Actively exploring free trade between China and India will elevate the two countries' economic and trade relations to a new plane and promote regional economic integration, according to President Hu Jintao.

Establishing free trade was one of the five proposals Hu put forward to strengthen economic and trade ties between China and India during his keynote address to the one-day India-China Economic, Trade and Investment Co-operation Summit held in Mumbai, the commercial capital of India.

Improving the environment in trade and investment is also essential to boosting bilateral economic relations. While properly solving problems that arise from bilateral trade, Hu said that the two countries should adopt positive measures to remove obstacles and facilitate the two countries' businesses to trade and invest in each other's country, he said.

Hu noted that bilateral trade between China and India has sustained an average 32 per cent growth year-on-year since 1996 with the volume expected to reach US$20 billion this year.

China has become India's second largest trade partner in the world. India, China's largest business counterpart in South Asia, has become one of the most important markets for the country's overseas project contracting.

Mutual investment has branched out into more sunrise industries, such as telecommunications, software and pharmaceuticals, which "set distinctive examples" for trade and business expansion, Hu said.

The two countries have started feasibility studies for a regional trading arrangement, set to be completed in October next year.

All these achievements show that complimentary bilateral mutual trade has delivered tangible benefits to both countries and strengthened the foundation of bilateral relations.

Hu said that the two countries can do more to forge ahead with their economic and trade collaboration.

For instance, the two countries need to work to diversify their trade by improving their trade structures and increasing the percentage of new and high technology and machinery products in business deals.

Asked to comment on Hu's speech about removing obstacles, Shri Kamal Nath, India's Minister of Commerce and Industry, said India welcomes Chinese investment, especially in economic zones.

He said the Indian side is examining various dimensions in relation to free trade with China.

In another development, Hu arrived Islamabad, capital city of Pakistan from Mumbai of India yesterday to start his four-day official visit, which is expected to give a boost to the existing friendly relationship.