The endorsement by the UK which this month took over the rotating presidency of the EU comes amid heightened concerns in Europe about China's manufacturing prowess and its power as an exporter of clothing and other cheap goods.

Last week Brussels opened a new front in its recent trade tensions with Beijing by announcing it would investigate whether China was dumping reinforced shoes in Europe, just weeks after calling a truce in a larger confrontation over Chinese textiles.

On a visit to China, Mr Pearson told the Financial Times: “We in Britain believe China should be granted market economy status. We are talking to our partners in the EU about this at the moment.

“The EU granted market economy status to Russia two or three years ago, and we think the rise of China should be similarly recognised.” Russia was granted market economy status in 2002.

Recognition as a market economy has long been of paramount importance for China because it is the target of most American and European anti-dumping measures the EU currently has 49 anti-dumping cases with China.

In defining China as a non-market economy the EU assesses the value of its exports against a comparable country, which Beijing deems to be unfair because costs may be higher there than in China. The award of market economy status would make it harder to impose anti-dumping penalties on Chinese exports.

Gaining market economy status would help China escape European anti-dumping duties because it would mean Brussels would no longer compare the export price of a Chinese product with that of third countries. Instead, Brussels could only impose penalties if the export price was below China's production cost.

Beijing also attaches political significance to the status and sees it as another milestone in its efforts to be considered on an equal footing with the largest western industrialised powers, after joining the World Trade Organisation in 2001.

However, the European Commission irked Beijing last summer when it concluded that China was not ready for market economy status, after an inquiry that highlighted the weak rule of law in China and state interference, as well as poor standards of corporate governance.

Since then, Brussels has treaded cautiously in the talks and last month Peter Mandelson, the British EU trade commissioner, brushed off a question over the issue at a conference on the EU's relationship with China.

Mr Pearson's positive assessment is in contrast with the UK's reluctance to proceed with lifting the European Union arms embargo on China, Beijing's other central demand of the EU.

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