Taiwan and China signed a historic trade pact on Tuesday.

The Economic Cooperation Framework Agreement (ECFA), hailed by both sides as a milestone and a commercial imperative in an era of strong regional cooperation, was signed by senior delegates in the southwest Chinese city of Chongqing.

The agreement marks the culmination of a Beijing-friendly policy introduced by Taiwan President Ma Ying-jeou after assuming power in 2008.

In Taipei, Mr. Ma said the pact meant peace and prosperity between China and Taiwan were no longer a distant dream but a reality “within our reach”, with implications for the region as a whole.

The agreement — a “win-win” formula according to Chiang's Chinese opposite number, Chen Yunlin — is just about trade, according to the governments in Beijing and Taipei.

China is Taiwan's largest trading partner, its largest investment destination, and now also home to a growing number of Taiwanese.

It is estimated that about one million people from the island live in China, especially in the Shanghai area.

They, and thousands of short-term travellers, now have access to 370 direct flights a week, whereas only a few years back all air travel had to come via Hong Kong.

The trade pact looks set to push interaction between the two sides to a new level.

The deal will confer preferential tariffs, and in some cases zero tariffs, on 539 Taiwanese products from petrochemicals and auto parts to machinery — representing 16 per cent of the island's total export value to China.

At the same time, only about 267 Chinese items, or 10.5 percent of China's export value to Taiwan, will be placed on the “early harvest” list enjoying zero or falling tariffs.

Mr. Ma's administration has said the pact will create 260,000 jobs on the island and boost growth by up to 1.7 percentage points.

The two sides on Tuesday also signed an agreement on protection of intellectual property rights.