There is no domination in economically. Were markets to open up with China and India, the result would be slightly different - China would take manufacturing, India would take away the services.
There is zero benefit of China actually joining up. But were China to not join up, other countries like Bangladesh and Pakistan would take up manufacturing - because India is not competitive there.
I don't see Bangladesh and Pakistan as being that competitive in manufacturing - in fact, Pakistan is struggling in comparison to Bangladesh with many Pakistani textile companies relocating to Bangladesh. In addition, if Bangladesh and Pakistan really were that competitive in manufacturing, industries would be relocating their manufacturing facilities to these countries (which they are in the case of Pakistani textile manufacturers moving to Bangladesh) irrespective of the opening up of SAARC.
Chinese labor costs are going up, which in turn will change the calculus for companies manufacturing in China and potentially result in these companies opening up manufacturing facilities in Pakistan and Bangladesh, to support local demand at least. The apprehension that countries like Pakistan and Bangladesh will suffer if China is included in SAARC is therefore not entirely justified.
And Markets are already in the process of being opened up bilaterally between SAARC countries minus Pakistan. SAARC only expedites the process as a collective. India is already cognizant of the fact that Pakistan will not let it function so we are moving ahead individually.
We already opened up a group called BIMSTEC(google it) - basically it is SAARC without Pakistan because of realizing the futility of dealing with Pakistan which acts as an outpost for others interests than acting for itself.
Then we moved on and decided that treating bilaterally for trade and economics makes more sense - and that is what we are doing now.
That's all fine, but irrelevant to the discussion of why India is opposing China's SAARC membership.
If just increased economic ties are the goal - then it makes more sense to have Japan, France and US along with China in SAARC as well. They have as much economic justification - as key investors, donors, developmental assistance providers as China and infact larger than China in these assistance's .
And yes - all these nations are keen to join SAARC, US in particular is very keen.
Pakistan has been trying to get open market access to the US for decades now, and the US did not oblige with even limited access during the days when US-Pakistan cooperation over Afghanistan was excellent, so I really don't see why the US would open up its markets to SAARC.
While the US might express "interest" in joining SAARC, it is all just "diplo-speak' - historically US trade agreements have been bilateral or with established and functioning blocs like the EU. There is no chance of the US opening up her markets to SAARC nations at this point since the US does not see any major benefits in bilateral trade agreements with any of the SAARC member States, aside from India. But that is just my view on it - I have no objections in SAARC granting membership to the US, I just don't see the US opening up her markets even if she is made a member.
Then what is the point of having SAARC if we are to involve China and these nations? We can deal directly with WTO if that is the case.
China is geographically contiguous, it is a developing country like the other SAARC countries. China as a member would balance out SAARC in terms of having 2 large economies and States in the group instead of just one, and she is actually interested in being part of the group - like I said above, I don't see the same enthusiasm on the part of the other countries you mentioned.
Now the fact is that just economic ties are not the only goal of SAARC - it is also a platform for South Asian countries to sit together politically. Including China, US, Japan and a host of other nations defeats the other part of the goal of SAARC.
Why politically? What common political goals are you suggesting SAARC advance that will be hindered by the presence of China?