China and Switzerland on Saturday signed a free trade agreement (FTA) -- Beijing's first in continental Europe -- in a deal that comes against a backdrop of trade tensions between the Asian giant and the European Union (EU).

Chinese Commerce Minister Gao Hucheng and Swiss Economy Minister Johann Schneider-Ammann inked the accord in a ceremony at the Commerce Ministry in Beijing before officials and reporters.

Afterwards, they clinked glasses of champagne in celebration of the agreement, which aims to liberalise trade in goods and services and increase the $26.3 billion in bilateral commerce they rang up in 2012.

China in April signed its first FTA with a European country -- non-EU member Iceland -- but Saturday's deal marks the first with an economy in mainland Europe.

Gao, at a post-signing press conference with Schneider-Ammann, said the agreement would promote trade cooperation with Europe in general.

"China should launch similar cooperation with other countries in Europe, even the European Union," he added, signalling China's desire for an FTA with the 28-nation bloc.

Switzerland ranked as the world's 19th-largest economy in 2012, according to the World Bank. China is the world's second-biggest.

"This free trade agreement has an important significance for the relationship between the two countries," Schneider-Ammann told AFP after Saturday's signing ceremony.

He noted that China is the world's single biggest developing market with a growing middle-class.

Fiercely independent Switzerland is not a member of the EU and even waited decades to join the United Nations.

Nonetheless, it is an economic heavyweight known for high-value luxury goods, such as its world famous watches, pharmaceuticals and as a financial centre.

Switzerland mainly sells watches, pharmaceuticals and chemicals, as well as machinery to China, which ships mostly textiles and machinery back to Switzerland.

In an interview with Swiss paper Neue Zuercher Zeitung, Schneider-Ammann said tariffs imposed on luxury watches could fall by 60 percent, while Switzerland will remove similar taxes on Chinese textiles and shoes.

Unlike most western countries, Switzerland enjoys a huge trade surplus with China, amounting to $22.8 billion last year.

Switzerland and China had signed a preliminary FTA agreement in May during a visit to the landlocked, alpine European nation by Chinese Premier Li Keqiang.

Schneider-Ammann said the deal is also important for hedging risks.

"We get a chance to spread out the risk of the Swiss economy a little bit over the borders of our European neighbourhood," he said. "It has a great importance."

The EU economy has experienced serious turmoil over the past several years in the wake of the global financial crisis and due to sovereign debt instability that engulfed Greece and other member states including Spain, Italy and Portugal.

The EU and China have jousted over mutual claims of unfair trade practices in sectors including Chinese solar panels and European wine, leading to worries that the dispute could spiral out of control.

Total trade between China and the EU last year exceeded $500 billion when the EU had 27 members. Croatia joined this month.

A visit to Beijing last month by the EU's trade chief, who held talks with Gao, helped damp down tensions and increased optimism the two sides can come to terms on their differences.

Schneider-Ammann said doing so was vital for smaller countries like his own.

"It's absolutely important that the bigger economies find ways to keep open their markets because (the) more open the global market... the better the chances to do business," he said.

The deal, for which negotiations formally began in January 2011, still needs approval by the Swiss parliament to take effect.

Schneider-Ammann told Neue Zuercher Zeitung: "If all goes as planned, from our point of view, the agreement can be implemented by mid-2014."

Separately, Schneider-Ammann expressed concern about the value of the Swiss franc, which he said remained too strong.

"The Swiss franc is still overvalued," he told reporters after the signing.

The purchasing power of the Swiss franc against the euro, he said, is about 131-132 francs to the single currency, weaker than Friday's exchange rate of about 123.

"That's the overvaluation of our currency," he said.

The franc is a traditional haven for investors in times of international turmoil, which drives up its value and can weaken the competitiveness of Switzerland's exports.

The Swiss central bank set a minimum exchange rate of 1.20 francs to the euro in September 2011 amid global financial instability.