It is a small step commercially, but a huge step strategically

David Wolf Media analyst

In return, AOL Time Warner will broadcast China's state-run CCTV 24-hours-a-day to New York, Los Angeles and Houston.

"It's both symbolic and significant," according to Steve Marcopoto, president of AOL's Turner Broadcasting System Asia Pacific.

The benefits from gaining the foothold in China - with a TV advertising market is worth $2.4bn per year - will come in the long term, Mr Marcopoto said.

"We have it in our plans as a strategic move. It's not something that we'd expect to be profitable in the short-term."

The agreement has been described as "a small step commercially, but a huge step strategically" by David Wolf, media specialist at Beijing-based consultancy Burson Marsteller.

AOL chairman Gerald Levin: "Mutually beneficial"

"This is a sign that the Chinese government is now recognising that the media industry is in fact a business, and that it's more than just propaganda."

The Chinese TV advertising market is growing by 15-20% per year, according to one forecast.

The deal will serve as a launch-pad for future co-operation, according to Minister Xu Guang Chun, director of the State Administration of Radio, Film and Television (SARFT).

Some analysts have said that foreign channels have been watched illicitly in the region for some time.

AOL Time Warner acquired CETV in June 2000, and cable viewers will now be able to watch its mix of original Chinese shows and versions of American programmes like Miami Vice and La Femme Nikita.

The American company's chairman, Gerald Levin, said the agreement would continue the "mutually beneficial exchange of knowledge and expertise".

'Greater understanding'

"We are very pleased to have achieved this landmark agreement, which represents a significant step in the growing relationship between AOL Time Warner and the people of China," he said.

"The reciprocal nature of the agreement means that American audiences will gain a greater understanding of Chinese culture as well as an appreciation for the immense intellect, artistry and creativity of the Chinese people."

Last week, Phoenix Satellite Television - partly owned by Rupert Murdoch's News Corporation - was given state approval to begin official broadcasts in Guangdong.

In June, the Chinese government allowed AOL Time Warner to take part in a joint venture to provide internet services in the country.