The Taiwan deal reportedly cuts almost 50 per cent of tariffs from day one, adding to the competitive disadvantage Australian producers already suffer due to a 2008 NZ deal with China.
Prime Minister Kevin Rudd discussed how to re-invigorate the long-running negotiations with China on Monday night in a telephone conversation with Chinese President Xi Jinping.
The People's Daily website reported later that Mr Xi had called for an "early conclusion". Mr Rudd's spokesman said China had invited Trade Minister Richard Marles to visit.
But earlier that day Mr Marles had appeared to suggest that negotiations with Japan and South Korea were more prospective during a discussion following the launch of an Asian business capability centre in Canberra.
Mr Marles said those two countries were further ahead in the queue than China.
New Zealand signed the deal with Taiwan quietly on Wednesday in an apparent attempt not to upset relations with China which has become an increasingly important trading partner since 2008.
According to Chinese figures in the first half of this year imports from NZ to China rose by 33.6 per cent which was twice the rate of growth for last year. At the same time, Chinese imports from Australia rose by only 9 per cent.
Traders say there is increased demand for NZ dairy, meat and wine products because they are becoming more price competitive than Australian products.
Australian rural export group representatives were reluctant to comment on the Taiwan-NZ deal until the details were clear but said Australian farmers were increasingly disadvantaged in China due to NZ's trade deal there.
Mr Rudd's discussion with Mr Xi has raised hopes of progress on a China-Australia deal despite Chinese demands for removal of obstacles to investment including the treatment of state owned enterprises like private companies.
Wang Zhenyu, an assistant research fellow at the China Institute of International Studies, a thinktank linked to the foreign ministry, said the strong interest of both Mr Xi and Mr Rudd would add momentum to the negotiations.
He said the FTA was important for Australia, particularly if multilateral negotiations such as the Regional Comprehensive Economic Partnership and the Trans-Pacific Partnership failed to result in a deal.
But Australia Chamber of Commerce and Industry trade director Bryan Clark said the new Labor leadership should be putting more emphasis on preparing for a World Trade Organisation ministerial conference in Indonesia in December.
He said bilateral FTAs often caused more problems than benefits due to lack of harmonisation and trade diversion.
NZ has been careful not to recognise Taiwanese sovereignty by doing the deal with the "Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu" – the name used by Taiwan when it joined the WTO.
But it represents a big achievement for Taiwan as it is the first economic agreement for it with a member of the Organisation of Economic Co-operation and Development. NZ companies could take advantage of Taiwan's ties to China to use it as a base for mainland China business.