Taiwan Investors Exploit Growing Ties to Mainland

But quest for profits has not boosted efforts to reunify two Chinas

TAIWANESE businessman Kao Chin-yen dreams of monopolizing the world tomato-paste market.

His partner in this curious quest for world domination is none other than the People's Liberation Army of China (PLA).

Out in the vast reaches of China's remote Xinjiang Province, where hard, pest-free tomatoes make for perfect paste, Mr. Kao has invested heavily in Army farms.

Never mind that Taiwan and China are still technically at war. When it comes to tomatoes, even die-hard anticommunists such as Kao, head of President Enterprises, Taiwan's largest food-processing company, find that it pays to have the PLA on their side.

"It's very efficient because the authorities give direct orders to the farms," a Chinese business associate in Beijing says. " `This is the time for plowing, this is the time for planting, and this is the time for harvesting.' "

Even as Taiwan strikes out on a more independent political course, Taiwanese capital flows unabated toward its major destination, the Chinese mainland.

As of last year, Taiwan's cumulative investment in the mainland totaled $5 billion despite the fact that the two Chinas do not have direct economic relations and most of the funds have to be channeled through Hong Kong.

Hit by sagging export growth in 1992, Taiwan's hefty trade surplus dropped 29 percent to $9.48 billion. But trade with China helped buoy the economy as exports to Hong Kong, through which most shipments pass, rose more than 20 percent. Economists estimate that official and unofficial trade between Taiwan and China last year was $10 billion. Conservative resistance

Taiwan's mainland economic craze parallels an increasingly stubborn opposition on the island to political links across the Taiwan Strait. In the wake of an embarrassing electoral setback for the ruling Nationalist Party in December, a prominent conservative and advocate of reunification, Premier Hau Pei-tsun, quit this week.

The resignation capped weeks of infighting between party liberals and conservatives rooted in a power shift from politicians who fled the mainland in 1949 to Taiwan-born politicians. The conflict was felt in the stock market, which was already weakened by slower growth.

Taiwan's economic debate and fading calls for reunification are believed by Asian diplomats to be prompting Beijing to rethink its refusal to hold direct talks with Taipei on reunification. The election outcome has triggered speculation that China may offer to sit across the table from Taiwan's leaders in coming months. Against reunification

While many Taiwanese still nurture emotional ties to the mainland, an offer from Beijing to talk is unlikely to revive support for immediate reunification among many Taiwanese who think the country should go its separate way.

"Many people do business here, but they are strongly against reunification. They see this as a market and not as a country," says Guo Jiann-jong, a businessman now involved in a chemical project in China.

"It's a strange part of the Chinese complex," says Bertrand Tsai, a political scientist at Taiwan National University.

"It's part of our national emotion. But if you asked anyone here to live on the mainland, they wouldn't go," he says.

Still, that cultural link is taking Taiwanese investors into areas where other foreigners dare not go. To date, much of the investment has flowed into Fujian Province, from which many Nationalists fled to Taiwan after the 1949 Communist takeover, and to a lesser extent Guangdong Province.

In some instances, Taiwanese are relocating entire factories in remote zones to take advantage of China's cheaper labor and opportunities to buy state property from cash-strapped local governments on the mainland.

"Already Taiwanese investors are shifting to inland provinces because labor costs in coastal areas are rising and coastal areas are short in natural resources," says Jin Jin, a Beijing businessman who uses family connections in Taiwan to work with investors on the mainland.

Observers say that Taiwanese investors go where others fear to tread because they share a common language, get special incentives because of local connections, and face less competition. Still, investors lack sufficient protections under current Chinese law and the move can be risky.

"Taiwanese are from small and medium enterprises so it's easier for them to go in and then pull out," says Mr. Guo, a specialist in China trade and investment.

"But some of them have taken too-large risks and have gone too far," he adds.

Taipei worries that its businessmen are selling Taiwan to Beijing. Last November, the government forced Formosa Plastics, among the country's largest companies, to scuttle a $6 billion petrochemical plant in China.

But whether it likes it or not, the government is being pulled along by Taiwan businesses to expand links to the mainland, analysts say.

The government is under pressure to approve direct air connections to China, and it recently lifted a requirement that local companies base small mainland projects in a third country such as Hong Kong. Gap in attitudes

Last month, Taipei said it might even lift its ban on heavy industrial projects and allow capital-intensive investments if the output is sold only in China's domestic market and does not compete with Taiwanese products internationally.

"In the past, there was an enormous gap between the attitude of the private sector and the attitude of the government. But with intense endeavors, we have managed to close the gap," says Ma Ying-jeou, an official with the Mainland Council, which oversees official interaction with China.

Still, both anticommunist and pro-independence opponents of Beijing fret over where Taiwan's business rush into China will take the island nation.

"Taiwan's bargaining chip is our economic power," Mr. Tsai says. "The more we invest there, the more we lose our bargaining chip."