June 13 (Bloomberg) -- China and Taiwan signed an agreement today to begin direct weekend passenger flights and tour-group visits, after completing their first official talks since 1999.

Flights across the Strait of Taiwan will begin on July 4, the island's vice minister of transportation Yu Fang-lai said at a Beijing press briefing after the signing ceremony. Taiwan will allow an average of 3,000 Chinese tourists a day starting July 18.

The talks ``show the improvement of cross-Strait relations has got off to a good start,'' Chinese President Hu Jintao said today in a meeting with Taiwan's negotiator Chiang Pin-kun. The accord would help exchange between China and Taiwan and would help promote direct links for mail, trade and transport between the two sides, Hu said.

Direct transportation links between China and Taiwan have been restricted since the end of a civil war in 1949. The election in March of President Ma Ying-jeou, who defeated the independence-leaning Democratic Progressive Party on a pledge to improve ties with the mainland, provided the catalyst for a rapprochement. The deal allows both sides to improve their economic positions while avoiding the issue of sovereignty.

`Reflecting Political Reality'

``The significance is that it reflects a certain political reality,'' Joseph Cheng, a politics professor at City University of Hong Kong, said in an interview. ``China has to show goodwill to the Taiwan people so as to prevent them from moving down the road to independence. China has come to appreciate the basic parameters in Taiwan -- the improvement of economic ties and let's forget reunification for the time being.''

China and Taiwan have been ruled separately since Chiang Kai-shek's Nationalists fled to the island after losing the civil war to Mao Zedong's Communists. The government in Beijing considers Taiwan part of its territory and has threatened force to implement reunification.

Up to 3,000 Chinese tourists per day will be allowed to fly in groups on weekend charter flights to Taiwan from 13 Chinese provinces including Beijing, Shanghai and Jiangsu, Xinhua News Agency said, citing the National Tourism Administration. The 36 weekend charters will be shared equally between airlines based on the both sides of the strait, according to today's agreement.

China Airlines, Taiwan's largest carrier, climbed as much as 3.7 percent in Taipei trading, before closing down 1.5 percent at NT$13.35. EVA Airways Corp., the second-largest, added as much as 4.4 percent before ending unchanged at NT$14.70. The benchmark Taiex Index climbed 0.5 percent.

Airline Shares

China Southern Airlines Co., the mainland's largest carrier, will sign an agreement with China Airlines on June 23 on weekend charter flights, the Guangzhou-based airlines said today without elaborating.

Air China Ltd., the mainland's second-largest airline, will send a team to Taiwan on June 15 to discuss cooperation with China Airlines and Eva Air, the Beijing-based carrier said in an e-mailed statement today.

``Air China has been fully prepared to start scheduled direct flights between mainland and Taiwan,'' said company Vice President Zhang Lan. The carrier will use five planes to fly the weekend charter flights.

Direct flights and cross-strait tourism may add about 60 to 80 basis points to Taiwan's economic growth, Goldman Sachs Group Inc. economist Enoch Fung said today after the deal was signed.

``The implementation of these policies would support a recovery in sentiment and domestic demand, and should help Taiwan offset the negative external shock from slower U.S. demand and higher energy prices,'' Fung said in the report.

Boosting GDP

Goldman currently forecasts Taiwan's gross domestic product growth to slow to 4.5 percent in 2008, from 5.7 percent in 2007, as it expects exports momentum to ease in the second half in light of the weaker global industrial cycle.

Taiwan's government says the agreement may help boost the island's economic growth to 5 percent this year from the 4.8 percent forecast in December.

Trade between China and Taiwan reached $43.9 billion in the first four months of this year, a rise of 21.7 percent from a year earlier, according to China's Ministry of Commerce. Exports to Taiwan reached $8.2 billion, a rise of 16.9 percent from a year ago, while imports from Taiwan rose 22.8 percent to $35.7 billion. As of the end of April, cumulative investments from Taiwan in China reached $46.4 billion. Trade between China and Taiwan opened up in 1988.

``The resumption of talks means a lot as the economic reliance for each side across the Strait has been rising,'' Chiang, chairman of Taiwan's Straits Exchange Foundation, said today . ``To reach a normalized economic and trade relation with China, we still have a lot to talk about.''

To contact the reporters on this story: James Peng in Taipei at jpeng7@bloomberg.netJanet Ong in Beijing at jong3@bloomberg.net

Last Updated: June 13, 2008 07:35 EDT