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"I think, there is great potential. India and China, combined, are doing more compassionate work. At a practical level also. Imagine two billion people working together," he told reporters in New Delhi after inaugurating Smile Foundation's initiative, The World of Children.
The spiritual leader, who has lived in India in self-imposed exile since 1959, said neither country had the "ability to destroy the other".
"Whether you like it or not, you have to live side-by-side," he said.
"All thinkers of Nalanda are Indian. So Nalanda's tradition is India's tradition," he said.
The Nalanda traditions had turned Tibetans, who were warriors, into more compassionate, peaceful and non-violent nation, he said.
"So sometimes in Delhi, teasing my Indian friend, (I say) if Tibet still remained in the previous way of life, like Mongols, Chinese invasion may not have taken place," the Dalai Lama said in a lighter vein.
He said nobody in the world wanted violence but it was happening "because our minds are dominated by destructive emotions due to short-sightedness".
"Nobody wants problems. Yet, many problems are our own creation."