Mr Chen's provocative statements about the island's independence do make life uneasy for Taiwanese businessmen on the mainland. However, if his first four years as the island's president are any indicator of the future, economic integration will survive the occasional flare-ups.

The mainland has become Taiwan's biggest export market and the island is the mainland's second-largest investor. Last year, Taiwan sold to the mainland US$49.36 billion worth of goods, accounting for 34 per cent of the island's exports. That is more than double the $19.5 billion in 1999, the year before Mr Chen took office.

Taiwan's investment on the mainland last year - directly and indirectly via third countries such as Virgin Islands, Caymans and Samoa - was US$8.7 billion, accounting for 16 per cent of all foreign investment on the mainland and ranking second to Hong Kong's. That is four times more than the $2 billion Taiwan invested in 1999.

Behind these impressive figures are a mutually dependent relationship that has helped China become an economic power and provided otherwise uncompetitive Taiwan firms with a new lease of life.

Taiwan's capital on the mainland does more than create jobs and goods for exports. It brings to the mainland its extensive experience in exporting, management style and a service ethic still missing in most local shops.

More importantly, the global customer network that Taiwan has brought as an original equipment manufacturer to the mainland is a key part of China's status as 'the workshop of the world'.

This winning combination of Taiwan's capital and the mainland's cheap labour and land is most evident in the mainland's most dynamic regions - the Yangtze and Pearl river deltas.

This has brought with it a flood of Taiwanese businessmen and their families. An estimated one million, or 5 per cent of the island's population, live permanently on the mainland. Most have bought apartments and send their children either to local schools or the handful of Taiwanese schools approved by the government.

This integration has occurred despite worsening political relations and the lack of bilateral talks on the many issues that concern Taiwanese residents, such as the direct movement of goods, people, money and mail, their personal security and that of their investments and a system to regulate commercial disputes.

This lack of political progress made most Taiwanese in Shanghai vote for Lien Chan on Saturday. After Mr Chen took office, his government abandoned the 'no haste, be patient' policy of his predecessor, Lee Teng-hui, which aimed at persuading companies to invest in Southeast Asia instead of the mainland. In 2002, it allowed Taiwan's firms to set up eight-inch chip fabrication plants on the mainland.

The biggest change during the Chen era has been the migration of the information technology industry. According to figures from the Market Intelligence Centre in Taipei, 50 per cent of Taiwanese IT firms' production emanated from China last year, up from 37 per cent in 2001 and 47 per cent in 2002.

These economic changes are more important than the rhetoric of politicians in China and Taiwan.

Both Mr Chen and the communist government use the other for their own political purposes - Mr Chen to arouse hostility towards the mainland and win votes for himself and China to play the nationalist card and divert people's attention from problems such as unemployment and the rising wealth gap.

Still, it will not be entirely smooth sailing for Taiwanese firms.

'With Chen's re-election, the political risks of making long-term investment decisions in Taiwan and along coastal regions of east China in the vicinity of the Taiwan Strait could grow as relations between Beijing and Taipei are likely to be further strained,' risk management firm International Risk said.

Wang Min, who works for a Taiwanese finance company and has lived in Shanghai for eight years, said that short of issuing Taiwanese with mainland passports, China could scarcely do more to make it easier for them to live and do business in the country.

'I see Chen's victory in a positive way,' she said. 'With his electorate, he has a mandate to talk to Beijing about direct links.'

The arrest this year of seven people accused of spying reminded the Taiwanese of their precarious 'stateless' status in China, with no embassy to protect them. They assume they are watched by the secret police on both sides of the straits.

'We and our businesses are potentially hostages,' Ms Wang said. 'So we do our business quietly and avoid taboos.'