A Little Port Town Comes Of Age...

The southern Taiwanese city of Kaohsiung is used to playing second fiddle to Taipei. Whereas Taipei has become a high-flying center for multinationals and Taiwanese corporate giants, Kaohsiung is stuck with a reputation as a place to pass through on the way to somewhere else. Unlike Taipei--with its drab architecture, grassless parks, and endless swarm of autos--Kaohsiung's wide, palm-lined streets have an easygoing feel more characteristic of Southeast Asia. A sleepy town of just 60,000 in the early 1920s, Kaohsiung has since grown into a metropolitan area of 2.5 million--while so far avoiding the pitfalls that have turned Taipei and many other Asian cities into urban hells.

Northern Taiwanese tend to view their southern neighbors as nouveaux riches, joking that when in Kaohsiung, it's common to see betel nut juice flying from the driver's side of a Mercedes. Kaohsiung Mayor Wu Den-yih offers a more positive spin: "If Taipei is the brain of Taiwan, then Kaohsiung is its heart."

JUICY PROSPECT. Kaohsiung, which means "high and mighty" in Chinese, has made its presence felt in ways that Taipei never could. The city boasts the world's third-busiest port, handling nearly 5 million cargo containers a year. But the decades-long absence of direct trade and transportation between Taiwan and mainland China has blocked Kaohsiung from realizing its potential as a shipping hub. An open trade route with the mainland could pump tens of billions of dollars into Kaohsiung in coming decades.

This juicy prospect led Taiwan policymakers to establish an offshore transshipment center, where ships from China can transfer goods to ships going around the world, in Kaohsiung's port in May as a first step toward a direct link with China. But Beijing has held up the inaugural voyage indefinitely because of high political tension across the Taiwan Strait.

Kaohsiung's development into a major port, growing hand in hand with Taiwan's manufacturing prowess, has brought with it a boom in other key industries, such as oil refining, petrochemicals, and shipbuilding. Unfortunately, rapid industrialization has so strained the city that residents now suffer from urban ills such as pollution and transport bottlenecks. The city has responded with a $40 billion plan that includes high-speed rail links to Taipei, a revamped rapid-transit system, office and retail construction, land reclamation, and housing developments. "There is great consensus here that we need to make the city more livable before it can become world-class," says Tim Wu, general secretary of Kaohsiung 21, a think tank.

Some companies already are showing their faith in Kaohsiung's modernization drive. Taiwanese high-tech operations such as integrated circuit packager Advanced Semiconductor Engineering Inc. have opted to build plants in Kaohsiung instead of Hsinchu--Taiwan's Silicon Valley--because of a more abundant labor supply. U.S. multinationals such as Motorola Inc. and AT&T are setting up plants, as well. So Taiwan's second fiddle seems destined to play a lot louder.

Serious hurdles still stand in the way of Kaohsiung. The city has little autonomy because it falls under the direct jurisdiction of the central government, so it must first send tax revenues to Taipei, and it gets only a portion back. Major projects need Taipei's approval, while the central budget is stretched by welfare needs. And Mayor Wu, a member of the ruling Kuomintang party, is in the unenviable position of trying to get things done in what is seen as the territory of the opposition Democratic Progressive Party.

This tangle means that public projects get waylaid. "Almost every project on the books has some delay," frets Andrew Mahon, president of the American Chamber of Commerce in Kaohsiung. Mahon says it was such troubles that led International Transit Consultants, a consortium of U.S. architecture and engineering firms working on the infrastructure projects, to pull some 30 employees out of Kaohsiung in June because the City Council temporarily suspended the rapid-transit scheme. The consortium is holding on to its Kaohsiung office, but unless plans get back on track, the engineers won't be returning soon.

Before it's here, it's on the Bloomberg Terminal.