NEW DELHI: China hopes to have free trade discussions with India during the Chinese Premier's visit to New Delhi this week, a signal of how the two Asian powerhouses may try to smooth tensions over their economic and border rivalries.

“The free trade agreement is the next stage (of India-China relations). It is our hope that we can start the process,” China's envoy to India, Zhang Yan, told reporters in New Delhi on Monday.

“We are very much positive on these issues. I think that in general the Indians think it is positive but need more time.”

While a deal could be years away due to Indian fears it could become a dumping ground for cheap Chinese goods, it highlights how world powers are trying to boost ties with a South Asian nation that is one of the few stars in a weak world economy.

Wen Jiabao's visit will be the first to India by a Chinese premier in four years and comes a month after President Barack Obama's trip. President Nicolas Sarkozy and British Prime Minister David Cameron have also visited India this year.

Despite a boom in bilateral commerce in the past decade, and cooperation on global issues such as climate change, India and China remain deeply suspicious of each other's growing international influence.

Both powers compete from Latin America to Africa for resources. Many in India fear China wants to restrict its influence, potentially by opposing a UN Security Council seat for India or encircling the Indian Ocean region with projects from Pakistan to Myanmar.

EVERYTHING ON THE TABLE

Assistant Chinese Foreign Minister Hu Zhengyue said everything would be up for discussion during the Dec. 15-17 visit to New Delhi. Wen then goes straight to Pakistan, India's nuclear armed rival, for another two nights.

“No issues are off the table,” Hu told reporters in Beijing, adding the India trip was to expand bilateral trade, increase cooperation and promote regional peace and stability.

China and India plan to sign a series of business deals, including one agreed in October for Shanghai Electric Group Co to sell power equipment and related services worth $8.3 billion to India's Reliance Power.

Representatives from Shanghai Electric and commercial banks would accompany the delegation and try to iron out financing details, said Liang Wentao, a deputy director general at the Ministry of Commerce. He would not give a value for the total amount of deals to be signed.

India's trade deficit with China rose to $16 billion in 2007-08 from $1 billion in 2001-02, according to Indian customs data. China is India's biggest trading partner, with bilateral trade expected to pass $60 billion this year.

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 per cent of its exports to China.

In contrast, manufactured goods -- from trinkets to turbines -- form the bulk of Chinese exports.

“China is not purposely seeking trade surplus over other countries. We are ready to work with countries concerned to minimise the imbalance because we know in the long run a big gap in trade is not healthy and not sustainable,” Zhang said.

Analysts said that India would be reluctant to agree to any trade deal. India's $1.3 trillion economy lags China's $5 trillion economy -- in 2009 according to the World Bank -- in basic infrastructure and is less export-orientated. The two countries' populations are near equal.

“I think the Indian side will not be able to accept any free trade agreement, as the fear is that China would dump goods in the Indian market,” Srikanth Kondapalli, head of East Asian Studies at Jaharwalal Nehru University,  said.

TENSIONS SIMMER

India and China have also clashed repeatedly over a raft of political issues including their long-disputed border, China's increasingly close relationship with Pakistan, and fears of Chinese spying.

Wen rather pointedly is twinning his trip to India with a visit to rival Pakistan, where China has extensive port, power, and road investments.

During the Pakistan trip, Wen will discuss regional cooperation as well as long-term development, Hu said.

Last year, India protested against a Chinese embassy policy of issuing different visas to residents of Indian administered Kashmir. New Delhi bristles at any hint that Kashmir, where a separatist insurgency has raged for two decades, is not part of India.

Hu acknowledged the visa issue could come up, as might Chinese dam building on the upper reaches of important rivers that flow across the border including the Brahmaputra, known in China as the Yarlung Zangbo.

“The dam won't influence the development of the relationship between the two countries, and it won't influence the livelihood of people living downstream,” Hu said. “The visa issue falls under the category of details.”