Australia recognised China as a free market economy during a visit to Beijing by Prime Minister John Howard on Monday and the two countries agreed to start long-awaited free trade talks. Granting China market status amounts to a goodwill gesture by Australia, essentially meaning it will not bring anti-dumping actions against Beijing in future spats over trade, which has quadrupled in the past decade to $22.7 billion.
"Despite the short span of your current visit, it is an important one," Chinese Premier Wen Jiabao told Howard.
Australia has struggled to balance its close alliance with the United States and Britain with its geographical location, with Asia criticising the conservative Howard for ignoring the region for much of his nine years in power.
But a fresh drive into Asia is starting to pay off with a series of free trade deals, closer security ties and recent visits by Indonesia's president and Malaysia's prime minister.
Howard, in opening remarks to Wen, invited the Chinese leader to visit Australia in the next year.
China is Australia's third-largest trading partner.
Australian Trade Minister Mark Vaile and Chinese Commerce Minister Bo Xilai completed a study into a possible free trade deal last month. Howard was also scheduled to have met Chinese President Hu Jintao, who visited Canberra last October.