(Reuters) - China is looking at signing an agreement with the United States to target assets illegally taken out of China by corrupt officials, a newspaper said on Monday, as the government tightens the screws in its anti-graft battle.

China has vowed to pursue a search, dubbed Operation "Fox Hunt," beyond its borders for corrupt officials and business executives, and their assets.

But Western countries have balked at extradition deals with China, partly out of concern about the integrity of its judicial system and treatment of prisoners. Rights groups say authorities use torture and the death penalty is common in corruption cases.

The state-run China Daily said the central People's Bank of China was talking to the U.S. Treasury Department's Financial Crimes Enforcement Network about an agreement targeting ill-gotten assets in the United States.

China is set to finalize a similar deal with Canada, Chinese state media reported this month.

The central bank was also looking at a deal with Australia, the China Daily said, citing Zhang Xiaoming, deputy head of the Finance Ministry's legal assistance and foreign affairs department.

"After the agreements are made, China will share intelligence with the U.S. and Australia, which will also offer information to their enforcement agencies to conduct further investigations," Zhang told the English-language paper.

"Once law enforcement officers in the U.S. and Australia identify illegal funds, they will immediately initiate judicial procedures to freeze and confiscate those criminal proceeds in their countries."

The United States, Canada and Australia are popular destinations for ill-gotten assets, the paper said.

But legal problems have prevented China from getting these assets back, Zhang said.

"Although the U.S. Federal Bureau of Investigation or Australian police have traced the assets and collected enough evidence to identify them as ill-gotten gains, they are unable to take immediate measures to freeze and confiscate them due to the lack of asset restraining orders from the Chinese courts."

The latest senior figure to be caught up in the anti-corruption drive is Gu Yuanxu, brother-in-law of a one-time senior aide to former President Hu Jintao. The influential Caixin magazine reported Gu had "been taken away recently for investigation" but it did not say what for.

The Communist Party announced a week ago that the brother-in-law, Ling Jihua, was under investigation for corruption.

Gu is deputy director of the public security bureau in Heilongjiang province. An official at the bureau said she "was not clear" about the news and it was not possible to contact Gu.