China gained observer status in the South Asian Association for Regional Cooperation (SAARC) at the 13th summit of the regional organization held in Dacca, Bangladesh, in November 2005. Detailed discussions on the country’s status are scheduled for July.
　　
　　China requested SAARC’s observer status in January 2004, when Premier Wen Jiabao congratulated the success of the bloc’s 12th summit and made a membership proposal. SAARC currently groups Bangladesh, Bhutan, India, the Maldives, Nepal, Pakistan and Sri Lanka.
　　After China was granted observer status, Foreign Ministry Spokesman Liu Jianchao said China expects SAARC member countries to make greater achievements in promoting regional cooperation. “We are willing to work together with SAARC countries, to strengthen our cooperation and achieve common prosperity,” he said.
　　South Asian countries have a total population of 1.5 billion. Recent years have witnessed growing political stability and favorable economic development in these countries. The subcontinent has also become a new growth point for the world economy. According to a report by the Asian Development Bank, average GDP growth in regional countries reached 6.1 percent in 2004.
　　China enjoys favorable political ties with South Asian neighbors, which have recently been boosted by frequent exchanges of high-level visits. Beijing has established strategic cooperation relations or partnerships with all SAARC countries. Against this backdrop, economic cooperation has become a focus of China’s policy toward South Asia.
　　India has become China’s biggest trading partner in South Asia. Over the past decade, bilateral trade has kept pace with the warming political climate. In 2004, bilateral trade volume totaled $13.6 billion. As of September 2005, India had invested in 176 projects in China, with a contracted value of $339 million and paid-in capital of $113 million. China has invested in 19 projects in India, worth $26.33 million. Both countries have also signed economic and technological contracts worth $3.56 billion. Last April, they signed a five-year plan for overall economic and trade cooperation and agreed to launch feasibility studies on a free trade area. The two governments also pledged joint efforts to elevate bilateral trade to a staggering $20 billion in 2008.
　　Economic and trade ties between China and Pakistan have also progressed steadily. In October 1982, the two countries established a joint committee to address cooperation on economy, trade, and science and technology. They signed a preferential trade agreement in November 2003. The year 2004 saw bilateral trade volume surpassing $3 billion, up 26 percent from the previous year. In April 2005, the two sides agreed to conclude feasibility studies on a free trade area and start formal talks. Beginning January 1 of this year, the Early Harvest Program was launched to initiate bilateral trade, under which China will extend zero-rated tariffs on 767 items while Pakistan would reciprocate by extending the facility on 464 items.
　　China and Bangladesh have also enhanced economic and trade relations. In April 2005, Premier Wen, together with his Bangladeshi counterpart Begum Khalida Zia, named 2005 as the Year of Sino-Bangladeshi Friendship, to push forward a comprehensive partnership. Bilateral trade volume in 2004 amounted to $1.96 billion, a year-on-year increase of 43.5 percent. China’s exports to Bangladesh stood at $1.91 billion, up 42.8 percent from a year earlier, while imports totaled $57.01 million, an increase of 70.7 percent.
　　Trade ties have been fortified between China and other South Asian countries as well. Since China’s Tibet Autonomous Region began trade with Nepal in 1962, bilateral trade volume has been growing steadily. Between January and September 2005, trade between China and Sri Lanka reached $712 million. The two governments also signed an agreement to further their economic cooperation. China’s trade with Bhutan is fledgling, amounting to $520,000 in 2004 and $430,000 in the first nine months of 2005. China’s trade relations with the Maldives were initiated in 1981 and have witnessed gradual growth through the years.
　　
　　POTENTIAL BUYER: A Chinese businessman introduces remote control devices at an exhibition in New Delhi. India has become China’s biggest trading partner in South Asia
　　The level of economic development is comparatively low and infrastructures insufficient in SAARC countries. Their governments have attached great importance to investment in and development of irrigation, transportation and resource exploitation. The International Monetary Fund, the World Bank and the Asian Development Bank, among other global and regional financial organizations, have raised a large amount of funds to help with large-scale capital construction in the region. South Asia has therefore become a huge contracted construction service market of China. Pakistan has grown into China’s biggest market in this field in the subcontinent. As of mid-2004, Chinese enterprises had signed 383 contracts for projects in electronics, irrigation, power, transportation, ports, petroleum and gas, machinery and resource development. The contracted value of these projects surpassed $6.8 billion, with a turnover of $5.38 billion accomplished. China’s cooperation with Sri Lanka and Nepal in the field of labor service is also making headway.
　　Regional economic cooperation is usually carried out among neighboring countries, because stable trade relations and markets, as well as preferential policies, are guaranteed. China has regarded regional economic cooperation as a major component of its peripheral diplomacy, to create a peaceful and stable environment for its domestic economic development and to share benefits of regional stability and development with its neighbors. Currently, countries in South Asia have a strong desire to cooperate with China and jointly work for regional and bilateral free trade.
　　China has actively participated in sub-regional cooperation in South Asia. For example, provinces in southwest China have vigorously promoted cooperation with India and Bangladesh, as well as Myanmar in Southeast Asia. The year 1999 saw the first sub-regional economic conference among these four countries and the issuance of the Kunming Declaration that called for intensified economic cooperation based on the principles of mutual benefit, equality and sustainable development. This cooperation has been institutionalized, with the conference held every four years.
　　Despite these achievements, difficulties and challenges remain in China’s cooperation with South Asian countries. Most countries in the subcontinent are still less developed and their foreign trade is far from rewarding their partners, with the overall trade volume accounting for less than 1 percent of the global total. Therefore, there is a limit to developing economic and trade ties with these countries. Compared to favorable political ties and atmosphere, economic and trade relations lag behind. In 2004, China’s bilateral trade with SAARC countries totaled $19.7 billion, less than its trade volume with Singapore alone, which stood at $20 billion.
　　In addition, a surplus for China is common in its bilateral trade with South Asian countries, except for India. In 2003, trade between China and Pakistan was $2.43 billion, of which China exported $1.86 billion and imported $575 million. Trade volume between China and the Maldives reached $3.35 million, with China exporting $3.34 million and importing $10,000. This phenomenon put some interest groups and scholars in South Asia on alert. They claimed that China viewed South Asia as a “dumping” destination, and called on their governments to address the issue.
　　India has taken anti-dumping measures to prevent Chinese products from entering its market, which has greatly hurt interests and enthusiasm of Chinese manufacturers and business people, and has led to an overflow of smuggled Chinese goods in the local market. India’s highest tariff has dropped from 400 percent to 50 percent, and the average tariff from 87 percent to 27 percent. However, compared to international standards, they are still high, which creates obstacles to expanding Sino-Indian trade.
　　Yet, to view the issue from a different perspective, the prospects for cooperation between China and South Asian countries are still promising. The Chinese Government has taken a series of measures to boost bilateral economic and trade links.
　　As high mountains and deep rivers hinder the development of economic and trade relations, as well as no railway links the countries, China is trying to improve transportation in the region. It is considering a railway linking China’s Xinjiang Uygur Autonomous Region, Pakistan’s Peshawar and Iran, which is considered a new Silk Road connecting Europe and Asia. Nepal has shown great interest in China’s Qinghai-Tibet Railway, expecting it to extend to the Nepalese territory. King Bhutan Gyanendra has told Chinese and Indian leaders on many occasions that he hopes his country can serve as a transportation hub between China and South Asia.
　　The Chinese Government also wants to resolve the trade imbalance with South Asian countries, adopting various measures to expand imports from SAARC member countries. For example, China and Pakistan have signed a preferential trade agreement, under which China grants preferential tariffs for approximately 1,000 kinds of Pakistani products. Starting January 2006, China exempts tariffs on 81 products made in Bangladesh.
　　China, as a large economy and trading partner, has benefited a lot from regional economic cooperation, such as the Asia-Pacific Economic Cooperation forum and a free trade zone with the Association of Southeast Asian Nations (ASEAN) that is under construction. It is actively seeking enlarged cooperation with South Asian countries. China has always advocated equality among all countries and insisted that small and medium-sized countries should spearhead in regional economic cooperation. The current ASEAN plus one and ASEAN plus three mechanisms are led by ASEAN countries.
　　China is encouraging its enterprises to invest in South Asia. The Pakistani Government is formulating a plan to build an industrial development zone exclusively designated for Chinese enterprises and inviting Chinese enterprises to step in. India has developed cutting-edge microelectronics and information technology, with strong research and development capabilities. China and India are expected to cooperate in these fields.
　　As the living standards of Chinese citizens rise, more people travel abroad, which contributes to economies of destination countries. Before, Chinese tourists knew little about the rich tourist resources in South Asia. At present, only 200 Chinese travelers visit Pakistan every year, making up 3 percent of total foreign tourists in the country. China can work together with South Asian countries for nongovernmental exchanges and tourist development.
　　China and its neighbors in South Asia are also called to improve their financial markets to create a favorable investment environment. Financial centers such as Karachi, Calcutta and Mumbai need to be further vitalized, to become capital hubs of the region. Besides, these countries should create a multilateral mechanism to solve trade disputes, prevent malicious competition and simplify market access procedures.

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