The agreement, signed was inked by China's Commerce Minister Chen Deming and his New Zealand counterpart Phil Goff at the Great Hall of the People, and was witnessed by New Zealand Prime Minister Helen Clark and her Chinese counterpart Wen Jiabao. It came after nearly four years of negotiations between the two sides.
"This is an historic day for China-New Zealand relations. The signing and implementation of the China-New Zealand free trade agreement will bring our friendly relationship even closer and deliver tangible benefits to both our countries," Xinhua and the Sydney Morning Herald quoted Jiabao, as saying.
Clark said: "It was with a great sense of ambition that we embarked on this particular phase of the relationship. Thanks to considerable efforts by you, President Hu (Jintao), your government and our government, we're at this extraordinary moment today."
New Zealand Trade Minister Phil Goff, who is travelling with Clark, emphasised the historic nature of the agreement.
"Being the first developed country to sign a comprehensive FTA with China is an enormous achievement for New Zealand," he said.
"By reducing barriers to trade in goods, services and investment in China, the FTA will give New Zealand businesses a distinct advantage over competitors into that market."
Two-way trade between the two nations hit 7.54 billion New Zealand US dollars (5.94 billion US dollars) in 2007, according to official estimates from Auckland, although the final data has not yet been released.
With the new deal, bilateral trade is expected to grow in the coming years, while tariffs across the board on both sides will be gradually reduced over time, government officials said.
Clark, who is on a three-day official visit to China with 150-member trade delegation, said: "China is already our third-largest trading partner and a fast-growing export market for us."
Goff said New Zealand exports to China are projected to grow between New Zealand dollars 225 million and New Zealand dollars 350 million a year.
Currently, major New Zealand exporters face tariff barriers in China of between 10 percent and 20 percent, he said.
"By reducing barriers to trade in goods, services and investment in China, the FTA will give New Zealand businesses a distinct advantage over competitors into that market," Goff said.
Goff said given that New Zealand is ranked 50th in size for Chinese exports, not to have achieved an early agreement with China could well have resulted in New Zealand being much further down the list for negotiations, and New Zealand exporters being in a position of disadvantage against competitors.
China and New Zealand began 15 rounds of detailed negotiations for the agreement in July 2004.
The agreement covers not just merchandise trade but also services. China sends more students to study in New Zealand than any other country and is its fourth-largest source of tourists.
China has so far signed six FTAs with countries and regions including Chile and Pakistan; and is at talks with a host of nations including Peru, Iceland and Australia.