Taiwan flings open door to investing in China

Late-summer recommendations by business advisory panels are seldom the stuff of history. But in the 52-year-old estrangement between China and Taiwan, this one could be.

Yesterday, Taiwan's stock market jumped, and business leaders hailed Taiwan President Chen Shui-bian's acceptance of an aggressive plan to bolster trade and investment with China. The policy could be a significant step toward integrating the proud island and the Chinese mainland - a tense political relationship that US officials consider the No. 1 security risk in the Pacific.The move is part of a regional trend toward investing in China at the expense of other low-cost producers, such as Indonesia and Thailand.

The "active opening" policy announced Sunday, say analysts, is also the most substantial goodwill gesture by President Chen since he took office last year - running on a platform of independence from China.

If China accepts the plan, it could lead to the first opening of direct interchange - air traffic, cargo shipments, and telecommunications - between the two sides since 1949. Taiwan's plan would lift the current ban on infrastructure and advance technology ventures, and remove the current cap of $50 million on any single investment made in China.

Chinese officials have cautiously given positive signs - seeing direct links between the two sides as favorable to their own hopes to eventually unify with Taiwan, which China views as a "renegade province." Beijing has said any formal declaration of independence by Taiwan will bring a military response from China - although in the past year, Beijing has adopted a "soft offensive" toward Taiwan, stressing cultural and trade ties.

"China has always welcomed the 'three links' with Taiwan [air, cargo, telecom], and we desire these links to expand," says Tian Jing, a spokesman for the State Council of Information in Beijing. "But we want to see what actions Taiwan will now take as a result of this proposal. We want to see more details."

China's dilemma is that it has required Taiwan to accept a "one China" policy as a precondition for opening direct transport and telecommunications links. Whether China would seize the opportunity offered by Taiwan and agree to conduct "talks about talks," while also allowing direct links to proceed, Beijing officials would not say.

For Taiwan, the investment opening has risks. Since 1996, Taipei has adopted a "go slow" policy on interchange and trade with China - fearing the behemoth mainland will overwhelm Taiwan's economy, culture, and political institutions, and de facto force unification. Taipei has stated that Taiwanese investment in China is unprotected, should the two sides enter open hostilities.

Yet, Taiwanese business leaders have steadily increased trade with China. Since a rapprochement began in the mid-1980s, Taiwan investors have poured an estimated $70 billion into the mainland, attracted by low labor and land costs, and a common language and culture. By conservative estimates, more than 30,000 Taiwan factories or Taiwan-invested factories are operating on the Chinese mainland, creating at least three million jobs in China. Currently, mainland investments are made via third countries.

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