TAIPEI - TAIWAN'S China-friendly government has decided not to deploy missiles capable of hitting Shanghai, in yet another sign of warming ties between the rivals, a report said on Monday.

Taipei has begun deploying its Hsiung-feng 2E cruise missiles, which have a range of 600 kilometres, the Taipei-based China Times said.

'The military had planned to further the range to 1,000 kilometres, so that they could be used to hit Shanghai' in case of war with China, the paper said, citing an unnamed military source.

But as relations improve with Beijing, the island's defence ministry 'has decided to drop the idea... to place its priority on the improvement of quality for the existing cruise missiles,' the paper said.

China and Taiwan have been governed separately since the end of a civil war in 1949, but Beijing still sees the island as part of its territory awaiting reunification, by force if necessary.

China has repeatedly threatened to invade Taiwan should the island declare formal independence.

But tensions across the Taiwan Strait have eased since Taiwanese President Ma Ying Jeou was elected in March on a platform to boost the economy and improve ties with China. He took office in May.

Local newspapers reported at the weekend that the defence ministry plans to scale back its military spending in 2009 to 315.2 billion Taiwan dollars (S$14.1 billion), a decline of 10.4 billion Taiwan dollars from this year.

The draft budget, which still requires parliamentary approval, has drawn criticism from opposition lawmakers who say such a move would signal that Taipei lacks the determination to defend itself. -- AFP