India categorized Chinese President Hu Jintao as "an important step forward" to develop "cooperative framework of engagement" but acknowledged "outstanding issues" even as the two nations signed 13 agreements covering a range of cosmetic issues. While many may discount these agreements as non-essential, the two nations are battling respective internal and mental blocks created in the last 60 years that largely includes boundary dispute, Chinese naval expansion, covert and overt support to Pakistan, water sharing, treatment of Tibetans, etc. to seek a historic connection based on trade and exchange. Given this context, the agreements forced on low-hanging fruits such as governmental institutional linkages, comprehensive economic engagement, promotion of trans-border connectivity and cooperation, and enhance science and technology, cultural and people-to-people exchanges.
Putting a positive spin on "Chinese President's Visit to India," External Affairs Minister Pranab Mukherjee told the Parliament that both nations are committed to develop an action-oriented template for future development and diversification of relations to add greater content to the strategic partnership. Additionally, Mukherjee says that the two nations sent "a strong signal to the international community that as good neighbours and partners, there was enough space for India and China to develop together in a mutually supportive manner while remaining sensitive to each other's concerns and aspirations." He said that India was "encouraged by the positive trends in India-China relations" and hoped that this would seed better bilateral relations that would help in resolution of outstanding differences. As a start to address the boundary dispute, a key stumbling block to achieve the aforementioned objectives, Mukherjee said that maintaining peace along the border was paramount-he stressed that both sides were prepared to maintain this peace. Diplomatically, they also agreed to open a consulate each in Guangzhou and Kolkata and also improve bilateral consultations to deal with floods and emergency management. Economically, both nations resolved to doubling bilateral trade to USD 40 billion by 2010.
There is little give by either side on critical issues. Firstly, while Jintao's neutral demeanor has been cited by many as proof of China's acceptance of the Indo-US civilian issue, there is nothing that the Chinese have said that would indicate their acceptance and support in the Nuclear Suppliers Group (NSG). Even if China were to agree, many feel that they will bargain hard and extract concessions from both India and the US. Even as Jintao made some vague references to cooperating with India in the civilian nuclear space, his concrete proposals to Pakistan to assist building 2 reactors at Chasma each capable of producing 300 megawatt and another six down the road is a clear indication on Chinese intention.
Secondly, while China talks a lot of peaceful coexistence, it has offered cruise and ballistic missiles, electronic warfare capabilities, naval, and air weapons to Pakistan at astoundingly cheap prices. During Jintao's visit, the two nations announced collaboration to produce airborne early warning surveillance system in addition to announced development of JF-17 Thunder fighter aircraft with Chinese aviation company CATIC. Pakistan is to get the first batch of 8 medium technology fighter jets from China next year and local manufacture of aircraft will commence from January 2008.
Thirdly, while agreeing to settle the border dispute peacefully, China continues to demand large tracts of Indian territories while occupying other sectors such as the Aksai Chin with impunity. It demands these territories overtly while India has stuck to protocol and raised the border issues only privately.
Fourthly, while both nations have expressed desire to double their trade, India exports to China has been limited to mostly raw materials such as iron ore. With reduced access to Chinese markets and an inherent disadvantage in manufacturing, it is not clear what the composition of Indian exports would be. On the other hand, China has signed a free trade agreement with Pakistan (India rightly refused to sign one with China) allowing it to create a special economic zone near Lahore and a textile zone in Faisalabad and boost bilateral trade four times to USD 15 billion. This agreement will also allow large Chinese investments in Pakistan (again, India is refusing to allow unfettered access) in infrastructure and industries bring a qualitative transformation of Chinese economic presence in South Asia. Apart from opening up trade with Pakistan, China also has become Bangladesh's largest trading partner last year thereby directly challenging India's economic influence in the region. Besides, China plans to use Pakistan as a stage to address business and trade in Iran and Afghanistan.
Fifthly, China's relationship with Pakistan is set to expand on energy too to include hydro power, coal fired generation, and new alternate sources of energy therefore developing a new strategic depth based on energy with Pakistan. It is very likely, that China will try to develop such relationship with all of India's neighbors. This is part of China's strategy to invest heavily abroad and focused on energy and oil and gas sector.
Though these differences persist, the two nations are on a global competition for economic, political, and military stardom. China, which has a head start by a decade over India in its liberalization, is doing well on many economic parameters. However, there is clear sign that India is catching up fast enough to prompt Bank of America to project that India will overtake China in 25 years. With a large young and educate population, expanding markets, well globally integrated financial system, rule of law and independent judiciary, functioning democracy with robust institutions, and a large English speaking population, India has the right tools in place to realize this prophecy but has still many hurdles to overcome.