TAIPEI - FORMER foes China and Taiwan inked a much-anticipated pact on Sunday to pave the way for the flow of financial services across the Taiwan Strait, as they take another step towards normalising economic ties.

The financial cooperation deal was the highlight of the cross-strait talks in the eastern Chinese city of Nanjing - the third round since the two sides resumed dialogue last June after nearly nine years.

Under the framework agreement, China and Taiwan would set up a currency clearing and supervisory system in preparation for financial institutions from each side to set up branches on the other side.

Taiwan's top cross-strait envoy, Mr Chiang Pin-kung, and his Chinese counterpart, Mr Chen Yunlin, also signed two other pacts on cooperation in fighting crime, and upgrading existing charter flights to scheduled ones. The frequency of flights will be raised from 108 to 270 return trips a week, and new routes will be launched between Taiwan and six mainland cities.

Against the backdrop of the global financial meltdown, both sides also pledged in a joint statement to encourage Chinese investments in Taiwan. While Taiwan has invested an estimated US$100billion (S$150billion) on the mainland, Chinese investment in Taiwan is largely restricted. Related guidelines are expected to be announced at a later date.

'As the current global financial crisis has deeply affected both sides, mutual support is especially meaningful since we are in the same boat,' said Mr Chiang, head of Taiwan's semi-official Straits Exchange Foundation (SEF).

Mr Chen, who heads the Association for Relations Across the Taiwan Strait (Arats), struck a similar tone. Boosting economic cooperation would help both sides ride out the global recession, he said.

'The mainland will buy more products from Taiwan and send more tourists to the island, while encouraging more Taiwan enterprises to set up on the mainland to maintain stable development,' he added.

With the latest agreements, which will take effect within 60 days, China and Taiwan have signed a total of nine pacts since the SEF and Arats resumed talks.

China and Taiwan split amid civil war in 1949. But ties have improved since Taiwan President Ma Ying-jeou, who had campaigned on a platform of engagement with China, took office last May.