There can now be 100 flights per week between the countries, up from the previous maximum of 40 per week. There will be no limit on cargo services, the agreement says.
Services can now be operated between any point in the UK and any points in China, whereas in the past only six destinations in each country could be served.
"This deal is a big moment for the UK. Strong connections with emerging markets like China are vital for us if we are to continue competing on the global economic stage," Grayling said.
The number of Chinese visitors the UK in 2015 rose by 46 percent to almost 270,000. Meanwhile spending increased by 18 percent to £586m.
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