Major progress will be made in the resumption of the so-called 'three direct links' between the mainland and Taiwan before the island's 2004 presidential elections, according to Deutsche Bank. However, Hong Kong would end up as the biggest loser, with re-exports falling by an estimated 6 per cent in the first year after the restoration of the links, the bank said in a report. The direct links in trade, communications and traffic across the strait would boost Taiwan's cumulative gross domestic product growth by 2.5 percentage points over the five years following their resumption, the bank said in a research report, although full restoration would probably take two to three years. 'Major progress was expected to be made before the presidential election in Taiwan because about 77 per cent of the Taiwanese people recently surveyed said they supported the resumption of the three direct links with the mainland,' Deutsche Bank analyst Ma Jun said. He said key members of Taiwan's business community had also given their support for the links to be restored. He expected the ruling pro-independence Democratic Progress Party would relent on the issue. 'If the government does not fulfil the public's wishes, it could risk losing credibility,' Mr Ma said. Taiwanese businesses have had to trade with, or invest in, the mainland via companies incorporated in places such as Hong Kong because of government restrictions, and analysts expect direct trade and investment links across the Taiwan Strait will affect the SAR. Deutsche Bank projected that Hong Kong's cumulative GDP loss would be 1.5 per cent during the five years following restoration of direct links. The total volume of re-exports for mainland-Taiwan trade was about US$10.5 billion last year, or 6.2 per cent of Hong Kong's total re-exports. The bank's report said Taiwanese re-exports and transshipments destined for the mainland's Yangtze River Delta would almost certainly be conducted directly between Taiwan and the ports in Shanghai and the provinces of Jiangsu and Zhejiang, although some of those destined for the Pearl River Delta might still be first offloaded at Hong Kong ports. The bank said the resumption of the direct links would begin with a lifting of the ban on marine cargo services. Air cargo services and direct passenger flights would follow. Taiwan's trade, textile, petrochemical and transport sectors would be the major winners from the direct links. One of the factors that tipped the balance in favour of the resumption of the direct links was China's growing importance as a Taiwanese export destination. Deutsche Bank estimated the mainland, now the second-largest export destination for Taiwanese exports, was likely to overtake the United States for the No 1 spot this year. The mainland now accounted for nearly 20 per cent of total Taiwanese exports, and Taiwan had enjoyed a trade surplus for the past two decades, the report said. Moreover, about 43 per cent of Taiwanese firms that had not yet set up overseas operations indicated they planned to invest in the mainland within a year in a survey carried out by Taiwan's Economic Daily News this year. This contrasted with 2 per cent of surveyed firms that planned to set up shop in Southeast Asia, 1.5 per cent which wanted to go the United States and 0.3 per cent to Europe. The remaining 50.6 per cent said they had no plans to set up overseas operations in the coming year.