New Delhi: China has offered to start free trade agreement (FTA) talks during Chinese Premier Wen Jiabao’s visit to New Delhi this week aimed at allaying Indian concerns about an enlarging trade deficit between the Asian giants, whose ties have largely been marked by mistrust dating back to a 1962 border conflict.

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Wen’s 15-17 December “state visit" is timed to coincide with the 60th anniversary of the establishment of diplomatic relations between the world’s two most populous countries.

“The free trade agreement is the next stage. It is our hope that we can start the process," China’s ambassador to India, Zhang Yan, told reporters in Delhi on Monday.?“We are very much positive on these issues. I think that in general Indians think it is positive, but need more time."

India’s trade deficit with China was close to $16 billion (Rs 72,320 crore today) in 2007-08 from $1 billion in 2001-02, according to industry figures. India is trying to diversify its trade basket; raw materials make up 60% of exports to China, while manufactured goods form the bulk of Indian imports.

Building trust: China’s ambassador to India, Zhang Yan, says that China-India relations are fragile, easy to damage and difficult to fix. Indranil Bhoumik/Mint

Wen’s visit comes five years after his first in April 2005. Accompanying Wen will be several senior ministers and “one of the largest business delegations" to India, foreign ministry official Gautam Bambawale said.

“Both sides are expected to sign a number of agreements," foreign ministry spokesperson Vishnu Prakash told reporters. These include government-to-government accords and commercial pacts, including one agreed in October for China’s Shanghai Electric Group Co. Ltd to sell power equipment and related services worth $8.3 billion to India’s Reliance Power, Liang Wentao, a deputy director general at the ministry of commerce, was quoted as saying by Reuters. Liang did not give a value for the total amount of commercial deals to be signed.

Bambawale said one of the pacts would be in the financial sector. He confirmed what ambassador Zhnag said—that 10 Indian banks were operating in China, while no Chinese bank had a branch in India.

Indian industry has been cool to the idea of an FTA. But India is keen for increased Chinese investment in its infrastructure sector that will require an estimated $1 trillion worth of funds in 2012-2017, Prakash said.

“We think that Indian industry concerns on Chinese subsidies and pricing would be significantly reduced if not eliminated once China becomes fully compliant with WTO (World Trade Organization) norms in 2015," said Amit Mitra, secretary general of the Federation of Indian Chambers of Commerce and Industry (Ficci).

The strong trade notwithstanding, ties are hamstrung by mutual mistrust stemming from the 1962 conflict. China claims 90,000 sq. km of Indian territory in Arunachal Pradesh and occupies around 38,000 sq. km in Jammu and Kashmir, which India claims is its territory. China also holds 5,180 sq. km of Indian territory in PoK (Pakistan-occupied Kashmir) illegally ceded to it by Pakistan under a 1963 pact.

India-China ties have been buffeted by other incidents as well. Earlier this year, India suspended defence exchanges when Beijing refused a visa to an army officer in charge of Kashmir. India and Pakistan claim the region in whole, though they administer it in parts.

New Delhi has also been upset by China issuing stapled visas instead of the usual stamped ones to Kashmiris, a policy officials say violates India’s sovereignty. Reports of Chinese firms engaging in infrastructure construction in the region of Kashmir administered by Pakistan did not go down well with India either. According to the Chinese foreign ministry, Wen will be visiting Pakistan immediately after his India visit.

China, for its part, eyes the activities of Tibetan spiritual leader, the Dalai Lama, exiled in India since 1959, with suspicion. Last week, India attended the Nobel Peace Prize ceremony in Oslo to felicitate jailed Chinese dissident Liu Xiaobo despite several démarches from Beijing to boycott the event.

Zhang described the two countries as “partners in development" and their ties as the “most important bilateral relations in the world" with “no fundamental differences and conflict".

But at the same time, he said both sides had to “build trust", adding, “I am of the view that China-India relations are very fragile and easy to damage and difficult to repair. Therefore, it needs special care in the information age," Zhang said.