Islamabad: China and Pakistan are negotiating the terms of the second phase of their free trade agreement to increase trade and provide free trade opportunity for their businesses, a senior Chinese diplomat said.

Beijing and Islamabad have held around 10 rounds of talks to iron out differences over the terms of the phase-II of China-Pakistan free trade agreement. Both the countries had signed a major free trade agreement in 2006, which came into effect in July 2007.

"Pakistan has a huge potential market for international investors and its strategic location gives more comparative advantages to other trading partners. Pakistan and China are negotiating on phase-II of the free trade agreement (FTA) to increase trade and provide free trade opportunity in their markets," Economic and Commercial Counselor of Chinese Embassy, Wang Zhihua said.

Meanwhile, Pakistan and China have signed an eight-point memorandum of understanding (MoU) worth $ 100 million for mutual investment in steel, seafood, agriculture and pharmaceutical sectors, media reports said on Wednesday.

How will this impact India?

The reality that the route passes through the disputed Kashmir region seems to have worried India a lot, which has about half a million troops stationed in its part of the territory to defeat more than two decades of armed rebellion.

India has a legitimate concern over China–Pakistan Economic Corridor (CPEC) as it passes over PoK and this can impact the security of the nation. Many Indians allege that China is using Indian land area illegally occupied by Pakistan.

Beijing has been willing to address India's concerns though. Hua Chunying, China's foreign ministry spokeswoman, told the media that Beijing is committed to developing friendly and cooperative relations with others and that CPEC would not affect China's position on Kashmir. 
Reports on Al Jazeera say that keeping the door open does not mean that India will become enthusiastic about China–Pakistan Economic Corridor (CPEC) but that "it will be neutrally disposed - seeing some potential security benefits if Pakistan's economy is stabilised".

According to a report released by the Stockholm International Peace Research Institute - a Swedish-based think-tank - India's opposition to CPEC reflects concern over the internationalisation of the Kashmir dispute and the growing influence of China in the Indian Ocean.

It says that there is considerable concern within India that China, which has been neutral on Kashmir since 1963, can no longer be so, now that its economic and security interests in these territories are growing.

After the 1962 India-China war, Beijing sought to cultivate good relations with Islamabad, which has emerged as the biggest buyer of Chinese defence equipment in recent years.