A memorandum of understanding on the free trade talks was signed following a meeting between Howard and his counterpart Wen Jiabao in the Great Hall of the People in central Beijing.

"Australia has decided to recognize China as a complete market economy," Howard was quoted by China Central Television as telling Wen.

"We hope to begin negotiations on a free trade agreement and deepen economic and trade cooperation."

Wen said China was willing to move forward with the free trade process, but also underscored the need to build up more political trust between the two countries and seek to consult each other on regional security issues, the report said.