Taiwan's huge investments in mainland China are growing sharply and the island's government worries Beijing can threaten businesses and use them to pressure Taiwan. But the island's influential business community argues that such concerns are exaggerated.
Taiwanese computer-monitor maker Robert Wen says China's cheap labor, improving infrastructure and stability make it a better place to invest than other countries he has tried.
Mr. Wen, president of the Jean Company, closed factories in Indonesia and Malaysia in the past few years because social unrest and high prices made it too hard to make a profit. He says he is placing "all his bets" on China.
"So we compared and decide to invest money there, so we build a huge factory there, and closed down our Malaysia factory this year in February," he said. "We really think China is our final place."
Taiwanese economist and former government advisor Chen Po-chih says the island's businesses have invested perhaps $130 billion (U.S.) in the mainland over the years. That is a huge and rapidly growing sum for Taiwan, which has a gross domestic product of about $281 billion (U.S.).
Thousands of Taiwanese companies now operate on the mainland. Hundreds of thousands of Taiwanese managers now work in China in businesses that employ about three million mainlanders.
Yet some Taiwan observers say these companies face grave risks. Beijing has been trying to force Taiwan to reunite politically with the mainland ever since the defeated Nationalists set up a government on the island at the end of the Chinese civil war in 1949.
China calls Taiwan a rebellious province that must be reunited with the mainland, by force if necessary. China backs its threat to use force with hundreds of ballistic missiles and a modernization program for its military.
Professor Chen warns these businesses are potential targets for Beijing's economic, political, or legal pressure.
"They tried again and again to use the economic link as a weapon to force our businessmen to take some specific position in political debate," Professor Chen said. "We have our presidential election they force many Taiwanese businessmen to support the candidate China likes."
A major plastic company, Chi Mei complained it was hit with gratuitous customs, labor, and environmental inspections after the 2000 election. The company's chairman supported a candidate Beijing disliked.
Mr. Chen says Chinese authorities reward or punish companies by awarding or withholding large contracts with state-owned Chinese businesses, or by threatening to audit a company or its customers.
The vice president of Taiwan's Mainland Affairs Council, Chen Ming-Tong, says such economic pressure could affect Taiwan's political direction. It could sway business leaders to oppose any moves by Taipei that China might perceive as leading to a declaration of independence.
"We know China tried to use economic factor to fulfill their political purpose," Mr. Chen Ming-Tong said.
Taiwan tried to limit how much economic damage China can do, by curtailing the size and type of Taiwanese investments on the mainland. For instance, there are restrictions on how much Taiwan's high-technology industries can invest on the mainland, to keep some technologies out of Beijing's hands.
The island's government has banned most direct trade, transport, and postal links with the mainland for the past 53 years.
That forces Taiwanese cargo to make an extra stop, usually in Hong Kong, on the way to the mainland, costing shippers time and money. Influential businesses say the restrictions on direct trade hurt the island's economy as it slowly recovers from a bruising recession and record unemployment.
Economists say Taiwanese government efforts to manage private investments on the mainland are failing because there is too much incentive for businesses to evade them. Taiwanese companies say if they do not take advantage of China's low labor and land costs, their products will be too expensive, and the companies won't survive in the competitive global economy.