Taiwanese President Chen Shui-bian said that Taipei must show goodwill, whether or not this was the motivation of the Chinese cancellation.

On Monday, Taiwanese military officials said hundreds of Chinese troops had left the nearby island of Dongshan.

China claims sovereignty over Taiwan and relations are always tense.

"China has cancelled the military drills on Dongshan island, so we have decided that we will cancel the 9 September Han Kuang exercises," Mr Chen told reporters onboard an aircraft taking him on an official visit to Panama.

"I think this is very important, because we hope everyone on both sides of the Taiwan Strait can co-operate under the principle of peace for a win-win situation," he said in comments carried by a local TV station.

The troops were pulled out as Typhoon Aere approached the Chinese mainland last Tuesday, and have not been redeployed.

There has been no confirmation from Beijing that it has cancelled its military exercises, nor any indication of reasons for a cancellation.

Taiwan's mass-circulation China Times speculated on Monday that it may have been motivated by political differences within China, US pressure, or a drive to improve relations with Taipei.

Mr Chen said that whatever the reason, Taiwan needed to respond in kind.

"Regardless of whether communist China was sending out a goodwill gesture, our side must show goodwill," he was quoted as saying in the China Times.

China sees Taiwan as a renegade province which it has threatened to reunite by force if Taiwan declared independence.

Both Taipei and Beijing have been conducting routine war games over the last few months, preparing for the possibility of cross-Strait conflict.

Source: BBC News