The agreement, signed Wednesday, will enter into force in January, trade minister Jesus Bermudez told reporters.
"We believe that the negotiation of the treaty was extremely balanced, a negotiation that will benefit the Nicaraguan people, exporters, Nicaraguan businesses," he said.
Nicaragua and China established diplomatic relations in 2021 after Managua severed ties with Taiwan and switched its recognition to Beijing.
Last week, Taiwan slammed Nicaragua as a "pawn" of China after the Central American Parliament passed a proposal by Managua to give Taipei's observer spot on the body to Beijing.
China considers Taiwan a part of its territory and opposes the self-ruled island's participation in international organizations and exchanges with other countries.
Since Taiwanese President Tsai Ing-wen came to power in 2016, China has ramped up military pressure and poached nine of Taipei's diplomatic allies -- including Nicaragua.
China has made diplomatic headway in Central America, most recently in March when Honduras switched recognition from Taipei. Guatemala and Belize still have ties with Taiwan.
In South America, only Paraguay recognizes Taiwan over Beijing.
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