Taiwan signed a free trade agreement with New Zealand Wednesday, its first with a country that has diplomatic relations with China as it seeks to pursue similar deals regionally and halt a competitive slide.

The 'economic cooperation agreement' was signed at a university in Wellington in a low-key event in an apparent bid to avoid upsetting China.

Taiwan's economic and foreign ministers said that the agreement was considered a barometer and may kickstart the signing of a series of free trade deals between the island and other countries.

"The economic ministry welcomes such a great achievement... as we continue to promote Taiwan's strategy to participate in regional economic integration," Taiwan's economic minister Chang Chia-chu told reporters following a video link of the signing ceremony.

Dubbed a "comprehensive market liberalisation agreement", the deal is expected to expand both Taiwan and New Zealand's market access, according to feasibility studies by both sides, the economics ministry said.

For Taiwan, the trade deal is expected to boost its GDP by $303 million and the total national output by $1.18 billion after the implementation period of 12 years, according to its feasibility study.

Taiwan's manufacturing sector, in particular steel, plastics and car parts, are expected to be the main beneficiaries for the island.

The deal is also set to lower the costs of popular agricultural produce, such as kiwis, apples, milk and beef from New Zealand.

"This agreement will enhance New Zealand's growth prospects through vastly improved links with a major Asian economy," New Zealand Trade Minister Tim Groser said in a statement.

According to Groser, it will immediately eliminate the tariffs for over 70 percent of current exports to Taiwan, and will eventually allow 100 percent of New Zealand goods to enter tariff-free.

Taiwan has been pursuing trade deals in the region to help pave the way to join the Trans-Pacific Partnership Agreement.

New Zealand, like most countries, officially recognises Beijing over Taipei, and already has a free trade deal with China. Taiwan is New Zealand's 12th largest trading partner, with bilateral trade totalling about $120.7 million.

In 2011, Taiwan forged an investment protection agreement with Japan, as China relaxed previous strong opposition to economic deals between the island and third parties.

The apparent change in China's policy followed the signing of the sweeping Economic Cooperation Framework Agreement between Beijing and Taipei in 2010.