South East Asian leaders and China have agreed to begin talks to create the world's largest free trade area (FTA), encompassing 1.7 billion people and trade valued at $1.2 trillion (�767bn).

The deal was signed on the first day of the 10-nation Association of South East Asian Nations (Asean) summit in the Cambodian capital, Phnom Penh.

Asean leaders to shake on trade deal

Asean Secretary-General Rodolfo Severino said the deal came as the region was "at the crucial crossroads".

The FTA was expected to take 10 years to implement but tariffs on some farm products could be cut by early next year.

Products covered by the "early harvest package" include live animals, meat, fish, dairy produce, other animal products, live trees, vegetables, fruit and nuts.

Talks for free trade in goods, services and investments are due to be held next year.

Asean groups Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam.

Chinese expansion

The trade deal would mark latest Chinese move to assert its dominance in the region.

An Asean study said the region's "small, fragmented markets" were unattractive to investors, when compared with the large Chinese market.

China has cheaper production costs than its neighbours and is attracting most of the region's foreign investment.

The world's most populous nation has also been meeting with individual Asean members during the summit to promote its position in South East Asia.

China has already announced preferential tariff deals for three of the poorest countries in the region - Cambodia, Laos and Myanmar - and written off about $220m of the host's debt.

Chinese chequers

Japan is trying to provide a counterbalance to China with its own free trade deals with the regions most developed economies.

"China is seen as frightening figure," said Yutaka Aoki, a senior Japanese Embassy official.

"China's economy has been booming, and its population of 1.3 billion makes a huge market, compared to some 500 million for all of Asean combined."