China and Taiwan sign historic trade pact

China and Taiwan signed a tariff-slashing trade pact today that boosts economic ties and further eases political tensions six decades after the rivals split amid civil war.

Beijing hopes the deal, signed live on state television, can lead to political accommodation, while Taiwan is looking for the tighter economic links to keep the island from being marginalised as China's global clout grows.

The pact will end tariffs on hundreds of products traded across the Taiwan Strait and allow Taiwanese firms access to 11 service sectors on the mainland, including banking, accounting, insurance and hospitals.

It should boost bilateral trade already totalling about 110 billion (£73 billion) a year: some 80 billion (£53 billion) in goods flowing to China, and 30 billion (£19.9 billion) to Taiwan.

The deal was signed in the southern Chinese city of Chongqing - a venue with an evocative history. Communist leader Mao Zedong and Nationalist President Chiang Kai-shek tried to negotiate a truce there after the Second World War - but failed. The two sides then resumed the civil war that ultimately saw Chiang's government driven from the mainland to Taiwan in 1949.

For decades, relations across the 100 mile-wide Taiwan Strait have been strained and remain a potential military flashpoint.

China has 1,300 missiles aimed at Taiwanese targets and, while Taiwan has cut its defence budget as a proportion of GDP in the last two years, it retains a well-equipped air force as a deterrent.

"This is a critical moment in the development of long-term relations. We should seize the opportunity to work together and build mutual trust," Chiang Pin-kung, chairman of Taiwan's semi-official Straits Exchange Foundation, said ahead of the signing.

His Beijing counterpart, Chen Yunlin, called it an agreement of "equal consultation and mutual benefits".

Formally known as the Economic Co-operation Framework Agreement, the pact marks a political victory for both governments.

Chinese President Hu Jintao has sought to move beyond the threatening rhetoric that long characterised Beijing's response to Taiwan's refusal to unify with the mainland.

His government has talked of ending the state of hostility with Taiwan and negotiating a peace treaty.

For Taiwan President Ma Ying-jeou, the deal is the high point in the rapprochement that he has engineered since being elected two years ago on a platform to reduce tensions and strengthen economic ties.

But Mr Ma is under pressure to prove his strategy is working to Taiwan's boisterous democracy and a divided public sceptical about Beijing's intentions.

Notwithstanding years of political tension, Taiwanese businesses are already some of the most eager investors in China, having poured at least 83 billion (£55 billion) into the mainland over the past two decades. About 40,000 Taiwanese companies now operate here.

Mr Ma's government says the deal will keep Taiwanese businesses competitive with South East Asian countries, whose free trade agreement with China came into force on January 1.

The agreement is expected to be easily approved by Taiwan's legislature next month, because Mr Ma's ruling Nationalist Party holds a majority of the seats.