Dongguan Mayor Li Guikang knows how important Taiwanese investors are to his city of 1.5 million people, just an hour's drive from the Hong Kong border. Since 1987, the city's proximity to Hong Kong has been such a strong magnet for Taiwanese investment that city officials have not had to lift a finger to promote investment - especially in the computer industry. They came in large numbers, built their factories and went home and told their friends to come. At a recent press conference, Mr Li proudly told reporters that if Dongguan sneezed, the world's computer industry would come down with flu. For more than a decade, Dongguan bent the rules for the Taiwanese and allowed them to build factories anywhere, giving the city a reputation for haphazard development. But as the mainland opens its economy further and introduces the rule of law, the city's appeal is beginning to wane. While statistics show that by the end of last year there were 5,000 Taiwan-backed enterprises with a total of US$6 billion (HK$46.8 billion) invested, the fact remains that Dongguan's Taiwanese investors are starting to look for new opportunities in the Yangtze River Delta. Although there are no figures available, evidence suggests that Taiwanese investors in Dongguan are beginning to set up new factories in Ningbo, Suzhou, Wuxi and Kunshan, where another big Taiwanese community has been growing since the mid-1990s. The owner of a company that has manufactured velcro, accessory straps and shoelaces in Dongguan for the past 11 years said he invested in a factory in Wuxi two years ago that would eventually be two to three times the size of his Dongguan plant. He said the reason for this was that the Wuxi local government allowed him to sell most of his products on the mainland. Jiangsu officials also do more than their Dongguan counterparts to make sure Taiwanese investors are welcomed, he said. 'They are flexible. They help us get around the 40 per cent cap on investment imposed by the Taiwan government by building the plants for us so we do not incur heavy capital expenditure,' he added, referring to a rule limiting Taiwanese companies' investment on the mainland to 40 per cent of their parent company's share capital. 'But I'm unable to print the name of my Wuxi company on the calling card I give out in Dongguan, because the officials here will be unhappy and harass me,' he said. Dongguan investors who have business interests elsewhere are subject to surprise inspections of their premises, which often disrupt their operations, he claimed. He also said that whereas Dongguan officials said problems raised by Taiwanese investors, such as onerous Customs procedures, were outside their jurisdiction, Jiangsu officials tried their best to resolve problems. 'We are getting too numerous for them to pay attention to,' said Chao Wei-nan, the secretary-general of Dongguan's Taiwan Businessmen's Association. But He Yaopei, the director-general of Dongguan's Bureau of Taiwan Affairs, disagreed, saying that Dongguan believed in a small bureaucracy and one that did not interfere or compete with private businesses. 'Five thousand investors is not too many. Dongguan is a small city now, but it will be a mid-sized city in the future,' he said. 'Our gross domestic product has grown at an average rate of 20 per cent in the past 20 years because we have left investors alone.' Mr He also denied charges that the city government had become indifferent. 'We create an environment for investors to make money and we create a place that is hospitable and has a high standard of living with amenities like parks and golf courses,' he said. 'We have also helped manufacturers meet their production deadlines by finding them factories that helped to fulfil the orders.' Nonetheless, the city is sitting up and taking note of the competition in the Yangtze Delta. At a recent news conference, Mr Li admitted the trend, but said the southern city had still managed to attract 500 new Taiwan-invested enterprises annually for the past two years. 'We are looking into [the Yangtze River Delta's] attraction for Taiwanese investors and we have improved the way we operate,' Mr Li said. Dongguan is improving conditions for investors and their families and has allowed the 80,000-strong Taiwanese community to build their own school. A hospital is also planned, he said. 'We are not afraid of losing one or two companies, but to keep the rest we must improve the urban environment, the telecommunication network and plant more parks,' Mr He said. Taiwanese investors said that another improvement had been the introduction of a monthly meeting last May for them to raise problems with Dongguan officials. Dongguan is also building a hi-tech park covering 70 sq km to attract companies from Taiwan. 'There are 80,000 hi-tech companies in Taiwan and only 20,000 have invested on the mainland. Our objective is to attract large enterprises and hi-tech industries, so we need to build parks,' Mr He said. Officials and investors say Dongguan still has a lot of advantages over the Yangtze Delta, the most important of which are industries that supply manufacturers with raw materials. In Dongguan, manufacturers can find all the parts they need to make a complete pair of Nike trainers or a computer. Nevertheless, Dongguan has to be more pro-active. Analysts say the city must market itself more aggressively. Bill Wheeler, the manager of Asian operations for Dongguan Ark-Les Electrical Components, which manufactures electrical and mechanical switches in Humen, said he thought Dongguan also needed to attract European and American investors to keep growth high. 'In the past five years, Shanghai, Qingdao and Tianjin have done such a good job of bringing in European and American investment that Taiwanese money is following,' he said. Bringing in European and American investors would require Dongguan to change the way it operates, as Western firms would not put up with the layers of bureaucracy the Taiwanese have had to battle with. Dongguan has the heaviest concentration of Taiwan investment in a single mainland city, accounting for 10 per cent of all mainland investment by Taiwan. Jiangsu province, meanwhile, has 52 per cent of Taiwanese investment on the mainland, and that percentage is only going to grow as the prospect of direct links with Taiwan becomes more likely.