currently underway in India and that a
corresponding "Cultural Festival of India" would be organized in China later
in the year. The two sides would also organize other cultural activities to
further promote mutual awareness and deepen the friendship between the two
peoples. The two sides declared 2006 as the "year of China-India
friendship".Both sides expressed satisfaction with strengthened exchanges in
the area of culture, and affirmed that mutual understanding and cultural
exchanges would facilitate development of cooperation in other areas as well.
In order to reinforce traditional cultural links, an agreement was concluded for
the construction of an Indian style Buddhist temple at Luoyang in Henan
Province of China.
VI. The two sides stressed that an all-round expansion of China-India
economic cooperation, including trade and investment, constitutes an
important dimension of a stronger China-India relationship. The two countries
agreed to make joint efforts to increase the bilateral trade volume to US$ 20
billion or higher by 2008. The two sides welcomed the report of the Joint
Study Group (JSG) that was set up to examine the potential complementarities
between the two countries in expanded trade and economic cooperation. The
JSG in its Report has identified a series of measures related to trade in goods,
trade in services, investments and other areas of economic cooperation, and
recommended their expeditious implementation to remove impediments and
facilitate enhanced economic engagement between China and India. The two
Prime Ministers tasked the Ministerial-level China-India Joint Economic
Group (JEG) to consider these recommendations and coordinate their
82                                                                  IPRI Factfile

implementation. For this purpose, the two sides will make their best endeavor
to hold the next meeting of JEG within the next six months. The JSG has also
recommended a China-India Regional Trading Arrangement, comprising of
trade in goods and services, investments, identified understandings for trade
and investment promotion and facilitation, and measures for promotion of
economic cooperation in identified sectors. The Prime Ministers agreed to
appoint a Joint Task Force to study in detail the feasibility of, and the benefits
that may derive from, the China-
India Regional Trading Arrangement and give recommendations regarding its
content. Both sides noted that the Agreement on the Establishment of a
Financial Dialogue Mechanism would further facilitate the dynamic and
diversifying economic cooperation between the two sides. They will continue
consultations on concluding the Bilateral Investment Promotion and
Protection Agreement. The two sides noted with satisfaction that the two
countries have signed the SPS Protocols for the export of grapes and bitter
gourd from India to China. The two sides also agreed to constitute a Joint
Working Group to implement expeditiously the MOU on Application of SPS
between the Chinese General
Administration of Quality Supervision, Inspection and Quarantine and the
Indian Ministry of Agriculture. China positively evaluates market access for
Indian rice to the Chinese market and will launch as early as possible the risk
analysis procedure of the Indian rice in accordance with relevant Chinese laws
and regulations.
VII. The two sides agreed to further promote the cooperation in the spheres
of education, science and technology, healthcare, information, tourism, youth
exchange, agriculture, dairy development, sports and other fields on the basis
of mutual benefit and reciprocity. The two sides decided to establish a China-
India Steering Committee on Scientific and Technological Cooperation chaired
by their Ministers for Science and Technology, and start consultations on an
agreement on mutual recognition of academic certificates and degrees between
China and India. The two sides announced the launching of regular youth
exchange activities. China will invite 100 Indian youth to China within the year
of 2005 and hold an exhibition this year on advanced and applicable
technologies in India.
VIII. The two sides recognized the importance of strengthening mutual
connectivity and agreed to jointly work towards further enhancement of direct
air and shipping links, tourism and people-to-people contacts. It was noted
with satisfaction that an MOU on major liberalization of civil aviation links
between China and India was concluded during the visit.
IX. The two sides will continue to cooperate in exchanging flood-season
hydrological data of the trans-border rivers as agreed between them. In
response to concerns expressed by the Indian side, the Chinese side agreed to
take measures for controlled release of accumulated water of the landslide dam
Sino-Indian Relations (2004-2005)                                           83

on the river Parechu, as soon as conditions permit. It was noted with
satisfaction that an agreement concerning the rovision of hydrological data on
Langqen Zangbo / Sutlej was concluded during the visit and that the two sides
had also agreed to continue
bilateral discussions to finalize at an early date similar arrangements for the
Parlung Zangbo and Zayu Qu / Lohit Rivers. The two sides agreed to
cooperate in the field of energy security and conservation, including, among
others, encouraging relevant departments and units of the two countries to
engage in the survey and exploration of petroleum and natural gas resources in
third countries.
X. The two sides noted the useful exchanges and interaction in the military
field and decided to further promote such exchanges and interaction. They
agreed that broadening and deepening of defense exchanges between the two
countries was of vital importance in enhancing mutual trust and understanding
between the two armed forces, and to ensuring a peaceful environment in
which they could pursue their respective national development objectives. The
two sides decided to further strengthen effective contacts and exchanges in
this field.
XI. During the visit, the two sides exchanged views on the China-India
boundary question and reiterated their readiness to seek a fair, reasonable and
mutually acceptable solution, through equal and friendly consultations and
proceeding from the overall interests of bilateral relations. They expressed
satisfaction over the progress made in the discussions between the Special
Representatives of the two countries and welcomed the conclusion of the
Agreement on the Political Parameters and Guiding Principles for the
Settlement of the Boundary Question. Both sides are convinced that an early
settlement of the boundary question will advance the basic interests of the two
countries and should therefore be pursued as a strategic objective. They
expressed their commitment to the mechanism of Special Representatives for
seeking a political settlement of the boundary question in the context of their
long-term interests and the overall bilateral relationship. Pending a final
resolution, the two sides will continue to make joint efforts to maintain peace
and tranquility in the border areas in accordance with the Agreements of 1993
and 1996. Both sides agreed that while continuing the discussions between the
Special Representatives, it is also important that the Joint Working Group
(JWG) continues its work to seek an early clarification and confirmation of the
Line of Actual Control (LAC). Progress made so far on the clarification of the
LAC in the China-India border areas was noted. It was agreed to complete the
process of exchanging maps indicating their respective perceptions of the
entire alignment of the LAC on the basis of already agreed parameters, with
the objective of arriving at a common understanding of the alignment, as soon
as possible. The two sides expressed satisfaction at the progress achieved in
the implementation of the agreements of 1993 and 1996 and agreed to fully
84                                                                  IPRI Factfile

implement them expeditiously. Towards that end, they concluded a Protocol
on Modalities for the Implementation of Confidence Building Measures in the
Military Field along the Line of Actual Control in the China-India Border
XII. The Indian side reiterated that it recognized the Tibet Autonomous
Region as part of the territory of the People's Republic of China and that it did
not allow Tibetans to engage in anti-China political activities in India. The
Indian side recalled that India was among the first countries to recognize that
there is one China and its one China policy remains unaltered. The Indian side
stated it would continue to abide by its one China policy. The Chinese side
expressed its appreciation for the Indian positions.
XIII. Both sides reviewed with satisfaction the implementation of the
memorandum on the border trade through the Nathula Pass between the
Tibet Autonomous Region of the People's Republic of China and the Sikkim
State of the Republic of India.
XIV. The two sides noted with satisfaction that through friendly consultations
an agreement in principle had been reached between the two countries to
solve the long-pending issue of property originally belonging to Indian
Consulate General in Shanghai with the Chinese side agreeing to provide a
plot of land in lieu of the premises of the original Consulate General of India.
XV. As two large developing countries, both China and India were aware of
each other's important role in the process of promoting the establishment of a
new international political and economic order. Both sides share common
interests in the maintenance of peace, stability and prosperity in Asia and the
world at large, and share the desire to develop closer and more extensive
understanding and cooperation in regional and international affairs.
The two sides are supportive of democratization of international relations and
multilateralism, stand for the establishment of a new international political and
economic order that is fair, rational, equal and mutually beneficial, and
promote North-South Dialogue and South-South Cooperation. The two sides
believe that the international community should eliminate poverty, narrow the
gap between North and South, and achieve common prosperity through
dialogue and cooperation.
XVI. The two sides reiterated the importance of the United Nations in global
peace, stability and common development and expressed their determination
to continue their efforts, together with the international community, in
strengthening the UN system to develop a sound multilateral basis to address
global issues. Both China and India agree that reform of the United Nations
should be comprehensive and multi-faceted and should put emphasis on an
increase in the representation of developing countries. The Indian side
reiterated its aspirations for permanent membership of the UN Security
Council. The Chinese side also reiterated that India is an important developing
Sino-Indian Relations (2004-2005)                                              85

country and is having an increasingly important influence in the international
arena. China attaches great importance to the status of India in international
affairs. It understands and supports India's aspirations to play an active role in
the UN and international affairs. The two sides reaffirmed their readiness to
conduct close consultations and cooperation in the process of the UN
XVII. The two sides, aware of the threats posed by terrorism to the peace and
security of the two countries and the whole world, resolutely condemn
terrorism in any form. The struggle between the international community and
global terrorism is a comprehensive and sustained one, with the ultimate
objective of eradication of terrorism in all regions. This requires strengthening
the global legal framework against terrorism. Both sides noted the positive
outcome of the meetings held so far of their bilateral dialogue mechanism on
counter-terrorism and agreed to further strengthen and consolidate their
discussions and cooperation. It was agreed to hold the next meeting of the
dialogue mechanism on counter-terrorism later this year.
XVIII. Both sides agreed to conduct regular exchange of views on major
international and regional issues, strengthen cooperation in the WTO and
other international multilateral organizations, and to continue the
consultations on other issues of common concern. They agreed to work
together to preserve stability and growth in the global economy and reduce
disparities between developed and developing countries. They supported an
open, fair, equitable and transparent rule-based multilateral trade system and
resolved to safeguard the legitimate rights and interests of the developing
XIX. Aware of their linked destinies as neighbors and the two largest countries
of Asia, both sides agreed that they would, together, contribute to the
establishment of an atmosphere of mutual understanding, trust and
cooperation in Asia and the world at large, and facilitate efforts to strengthen
multilateral coordination mechanisms on security and cooperation.
XX. During the visit, the two sides signed and/or released the following
documents: i Agreement on Political Parameters and Guiding Principles for
the Settlement of the China-India Boundary Question ii. Report of China-
India Joint Study Group on Comprehensive Trade and Economic
Cooperation iii. Protocol on Modalities for the Implementation of CBMs in
the Military Field along the Line of Actual Control in the China-India Border
Areas iv. Agreement on Mutual Administrative Assistance and Cooperation in
Customs Matters v. MOU on the Launch of the China-India Financial
Dialogue vi. MOU on Civil Aviation vii. Protocol of Phytosanitary
Requirement for Exporting Grapes from India to China viii. Protocol of
Phytosanitary Requirement for Exporting Bitter Gourds from India to China
ix. MOU on provision of Hydrological Information of the Langqen
Zangbo/Sutlej River in Flood Season by China to India x. Protocol on China-
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India Film Cooperation Commission xi. MOU on Cooperation between the
Chinese People's Institute of Foreign Affairs and the Indian Council of World
Affairs xii. Memorandum on the Construction of an Indian-style Buddhist
Temple on the Western side of the White Horse Temple in Luoyang, China.
XXI. The two sides believed that Premier Wen Jiabao's highly successful state
visit to the Republic of India marked a new level of China-India relationship
and opened a new chapter in the friendly relations and cooperation between
the two countries.
Premier Wen Jiabao, on behalf of the Chinese Government and people,
expressed his appreciation to the Government and people of India for their
warm hospitality, and invited Prime Minister Manmohan Singh to visit China
at a mutually convenient time. Prime Minister Manmohan Singh appreciated
the invitation and accepted it with pleasure. The Indian side also reiterated the
invitation to President Hu Jintao to visit India. The exact time of the visit will
be decided through diplomatic channels.
Premier of the State Council of the People's Republic of China
Prime Minister of the Republic of India
                                                      New Delhi, 11 April 2005

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