Mainland Fever Hits The Island

For Charles Huang, a director of the Taipei Computer Assn., the future of Taiwan's computer industry lies in a swamp in suburban Shanghai. His group hopes to turn the one-square-mile plot into an industrial park for Taiwanese computer manufacturers. It also hopes to use bargain-priced programmers from the mainland to help develop software, giving Taiwan the technical edge it needs to compete with other Asian giants. "It will be no problem for us to overtake South Korea," says Huang. "And, gradually, we'll become competitive with Japan and the U.S."

Or take C. Y. Kao, CEO of Taiwanese food company President Enterprises. Going after the world's biggest market for food--China's 1.2 billion people--Kao's company has four factories open or under construction, producing instant noodles and tomato paste on the mainland. It plans even more investment.

`GREATER CHINA.' Call it mainland fever. After four decades of bitter relations, more Taiwanese companies are looking to the mainland for new trade and investment. Until recently, most ventures were small, low-key, and limited to a few industries, such as shoes and toys, aiming to exploit China's cheap labor.

But Taiwan is crossing a new threshold. The list of Taiwanese executives eyeing mainland deals now includes the electronics, automobile, and airline industries. They are laying plans to exploit China as a new market--not simply as cheap labor. A Taiwanese business group puts total investment in China at nearly $6 billion with growth of about 20% yearly. Despite official animosity between the countries, Beijing is eager to win such investments when they generate exports, bring in new technology, or produce goods needed in China.

Taiwan's emergence as a regional trade center is generating talk of a "Greater China," linking Taiwan, Hong Kong, and the mainland's booming coastal provinces, which are bustling hives of capitalism. Some even see the new entity blooming into a new regional trade and manufacturing bloc that could rival Japan and Korea. Microsoft Corp., the U.S. software maker, has renamed its Taipei office the "Greater China Office." That's because it expects the region to grow very quickly and Taiwan to play a leading role, says Richard Fade, director of Microsoft's Far East sales.

Taiwan's government, forced off the mainland by Mao's Communists in 1949, has been loath to boost economic ties. It has feared becoming dependent on China and therefore subject to political pressure from Beijing. For years, the number of Taiwanese industries allowed to invest in China has been limited by a Taipei rule that requires the money to be funneled through a third country, such as Hong Kong.

But Taiwan companies are lobbying hard--with some success--for change. On July 16, Taiwan's legislature passed a bill to ease trade relations with China, including direct transportation links, perhaps as early as next year.

Some Taiwanese companies aren't waiting for the policy changes. While Taipei still forbids high-tech investment in China, many of the island's computer makers are ignoring the laws and finding mainland co-production partners. They skirt the law by acting as clearinghouses for trade and technology transfer. For example, the Taipei Hsien Computer Assn. will act as matchmaker for Taiwanese and Chinese computer makers and open Taiwanese showrooms in Beijing and Shanghai to promote sales of the island's products.

FORTUNE SEEKERS. Many Taiwanese entrepreneurs see China as a modern-day Wild West, where quick fortunes can be easily made. Chiu Chung-jen, general manager of the Da Yih construction company in southern Taiwan, is negotiating a joint venture with a Chinese construction group to build a new business center in a promising area in eastern Shanghai. "In Shanghai, you have a chance to become a Chinese Rockefeller," says the 33-year-old Chiu, who bought a $100,000 condominium there.

Just how far Taipei goes in unleashing its business leaders will depend on a tough fight within the Kuomingtang, the ruling political party. Party hard-liners are now battling with more liberal factions that favor closer links to China.

Intraparty squabbling, for example, has delayed until September a decision on whether to allow indirect investment on the mainland by department stores, restaurants, and hotels. Longer-term, however, the determination of Taiwanese business to cut deals on the mainland seems sure to overcome even the most stubborn party politicians.

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