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Supporters leave on a tricycle with banners reading "Taiwan Independence" after attending the final rally for Taiwan's Democratic Progressive Party presidential candidate Tsai Ing-wen in Taipei, Taiwan, Friday, Jan. 15, 2016. Taiwan will hold its presidential election on Jan. 16, 2016.

Ng Han Guan/Associated Press

The Chinese government has warned Canada to proceed with caution after it signed a new deal with Taiwan designed to reduce friction for commerce between the two countries.

The avoidance of double taxation arrangement, 16 years in the making, brings Canada a small step closer to Taiwan despite efforts over recent decades by China to bar official contact between Ottawa and Taipei.

"The business community wants it, and both governments realize that," John Deng, Taiwan's minister of economic affairs, said in an interview Friday.

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"I hope that beginning from here, we can develop much closer relations."

China, which considers Taiwan a renegade province, is highly sensitive to other countries' dealings with the island – and the taxation deal was concluded on the same week a senior Chinese arrived in Ottawa to discuss the possibility of launching free-trade talks.

In a statement from Beijing, foreign ministry spokesman Hong Lei cautioned Canada to "abide by the one-China principle and cautiously deal with the relative issues."

He said China "has no objections to a country that has diplomatic relations with China conducting civil economic, trade or cultural communication with Taiwan." But it "firmly opposes" the signing of "any agreement in an official nature."

Canada signed a similar deal with China in 1986.

Talks on the Taiwan arrangement began in 2000 under the Jean Chretien government. They were largely completed under the Stephen Harper government, which prioritized the completion of international trade deals.

In Taiwan, meanwhile, the Kuomintang party led by Ma Ying-jeou is expected to lose control of the presidency, and perhaps the legislature, in a Saturday election.

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Mr. Deng called the deal's completion the day before an election "a coincidence." His government will remain in power until at least May, when the election winner will take office.

The Canadian side will not announce the deal until Monday, in deference to the Taiwan vote.

Taiwan's foreign ministry, in a statement, said the deal will create "a friendly environment to encourage investment and strengthen substantive relations between the two countries."

Its completion comes as the Justin Trudeau government pursues closer bonds with mainland China. Since taking office, his administration has said it intends to move toward a free-trade agreement with Beijing, a deepening in economic ties that China has long sought.

"I expect that the new government will be less likely to engage Taiwan," in the name of "seeking greatly enhanced engagement" with the mainland, said Charles Burton, a former diplomat to China who is now an associate professor at Brock University.

Taiwan, for its part, has long wanted better trade relations with Canada, but Ottawa has been reticent for fear of angering China. The two sides do not have formal diplomatic ties, and the avoidance of taxation deal is called an "arrangement" instead of an "agreement" because of the unique relationship.

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Canada has not sent a federal minister to Taiwan since 1998, when then-industry minister John Manley landed in Taipei for a three-day trade mission. Beijing at the time publicly demanded he cut the trip short because, as a spokesman then said, "China strongly opposes any contact between Canada and Taiwan of an official nature."

The taxation deal was signed by Rong-chuan Wu, the representative of the Taipei Economic and Cultural Office in Ottawa, and Mario Ste-Marie, executive director of the Canadian Trade Office in Taipei. Those organizations act as de facto embassies, and Messrs. Wu and Ste-Marie as ambassadors with different titles.

Most of the details on the deal were completed in May, 2015, when Taiwan's economics vice-minister Cho Shih-chao travelled to Ottawa for talks with the Department of Foreign Affairs and Trade.

It is a small but notable achievement for Taiwan, which has no seat at the United Nations and is diplomatically recognized by only 22 nations.

Avoidance of double taxation deals seek to keep people and businesses from being taxed twice by two jurisdictions on the same income. They are often a first step toward further trade co-ordination, including foreign investment protection and promotion agreements (FIPA) and, ultimately, free trade.

Taipei is now eager to start negotiations on a FIPA deal with Canada, but no talks have taken place – and it's not clear whether the Trudeau government would want to do so.

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Canada and Taiwan share significant human and trade ties. Some 50,000 Canadian passport holders live in Taiwan, and roughly 200,000 people of Taiwanese descent are in Canada.

Taiwan is Canada's 12th-largest trading partner, while Canada is 24th most important for Taiwan.

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