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While Shanghai has the edge in the domestic market, Guangdong boasts strong export opportunities

Call it a battle between the dragon and the tiger for Taiwan investment on the mainland.

Shanghai, the 'dragon's head' of the Yangtze river, and Guangdong's tiger-like economy are fighting to attract the island's investors by offering tax breaks and other benefits.

With the Sars outbreak threatening to slow overseas investment, competition for Taiwan funds could grow even fiercer.

Shanghai and other cities in the Yangtze delta area have raced to overtake Guangdong, offering good infrastructure and the lure of the inland market.  'Both places have their advantages,' says Ni Pengfei, a scholar at the Chinese Academy of Social Sciences who recently surveyed the competitive strengths of mainland cities.

'Investment in Guangdong is mainly for exports, especially to Hong Kong and the rest of the world. If companies are looking at the domestic market, Shanghai is more favourable.'

Among Taiwan companies, Guangdong has earned a reputation for loose regulations and cheap costs, while the Yangtze River delta area is known for good logistics and accommodating officials.

Shanghai has attracted 300,000 people, 5,000 companies and nearly US$9 billion in committed investment from Taiwan, officials say. The investment figure might be higher, since companies in Taiwan typically route funds through a third region.

The whole of Guangdong has drawn 200,000 people, 16,000 companies and US$29 billion in contracted investment from the island.

A recent study published by state media found the Yangtze River delta area now accounts for 20 per cent of the country's economy, eclipsing the 10 per cent share of Guangdong's Pearl river delta.

From food to finance to technology, companies in Taiwan are flocking to Shanghai for a piece of the economic boom. In Kunshan, near Shanghai,  more than 1,500 Taiwan firms compete so fiercely for workers that poaching is common, executives say.

The tiny city of Wuxi is home to more than 1,500 Taiwan companies, among the latest a US$70 million electronics plant opened by home appliance maker Teco Electric and Machinery.

Though derided as 'Taiwan country bumpkins' in the local dialect, even Shanghai is welcoming the island's residents and their money. A 'little Taipei' district has sprung up, filled with restaurants serving the island's signature dishes. Sophisticated local consumers lured Taiwan's Marco Polo Bread Company to Shanghai before other mainland cities.

In a southern suburb, the smell of freshly baked bread hangs in the air as the company's kitchen turns out 200 kinds of baked goods for customers who have acquired a taste for whole-wheat bread and blueberry cheesecake.

'Shanghai is a more westernised city. There's more room for development here,' says Marco Polo's general manager, Kenny Cheng.

An early entrant to the market in 1993, the food firm has invested US$5 million in a plant and opened more than 30 stores, helping to create jobs and tax revenue for the local government.

The Shanghai operation  long ago eclipsed the chain's five stores in its home city of Taipei. The company plans to open its 40th store in Shanghai this year and wants to expand to other cities nearby.

The region offered more chances for expansion than southern China because of a better-regulated business environment, Mr Cheng said.

'In Guangdong, there are some Taiwan companies that have done well, but the way of doing business in the south is different from here.'

High above Shanghai's financial district in a gleaming new office tower, Taiwan's First Commercial Bank is serving another group of customers after opening its first mainland office two months ago - companies that have relocated manufacturing to Shanghai.

To the dismay of the Taiwan government, industry is packing up and leaving and banks are following to serve their clients.

'Taiwan investment in the mainland is increasing. Along the Yangtze river west towards Nanjing, there are many Taiwan companies,' says First Financial Group's president, Tsai Jer-shyong.

But Mr Tsai has his eyes on another group of customers - the mainland's vast domestic market - and Shanghai's growing role. 'Shanghai is an international city. In the future, it could be an important international financial centre.'

First Commercial would like to open a true branch and possibly take a stake in a mainland state-owned bank, but politics rule that out for now.

Although Taiwan companies have poured tens of billions of US dollars into the mainland since the easing of investment restrictions in the 1980s, prickly political relations remain in the background.

Politics kept Taiwan banks from opening offices until the mainland's central bank gave the green light to the first group last year. Direct transport links between the mainland and the island would make business easier, but the two sides have yet to agree on the issue. Taiwan has banned direct trade and transport links since 1949.

The Taiwan government has responded warily to moves by the island's hi-tech firms to shift production to the mainland.

Shanghai has sought to attract large Taiwan firms, while cities like Ningbo have tried to accommodate smaller firms. Kunshan already has so many companies that local officials were becoming choosier about offering tax breaks, analysts said.



Mainland cities wrestle to win Taiwanese investments