The Telegraph
Since 1st March, 1999
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Ties with China poised for big leap

New Delhi, Nov. 13: India and China are working towards signing a bilateral investment protection agreement during the visit of president Hu Jintao here next week. However, the free trade agreement that Beijing wants to push through is not expected to materialise.

A senior commerce ministry official told The Telegraph that “signing the bilateral investment protection agreement will be a huge step forward for economic relations between the two countries as Chinese companies are making major investments in India and vice versa.”

China has demanded a “market economy” status from India. Such a status is a pre-requisite for a free trade agreement and had been denied to China by most developed countries and some developing countries, including India, as it lacks a transparent market-driven price mechanism and doles out huge subsidies to exporters.

However, given the political significance of Hu’s visit — the first by a president of China in 10 years — New Delhi is likely to agree to the issue being referred to a joint study group of the two countries.

Bilateral trade between the two countries is around $17.5 billion. Exports by China are mostly high value-added manufacturing goods, while India exports mainly raw materials such as iron ore.

A senior official said a broader regional trade agreement might figure in the talks but virtually ruled out a free trade agreement. In case of a free trade agreement, India may lose out as there is a possibility of cheap Chinese goods flooding the local market.

Chinese assistant minister of commerce Fu Ziying is reported to have said in Beijing last week that “following the reopening of the trade post on the Indian-Chinese border at Nathula, our government is considering FTA talks with India.” Hu is keen to raise the issue when he meets Indian leaders during his visit between November 20 and 23.

China will consider the signing of the investment protection agreement an achievement as Chinese companies have taken up projects worth $2.2 billion in India in the first half of 2006, a big jump from the $1.8 billion of business bagged by them in the whole of 2005.

Though there are misgivings among the Chinese about not receiving the permission to invest in India’s port and telecom sectors, as many as 33 of their 38 FDI applications since 2004 have received approvals from the Indian government.

Issues on security and reforms of the UN, where China has been opposing India's membership to the Security Council, will also figure in the talks between the Indians and the Chinese during Hu’s visit.

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