Mr Blair wrote to Mr Heseltine two weeks ago about the post, and the former Conservative deputy prime minister was said to have accepted immediately.
Mr Blair's spokesman said: "The Prime Minister wanted to signal the importance that we attach to [the UK-China Forum]. Michael Heseltine is a significant figure, both in politics and in business.
"He's got long experience of government and of the private sector and he's got a long-held interest in China, and is therefore eminently suitable."
Mr Heseltine's appointment angered senior Tories, who believed that it was deliberately timed to coincide with their party's annual conference in Bournemouth.
While the Tory leadership refused to comment officially, one senior source accused Mr Heseltine of "cosying up" to the Government. He has already infuriated the Tories by defending the Government's handling of the Millennium Dome project at Greenwich, which has blunted the Opposition's attacks on the scheme.
Christopher Gill, Tory MP for Ludlow, criticised Mr Heseltine's appointment. "Many of us would like to see him packed off, because he has caused us terrible damage, but it would be against the ethos of the party," he said.
Mr Heseltine is popular with the Chinese government. Zhu Rongji, the Prime Minister, "stated explicitly that he knows Michael Heseltine and said that he had stayed at his house in 1992", said Mr Blair's spokesman.
The Chinese joint chairman is Song Jian, a former state councillor and former minister for science and technology.
Mr Blair's spokesman said yesterday's announcement"does not in any way impinge Mr Heseltine's freedom to attack the Government over any issue he chooses".
In May 1995, as President of the Board of Trade, Mr Heseltine led what was then the biggest trade mission to China, with 150 business leaders in tow. It was the first cabinet-level visit for two years, and was subsequently seen as a turning- point in stabilising Sino-British relations during the dispute over Chris Patten's democratic reforms as Hong Kong governor. Mr Heseltine returned in May 1996, as deputy prime minister, this time with 270 businessmen seeking to show off what he called UK plc.
The UK-China Forum will facilitate non-governmental high- level contacts between the two countries, encouraging business, cultural and other links. Mr Blair's spokesman said it would be "an additional pillar to our relationship, bringing together top people from outside government, business people, politicians, academics, even journalists". It will meet "as regularly as it feels able and willing".
Mr Heseltine was recently in China on business. Last week Haymarket, the private magazine publishing company in which he is the biggest shareholder, agreed a joint-venture deal with the South China Morning Post group in Hong Kong to publish Chinese- language magazines in the greater China region.Reuse content