Senior economic official Schive Chi hands out copies of Taiwan's new master-plan, the Asia-Pacific Regional Operations Centre (Aproc). If the plan proves successful, Taiwan will become a transport, manufacturing, telecommunications, media and finance centre for Asia and the Pacific. It looks convincing enough, but there is one enormous and vital piece missing - the mainland. Taiwan does not allow direct air, shipping, financial, trade or investment links with the mainland, the region's fastest growing economy. How can Aproc be viable if companies cannot move goods, capital and people directly to and from Taiwan to the mainland? This is the contradiction between economics and politics faced by the Taiwan Government as it plans a future in which more of its manufactured goods become uncompetitive internationally and its giant neighbour becomes an increasingly attractive market for its companies. The government has been unable to stop a flood of investment by Taiwan firms on the mainland despite active discouragement through regulations. Straits Exchange Foundation secretary-general Chiao Renhe said 35,000 Taiwan firms had mainland investments, employing up to seven million people, with a contracted investment of US$35 billion and an actual investment of $15 billion. Taiwan ranks second only to Hong Kong as an outside investor on the mainland. Other economists put the actual figure at up to $30 billion, saying many firms do not report their investments to the Taiwan Government or else they route them through third countries to avoid government scrutiny and reduce the risk of confiscation by the mainland. Trade between the two has boomed, reaching $27 billion last year out of Taiwan's trade of $218.3 billion. The mainland account for about 17 per cent of exports, with Taiwan running a large surplus for the past seven years. In the first half of this year, its surplus with Hong Kong and the mainland rose $640 million year-on-year to $12.43 billion. Economists say despite its restrictions on investment and demands that projects be reported, the government has lost control over investments into the mainland, except for big projects contracted by large firms. American Association for Chinese Studies president Cheng Chu-yuan said the government had no way to stop Taiwan investors going to the mainland. 'If they do not, firms from South Korea, Singapore and Hong Kong will go instead and Taiwan firms will not be able to compete. I think the Taiwan Government should adopt a more accommodating attitude. It should allow direct links at once,' Mr Cheng said. United World Chinese Commercial Bank vice-president of the Overseas Chinese service department, C.H. Tseng, said that during the past 20 years, Taiwan firms had under-reported their overseas earnings and built up reserves abroad that could easily be invested on the mainland. Taiwan firms operate comfortably on the mainland, where they understand the language and business culture and know who to pay off, without having to refer such sticky issues to officials in Tokyo or New York. The flood of investment began illegally in the late 1980s with small and medium-sized companies and continued despite the military crackdown in 1989 and missile tests conducted by the mainland last year. 'The missile tests had a short-term effect but we are used to this,' Mr Tseng said. 'We have diversified the risk. The mainland government fears Taiwan firms will leave and will protect them even in times of tension.' One banker who declined to be named said Taiwan firms saw risk as a chance of profit. 'They even go to Cambodia and [Burma],' he said. 'With the lifting of foreign exchange controls, finance is easy to find. The only firms the government can control [on investing in the mainland] are large ones which need state support and finance. 'No one believes the official figures [on investment in the mainland]. There is a conflict between the private and national interest.' Officials are stoical in the face of such a flood. China External Trade Development Council's executive director of the marketing research department, Lee Chia-hsien, said: 'We used to control foreign exchange, but no longer. 'So it is very hard to control companies, especially when there is investment from outside Taiwan. We hope they respect the government's wishes and do not go [to the mainland].' Government policy is to encourage firms to invest in Southeast Asia and to limit investment on the mainland. New regulations published last week by the Economics Ministry ban investment on the mainland in 13 sectors, including railways, roads, ports, airports, irrigation, water supply, power generation and development of industrial zones. The business community has welcomed the regulations as more objective and transparent. The government wants to limit Taiwan's dependence on the mainland and preserve a high proportion of trade and investment in the US, Japan, Southeast Asia and Europe. It also wants to keep strategic and hi-tech industries at home and prevent a heavy outflow of capital from its firms and financial institutions into the mainland. 'The production of high-technology goods remains basically in Taiwan,' Mr Lee said. 'Firms should respect the government's wishes. Taiwan must preserve its competitiveness. Officials say they cannot treat investment on the mainland like investment in any other country because of the political hostility between the two sides and Beijing's threat to use force. If Taiwan became reliant on the mainland's market, Beijing could destroy it not by missiles, but by an economic boycott or sudden withdrawal of capital or key commodities. With the handover, Hong Kong has become completely dependent on the mainland's market - a situation Taiwan is determined to avoid. It wants to retain a large manufacturing base - which Hong Kong has lost - but at the same time emulate the SAR as a financial, distribution and transport centre. So, is the Aproc plan viable without unlimited access to the mainland? Mr Schive's answer is the mainland is only one market envisaged in the plan, ranking behind Asean countries where Taiwanese firms have invested $30 billion - double the amount they have invested on the mainland.