China has recommended dropping tariffs on Australian wine exports worth $1bn in an interim decision.
Beijing is reviewing the sanctions through a five-month process after the Albanese government agreed to suspend Australia's dispute lodged with the World Trade Organisation until March 31.
The Chinese government on Tuesday released its interim recommendation that the duties on wine are no longer necessary.
Beijing will announce its final decision later this month, but the move has sparked hope the tariffs will be fully removed.
Foreign Minister Penny Wong said the government had stabilised the relationship with China without compromising the nation's values.
"We have delivered on that commitment through calm and consistent dialogue," she said.
"We continue to press for all remaining trade impediments to be removed."
Trade Minister Don Farrell said the interim recommendation was a welcome development.
"It vindicates the government's preferred approach of resolving trade issues through dialogue rather than disputation," he said.
Australian Grape & Wine chief executive Lee McLean said the decision was a "positive step" towards resuming trade with what was formerly the largest export market.
"We remain cautiously optimistic about the forthcoming decision and will await MOFCOM's (China's commerce ministry) final determination," he said.
"We appreciate the collaborative efforts from both the Australian and Chinese governments, and industry partners, in working towards a resolution."
China lifted tariffs on Australian barley in August last year following a similar process, after Labor paused a WTO dispute in exchange for a review.
Beijing imposed $20 billion in sanctions on Australian products, during heightened tensions in 2020.
Sanctions worth $2 billion remain on wine, rock lobster and some abattoirs.
China's Ambassador to Australia Xiao Qian on Monday said the review was "moving on the right track, in the right direction".
Senator Farrell recently met his Chinese counterpart Wang Wentao on the sidelines of the WTO's ministerial conference in Abu Dhabi last month.
