China and Australia agreed to start talks on establishing a free trade area following Australia's recognition of China's full market economy status, according to a Memorandum of Understanding signed Monday in Beijing.

The two countries' commerce officials signed the MOU following Chinese Premier Wen Jiabao's talks with his Australian counterpart John Winston Howard in the Great Hall of the People in Beijing.

China is now Australia's third largest trading partner, second largest export market and second largest origin of imports. Trade between the two countries kept growing quite fast over the past few years.

Chinese figures show that two-way trade reached 20.39 billion US dollars in 2004, up 50.3 percent from a year ago, double the figure of 2002 and more than 230 times the figure when the two countries established diplomatic relations in December 1972.

Australia is now the largest developed country trying to reach a FTA deal with China, which has been trying to establish FTAs with the 10-member Association of Southeast Asian Nations (ASEAN), the six-member Gulf Cooperation Council and the five-member South African Customs Union, Chile and New Zealand.