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 in Beijing on Monday.

The two sides signed the MOU following Premier Wen Jiabao's talks with his Australian counterpart John Howard at the Great Hall of the People.

Trade between the two countries has grown rapidly. China is now Australia's third largest trade partner, second largest export market and second largest origin of imports.

During the talks, Wen spoke highly of bilateral relations, citing their substantial development in recent years through contacts between leaders of the two countries and cooperation in such fields as economics, trade, education, culture, science and technology.

"China and Australia are important countries in the Asia-Pacific region and share wide-ranging common interests in safeguarding regional peace and promoting common prosperity," Wen said. "In the current volatile international environment, to further bilateral overall cooperation is in the fundamental interests of the two countries and the two peoples, and is conducive to peace and development in the Asian-Pacific region."

Wen made a four-point proposal on the future development of bilateral relations: enhancing political trust on the basis of mutual respect, equality and reciprocity; advancing bilateral free trade; expanding reciprocal and long-term cooperation; and strengthening security consultations and coordination.

Howard said that Australia has decided to recognize China's full market economy status and will enter negotiations on a free trade agreement.

He acknowledged the comprehensive development of bilateral relations in recent years, notably in the energy sector.

Australia is optimistic about the prospects for bilateral cooperation, Howard said.

He also stated that the Australian government's adherence to the one-China policy will remain unchanged.

Howard arrived in Beijing Monday afternoon for a working visit to China. He is also scheduled to meet with President Hu Jintao and top legislator Wu Bangguo.

This is Howard's fifth visit to China as prime minister. His entourage includes his wife and government officials.

(Xinhua News Agency, China.org.cn, April 19, 2005)