"We will work on the basis of the one-China principle to enhance mutual political trust between the two sides."

Wen's overture of peace comes at a time when Taiwan is increasingly reliant on China amid the global economic downturn, which has dried up trade and investment.

China is the recession-hit island's largest trading partner, with two-way trade worth more than $130bn a year.

Economy first

Taiwan's initial reaction was to welcome China's offer as being beneficial to both sides, but stressed its preference for economic deals before political ones.

"A peace deal has advantages for both sides... but our thought is first to seek economic deals and political ones later"

Tony Wang, Taiwan president's spokesman

"A peace deal has advantages for both sides," Tony Wang, a spokesman for Ma Ying-jeou, the Taiwanese president, said.

"But our thought is first to seek economic deals and political ones later."

China has claimed sovereignty over Taiwan since the end of the Chinese civil war in 1949, when defeated Nationalist forces fled to the island.

And Beijing has repeatedly vowed to bring the island under mainland rule, by force if necessary.

The Chinese Communist party-controlled congress is set to approve military spending for 2009 of $70.2bn, up 14.9 per cent from 2008, with a lot of that spending to be focused on Taiwan.

And according to Taiwanese officials and experts last month, China raised the number of short-range missiles aimed at the island off its coast to about 1,500 in a sign of continued distrust.

This despite the warming of relations since Ma, who advocates stronger economic ties with China, took office in May, and the signing of deals by the two sides to enhance tourist and business flows.