Hu Jintao and Levy Mwanawasa say the deal is mutually beneficial
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China has announced new investment worth $800m in Zambia, the latest stop on President Hu Jintao's African tour.
After talks in Lusaka with President Levy Mwanawasa, the two leaders said a special economic zone would be created in Zambia's copper-mining area.
Chinese companies will be able to operate there without having to pay import or value added taxes.
The government contends the deal will benefit Zambia, but the opposition says China is exploiting local workers.
China has already invested in mines and factories across Zambia.
The two presidents said the special economic zone would be set up in the copper town of Chambishi, north of Lusaka.
"This will go a long way in boosting economic development in our country," Mr Mwanawasa told a joint news conference.
China's $800m investment will flow into mining, manufacturing and farms, he said.
Partners or colonisers?
Beijing also agreed to write off part of Zambia's bilateral debt to China, Mr Mwanawasa added.
President Hu said his country was "looking for strategic and mutual friendship" in Africa.
China's economic power has been condemned by some Zambian workers and the opposition.
"They are out to colonise Africa economically and also to get Africa's solidarity at the United Nations," Patriotic Front General Secretary Guy Scott told Reuters news agency.
A decision by Chinese owners to close Zambia's largest textile firm prompted unrest last month.
President Hu is on a 12-day tour of Africa aimed at strengthening economic and political ties.
While in Khartoum on Friday he agreed on a series of deals with Sudan, which China has protected from UN sanctions over the Darfur conflict.
China announced an interest-free loan to build a new presidential palace. China already buys most of Sudan's oil.
Western countries urged him to put pressure on Sudan over the Darfur conflict.