You are number one in terms of software we are number one in terms of hardware

Chinese premier Zhu Rongji

Mr Zhu, addressing Indian IT leaders in the southern city of Bangalore, said that if Indian software was combined with Chinese hardware, it would lead the world.

The Chinese leader is on an official visit to India - the first by a Chinese premier in a decade.

He has already called for the two Asian giants to boost trade and economic co-operation, and has voiced his condemnation of the recent attack on the Indian parliament.

Future 'rivals'

Mr Zhu used his address to IT leaders to give approval to India's best-known software firm, Infosys, to set up an operation in the city of Shanghai.

Beijing is eager to develop ties

He said that China's huge population and vast potential market made it an attractive location for Indian firms.

However, the head of Infosys, NR Narayana Murthy, had earlier given a warning that China could overtake India in the global software market if it was not careful.

He told the BBC on Wednesday that India should learn from the Chinese experience in opening up new markets, implementing quick decision making and improving basic infrastructure.

In 2001, Indian software exports reached $6.2bn while China's have yet to reach $1bn.

However, the business research group Gartner has said that China could eventually overtake India as the main IT outsourcing hub for US companies.

Possibilities 'immense'

Kieran Karnik, the President of the National Association of Software and Service companies in India told the BBC's World Business Report that he welcomed the comments of Mr Zhu.

"China is strong in hardware, their facilities, their abilities and their costs are such that they are already dominant in a large part of the manufacturing arena," he said.

"India is a major leader in software, we have a lot of things going for us - quality, productivity and of course cost effectiveness," he added.

"If we marry the two, I think particularly in certain areas like embedded software, like consumer durables which use a lot of computer technology within them, where manufacturing quantities are large and cost need to be low and the software needs to be cleverly designed, I think the possibilities are immense."

Co-operation urged

Mr Zhu has said on his currenthas said the two countries should work more closely together in other fields.

He called for them to envisage a future based on "harmony and friendship."

Bilateral relations have been overshadowed for decades by a still unresolved border dispute and by China's close ties with India's rival, Pakistan.

But analysts believe China may be ready to overcome years of mistrust in order to counter growing US influence in South Asia.