MAJOR players in Taiwan's computer industry say they expect hardware production on the mainland to continue to increase, despite the recent arrest of at least four Taiwanese businessmen. They said economic woes in Southeast Asia had made many regional nations too risky for investment and cheap production costs on the mainland were still attractive. Chou Cheng-kwei, adviser to the president of Taiwan's non-profit Institute for Information Industry, conceded that publicity surrounding the arrests could cause discomfort for Taiwanese who were working on the mainland. But he expected Taiwanese firms to continue shifting production lines to the mainland due to rising production costs elsewhere and the mainland's relative economic stability. At the end of the day, the impact of the arrests on overall investment would depend on how open and fair the trial was perceived to be. Mainland officials announced on Thursday that four Taiwanese businessmen had been arrested on suspicion of spying. Taipei said 18 Taiwanese had been detained. Taiwanese scanner producer Mustek recently set up two factories in Dongguan, Guangdong province. Vice-president of sales James Jan said the move could cut labour costs by 40 per cent. Statistics prepared by Taipei's Ministry of Economic Affairs showed that since 1991 there had been a steady rise in investment on the mainland by the electronic and electric appliance industry. In that time, 2,778 companies had invested more than NT$2 billion (HK$460 million). While the proportion of Taiwanese computer hardware produced in Taiwan has dropped from 72 per cent to 63 per cent since 1991, the amount produced on the mainland has risen from 14 per cent to 23 per cent. The shift has been particularly strong in the past two years, and is expected to continue gathering momentum. K. C. Lin, head of the Chinese National Federation of Industries in Taipei, said the Government did not encourage the technology industry to invest in the mainland. Mr Chou, of the Institute for Information Industry, said that was not out of any fear that technological information would be leaked, but because of the instability of political relations across the Taiwan Strait. Mr Chou said Taiwanese companies wanting to invest on the mainland had to win the Ministry of Economic Affairs' approval, thus minimising the chance of leaks. And while mainland employees of Taiwanese firms would eventually use what they had learned to start their own companies, it would be five to 10 years before they posed a competitive threat to the Taiwanese industry. Mr Chou said that for the mainland to develop a powerful information technology industry, it would need to strengthen not only in production, but in marketing and after-sales maintenance services. He expected it would also be 10 years before mainland students who had studied in the West would reach middle-management positions and could change the production balance.