By Phil Harding BBC News, Taipei

Taiwan's Grand Hotel once stood as a symbol of the island's defiance

China's relations with Taiwan have been tense and potentially explosive ever since the civil war 60 years ago when the island broke away from the mainland government, but there are increasing signs of a thaw.

Some Grand Hotels just do not live up to their name. One in north east Scotland particularly comes to mind.

But when you drive up to the Grand Hotel in Taipei there is no doubt. Built on the side of a hill where the green of the jungle meets the grey of the urban sprawl, it is an extraordinary rectangular structure built in the style of a grand temple with massive bright crimson pillars running up the outside of its 16 storeys.

With its intricately decorated tiled roof, it is the world's largest building in the Chinese classical style. Inside the grandeur continues with a vast, red-columned and carpeted interior to match.

From the top floor you can look out to the south to the distant lights of the Taipei skyline and to Tower 101, until this week the world's tallest building.

Retreat from Mao

The hotel was built in the 1950s by Madame Chiang Kai-shek, the formidable wife of General Chiang Kai-shek, the nationalist leader who led the mass retreat to the island when they were defeated by Mao Tse Tung's Communists in 1949.

In the hotel restaurant, they still serve Madame's favourite rice cake pudding. Her dressing table is still in the Presidential suite upstairs.

The hotel was originally designed to house visiting dignitaries, when they came to pay court to the general.

For years it stood as a symbol of the defiance of the island against the threat of the Communists just over 100 miles away across the Taiwan straits.

Then, over the years, as the world began to switch its diplomatic allegiance to the Beijing government with its strict One-China policy, the embassies in Taipei were downgraded to mere consuls and missions.

The politicians and the diplomats stopped coming and fewer limousines drove up the massive front drive as the Grand Hotel lost its lustre as the centre of political life.

Madame Chiang Kai-shek built Taipei's Grand Hotel

New era

But now relations with China are on the move. Politicians are meeting, there are new agreements and there is talk of a wider economic co-operation treaty.

In recent years, Taiwan has become one of Asia's economic powerhouses - one of the four "Asian tigers".

As you drive north out to the Grand Hotel, you pass the shining glass and steel blocks of Taipei's many hi-tech computer and semi-conductor firms.

But though the netbooks and laptops are designed in Taiwan, they are manufactured in China. Taiwanese companies have put more than $150bn (£90bn) into 80,000 investment projects in China. There are now 270 direct flights between the island and the mainland every week.

There are signs of a thaw everywhere. Taiwan's refurbished National Palace Museum displays the treasures of jade and porcelain that the nationalists packed up and took with them, along with the gold and currency reserves, when they fled the mainland.

But now, for the first time, alongside them there are loan exhibits from Beijing's Palace Museum.

Some Taiwanese fear that closer economic ties will mean a take over of the island by communist wealth and stealth.

And the Taipei Museum is packed out with fast-moving groups of tourists from the mainland too.

You have to watch out for them very carefully or you will end up being swept off your feet in the human tide as groups attempt to set new world records for the fastest ever visit to a museum.

Lingering mistrust

Not everyone in Taiwan is happy about this closer relationship. People are deeply divided about how far it should go.

There is a 60-year history of deep mistrust. During the recent political talks there were loud and vigorous demonstrations.

Some Taiwanese fear that closer economic ties will mean a takeover of the island by Communist wealth and stealth. So, while Taiwan invests heavily in China there are still strict limits on how much China can invest the other way.

But the thaw has certainly put the Grand Hotel back at the centre of things. It has a new, plush lease of life.

With businessmen now travelling freely between the two territories, there are trade delegations checking in every day.

The Presidential suite at the hotel now goes for more than $5,500 (£3,500) a night.

As a sign of how far things have moved, while I was there the hotel was hosting a massive conference of delegations of police and security officials from Taiwan, Hong Kong, Macau and mainland China.

On the thick red carpets of the lobby, long lines of smiling fraternal policeman stood together arm in arm having their photographs taken, while outside lots of security men with noisy earpieces buzzed around the doors and the car park.

Though quite what Madame Chiang Kai-shek would have made of the new face of the Grand Hotel no-one can tell.

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