It took a ninety-five minute flight from Guangzhou Baiyun Airport to Taipei last week Friday (July 4) to bring to a near-end the age long frosty relationship between the Peoples Republic of China, Beijing (PRC) and the Republic of China, Taiwan (ROC), which dates back to 1949.

Under the Agreement reached recently, by Beijing's 'Association for Relations Across the Taiwan Strait' and 'Taiwan's Straits Exchange Foundation', six China-based airlines and five from Taiwan will initially operate 36 weekly (weekend) flights to both countries. This would also be reviewed as occasion demands.

The latest development in the relationship between the two countries is important given that it will immediately remove as much as six hours of journey across the 161-kilometre (100 mile) Taiwan Strait. Until now, the estimated one million Taiwanese living in China for instance had to change flights in either Hong Kong or Macao as they travelled to and from Mainland China. But this is only one out of the several likely benefits of this historic development. It will also enable Taiwan in particular, to admit as many as 3, 000 tourists a day from Mainland China, who have for several years been desirous to visit the Island. It is in fact, noteworthy that spending by Chinese tourists overseas rose 11.8% to US $24.3billion in 2006 (according to the World Tourism Organization) making it one of the fastest growing of the top ten tourist nations.

Credit must, however, be given to the newly elected President of Republic of China (Taiwan), Ma Ying-jeou, who since his assumption of office in May, has done so much to improve relations between the two countries. The fact remains that these two countries aside from geographic proximity, share common cultural, historical, economic and even ethnic ties, hence the benefits of a Cross - Straits peace, and the potential synergy of economic cooperation remain very attractive. Also, given the emerging developments, Beijing and Taipei will reap bountiful economic and business benefits especially as outdated restrictions and regulations will gradually give way. And in an environment of coexistence and higher mutual confidence, both parties will now begin to creatively address the obstacles to resolution of their fundamental dispute, especially as most of the things that could not take place in a climate of fear would now happen. In fact, changes are already beginning to manifest: for instance, Taiwan Banks now exchange Chinese currency; limits to Taiwanese investments on the Mainland have been eased, while some Chinese media outfits previously banned on the Island are now given operational licenses.

Of course there is strength in unity and both sides obviously need each other. You can imagine what would happen to the global economy if these two giant economies eventually decide to reunite. For instance, the Peoples Republic of China (Beijing) presently has the second largest economy in the world after the U.S. with a GDP of over $7trillion and an amazing population of about 1.3billion. It has also remained the fastest growing major nation for the past quarter of a century with an average annual GDP growth rate of 10%. Republic of China (Taiwan) on the other hand, with a population of about 23 million, is the 17th largest economy in the world and 14th largest exporter. Its real growth in GDP has averaged 8% during the past three decades, while exports, which have grown even faster since World War 11, have provided renewed impetus for industrialization. Inflation and unemployment rates are low; trade surplus is substantial and its foreign reserves are the fourth largest in the world. Similarly, agriculture contributes an insignificant 3% to Taiwan's GDP down from 35% in 1952, while the service sector makes up 73%. Furthermore, traditional labour-intensive industries are steadily being moved off-shore and replaced with more capital and technology intensive industries. In fact, Taiwanese investors and businessmen have become the key players and leading investors in Mainland China, Vietnam, Thailand, Indonesia, the Philippines and Malaysia. Just imagine, what these two countries could do to the global economy should they eventually come together (as they are bound to).

Going back to history, the Republic of China was founded in 1912 in China. At that time, Taiwan was under Japanese colonial rule as a result of the 1895 Treaty of Shimonoseki, by which the Manchu Empire - commonly described in history texts as Ching Dynasty China - ceded Taiwan to Japan. At the end of World War 11, the ROC government, then controlled by the Kuomintang (KMT), declared Taiwan a Province of the ROC. In 1949, when the Communist Party of China (CPC) established the Peoples Republic of China, the ROC government relocated to Taiwan. Since then, ROC's effective territory has been limited to the large Island of Taiwan and a number of smaller ones, while both the ROC and PRC have been governed as separate sovereign entities, with no direct official contact between them. Over the years, the ROC has come to be known as 'Taiwan', while the PRC is known as 'China'.

This background is important, at least to underscore the landmark that was achieved last weekend with the restoration of direct flights between the two countries, which for me is a precursor to greater and better things that are bound to happen in the relationship between China and Taiwan. It also highlights an imminent end to the long standing animosity between these two countries, which will directly impact on their economies, stock markets and further enable them to exchange traded funds. The global economy will in the long run also benefit.