"The first round of the FTA talks will start in January, most probably in Riyadh, Saudi Arabia," Faisal Al-Ghais, chairman of the GCC ambassadors in Beijing was quoted as saying by China Daily.
The GCC groups Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates.
The FTA deal is expected to include tariff reductions, simplification of the flow of goods and facilitation of mutual investments between China and the Gulf nations, the newspaper said.
The report did not put a value on the FTA, but says bilateral trade between China and GCC nations is estimated to exceed $20 billion in 2004, compared with $16.9 billion in 2003.
China is the GCC's third largest trading partner after the United States and Japan.
"The two sides will pursue a gradual and practical approach following the China-ASEAN FTA model," Al-Ghais said.
The negotiations will start with goods, before moving onto "more complex" issues such as mechanisms of dispute settlement, investment and services.
China is the GCC's third largest
trading partner after US and Japan
If established, it would be China's second FTA with a regional group after signing a framework FTA accord with the Association of Southeast Asian Nations (ASEAN).
China this week begun a first round of negotiations over a proposed FTA with New Zealand. It is also in talks with several other potential FTA partners, including Australia, Chile and South Africa.
An FTA between China and the GCC, which holds 45% of the world's oil reserves and accounts for 20% of oil production, would help shore up China's energy supplies.
China is increasingly importing oil due to strong domestic demand, stemming from a fast growing economy.