An economist in Taiwan said the government's intention was to make trade issues independent of the tense political relationship with China.

He said the possible easing of restrictions could provide a more level playing field for businesses facing keener competition in the domestic market.

Mainland Affairs Council economic affairs director Fu Tung-cheng said in Taipei the initial review on the future of the economic relationship was expected to be completed by next month.

The review was being carried out following discussion of the issues at the mainland working conference held in June, he said.

National Chengchi University political finance department professor Steve Tsui said Taiwan's state-run enterprises were strictly forbidden to go across the strait for fear of direct links forming between the two governments.

He said state-owned enterprises were under strict government supervision despite the relaxation of similar restrictions on the private sector in 1988.

He said further relaxations were being considered because of the future potential economic development across the strait, not because of politics.

'The Taiwan Government has set the main direction for the future relationship with the mainland, with economic development as the axis,' Mr Fu said.

He cited the list of controlled items as an example.

'Currently, the Taiwan market is open for more than 2,700 categories of mainland products among a total of about 9,000 items,' he said.

'But our enterprises here will benefit if we just state the list of those items that are not allowed.' The list says products comprising only banned materials will not be allowed into the island.

If the products include other non-restricted materials, they may be cleared.

Professor Tsui said such a list meant that Taiwan was maintaining a more flexible approach.

Mr Fu said it was too early to predict the result of the review and the range of relaxations.

Professor Tsui said easing cross-strait restrictions would benefit enterprises facing strong domestic competition.

He said the profit-earning ability of state-owned enterprises had been affected since the opening of the domestic market.

State-owned enterprises had enjoyed monopolies in the past in oil, sugar and electricity.

The government had decided to open the market progressively by allowing the entry of more players and by privatising the 10 largest state-owned companies by part flotations in both domestic and foreign stock markets.

Professor Tsui said the relaxation would take place step-by-step.

An influx of Taiwan state capital into China would not occur once controls were relaxed because the budgets of all state enterprises had to be submitted to the Legislative Yuan for approval.

'The government still has the right to intervene in any investment decision,' he said.

'In addition, all investment has to go through a third country, through a subsidiary in Hong Kong or another place.'