BUSINESS between Taiwan and China will return to normal by the middle of the year as tension across the strait eases after the Taiwan president's inauguration ceremony, a leading Taiwan businessman says. Taiwan Businessmen's Association (HK) vice-chairman Alexander Pann said yesterday trading volume between Hong Kong and Taiwan would dwindle by 20 to 30 per cent in March and April as the escalating military manoeuvres across the strait hit business confidence and transportation. 'Transportation was disrupted. Some Taiwanese who previously relied on the mainland for processing work would save the trouble by placing orders to factories in other Southeast Asia countries such as Singapore and Indonesia,' he said. Some Taiwan businessmen would hold back their investments in China. These changes could take place as Taiwanese were more diversified in their businesses and investment than ever before, Mr Pann said. Things would start to get back to normal after the president's inauguration in May. This would be almost a year after relations across the strait soured seriously in the wake of Taiwan President Lee Teng-hui's visit to the United States last June, he said. Friction between Taiwan and China worsened further in the past few weeks as China began test-firing missiles and started military exercises close to Taiwan in an attempt to sway voters from supporting pro-independence candidates in the island's first direct presidential election. Taipei Trade Centre Hong Kong managing director Kenneth Lai said trade between Hong Kong and China should continue to grow at an annual rate of 20 per cent as in previous years, despite the ups and downs in relations across the strait. 'The conflict will soon be resolved. The impact will be more psychological than actual,' he said. 'Last year the relations between China and Taiwan turned sour after the Taiwan president's visit to the United States in summer but indirect trade remained relatively unaffected. 'The austerity programme in China may have impacted Taiwan business more than the icy relations across the strait.' According to the centre, Taiwan's exports to Hong Kong increased 22.9 per cent to US$26.1 billion last year, accounting for 23.4 per cent of the island's total exports. Taiwan's imports from Hong Kong jumped 20.2 per cent to $1.84 billion. Major exports from Taiwan to the mainland are man-made fibre, plastics and electronic parts. Mr Lai said these were items mostly needed by Taiwan and Hong Kong businessmen who had factories on the mainland. 'If China is to relax its macro-economic controls, indirect trade across the strait will surge further as the mainland enterprises will turn to Taiwan [for raw materials],' he said. Trade Development Council chief economist Edward Leung said the strained relations would have an impact on Hong Kong-Taiwan trade but it had yet to be reflected in statistics. The heightened tension was not dampening the eagerness of some Taiwan players to invest in China. Joe Chou, a spokesman for Yuen Foong Yu Paper Manufacturing Co, Taiwan's largest paper maker, said: 'We have no plans to stop or slow our projects there.' He said this would change if war actually broke out. Xinhua (the New China News Agency) reported yesterday that two unnamed Taiwan companies would invest $200 million in Tianjin. Taiwan businesses have reportedly poured about $25 billion into the mainland and rank among China's top investors.