Analysis: "Great wall of suspicion" between China, India

NEW DELHI (Reuters) - Chinese Premier Wen Jiabao left New Delhi on Friday, vowing that India will never be a rival, but his rhetoric has done little to lift Indian unease over a long-running border dispute and China-Pakistan relations.

Despite the effusive displays of warmth during Wen's visit

neither side appears anywhere close to resolving differences over their disputed border, China's policy on Kashmir and its close security ties with India's arch-rival, Pakistan.

"Because the relationship had entered into a rough phase, China probably calculated that the downward trend needed to be arrested and that explains the visit," said Kanwal Sibal, who was India's former foreign secretary from 2002-03.

"But...he did not seem to come prepared with any concrete decisions or signals to arrest these problems."

Wen's visit is the first by a Chinese premier in five years and he brought with him more than 300 business executives, many of whom signed deals with Indian firms worth more than $16 billion.

Even as trade ties between the world's two fastest-growing major economies continue to flourish, with Wen setting an ambitious target of $100 billion by 2015, he gave few firm commitments on when and how India's ballooning trade deficit with China would be addressed.

Wen said he would give Indian companies greater access to the I.T., pharmaceuticals and agricultural products sectors in China, in a bid to assuage Indian exporters, who have been frustrated with the slow pace at which they see China opening up its markets.

"I don't think that's going to happen quickly," Sibal said. "China doesn't yield ground quickly. Even with powerful players, China hasn't done much to satisfy their demands."

"My fear is that while the trade volumes will increase, the trade deficit will also increase."

India's trade deficit with China is by far the highest among its trade partners and could touch $25 billion this year, which would account for around a fifth of India's total expected annual deficit.

India has sought to diversify its trade basket, but raw materials and other low-end commodities such as iron ore still

make up about 60 percent of its exports to China.

At the start of his trip, Wen said he was looking forward to an early launch of negotiations for a free trade agreement, but no progress was made due to Indian worries that it might be a dumping ground for cheap manufactured goods from China.

No other country has initiated more anti-dumping investigations against China at the World Trade Organization than has India.

GREAT WALL OF SUSPICION

Many Indians were counting on the fact that Wen would acknowledge that: Kashmir was an integral part of India; that Pakistan-based militant groups were involved in the Mumbai attacks in 2008; and that he would offer a solution to the boundary dispute -- issues that have marred Sino-Indian relations.

But he disappointed on all counts.

"All Talk No Gain. Wen's visit fails to breach Great Wall of Suspicion," said a headline in India's Mail Today. "Peking ducks on core issues," said another.

One of the immediate issues left hanging was a row over China's policy on Kashmir, where the Indian side was hoping Wen would reiterate the country's long-standing policy of non-interference in the internal affairs of another country. But the joint statement made no mention of the disputed Himalayan region.

In 2009, China began issuing stapled visas to residents of Indian administered Kashmir, angering Indian politicians who interpreted the move as a sign of Chinese interference to discredit Indian sovereignty over the disputed region.

From the Chinese point of view, the joint statement did not make the usual mention of the "one China principle," referring to Taiwan, and "Tibet Autonomous Region as part of the territory of the People's Republic of China, issues close to Beijing's heart.

One analyst saw the lack of reference to Tibet or Taiwan as New Delhi's response to Beijing for failing to endorse its sovereignty over Kashmir.

"You cannot treat Kashmir as a separate part of India and expect us to go publicly to support 'One China," said Siddharth Varadarajan, strategic affairs editor of The Hindu.

The biggest sticking point remained the unsettled border over which China and India fought a war in 1962.

"To completely resolve this problem, it will not be an easy task," Wen said at a speech on Thursday. "We need enough patience and a fairly long period of time."

The Asian giants still claim vast swathes of each other's territories along their 3,500 km (2,173 mile) Himalayan border which has never been demarcated.

"If the border issue is not resolved, the national identity is not defined, which means that the normalization of relations between India and China is not complete," said Srikanth Kondapalli, the chairman of the Center for East Asian Studies at Jawaharlal Nehru University.

"That is the biggest source of mistrust. There is no road map, no progress."

PAKISTAN

Beijing's close military ties with Pakistan which New Delhi blames for aiding militant groups involved in acts of violence in the country are also a sore point.

Unlike recent visitors French President Nicolas Sarkozy and U.S. President Barack Obama, Wen did not mention the Mumbai attacks or acknowledge that Pakistan harbored the militants responsible for the attacks.

While China is India's largest trade partner, it invests seven times more in Pakistan and is helping it build nuclear reactors, despite grave misgivings in the West.

Wen arrived in Islamabad on Friday to further deepen ties.

India also fears China wants to restrict its global reach by possibly opposing its bid for a permanent U.N. Security Council seat or encircling the Indian Ocean region with massive projects from Pakistan to Myanmar.

China on Thursday reiterated its support for India's aspirations to play a greater role in the Security Council, but it stopped short of expressing full backing for India's bid for a permanent seat.

A hotline between Wen and his counterpart Manmohan Singh was launched a few days ago, one of the few tangible gains in political ties. Both sides agreed on regular consultations on issues of importance.

"Both sides recognize that the broader problem behind these specific problems is a lack of mutual strategic trust," said Zhang Li, a professor who specializes in China-India relations at Sichuan University in southwest China.

"So I think the point is that before we can deal with those specific problems, we have to first nurture broader trust, and that was the main point of this visit."

(Additional reporting by Chris Buckley in BEIJING, Editing by Sanjeev Miglani)