Taiwan is planning to open its doors to direct investment from mainland China, which is the latest and most significant step in the recent economic rapprochement between the two states.
On August 20, Fu Dong-cheng, the vice chairman of Taiwan's Mainland Affairs Council (MAC), announced the government would be making public draft plans to allow Chinese investment in the Taiwanese economy.
After the relevant government agencies have completed the amendments to regulations on foreign investments, the path will be cleared for investments from mainland China, with the manufacturing sector the first to be opened up, according to Fu.
While Fu did not give a definite timeframe for the lifting of restrictions on Chinese investment inflow, he said this issue, along with establishing direct weekend charter flights between the two countries, and the opening of direct shipping links and cargo charter flights, were matters of priority.
With Taipei and Beijing scheduled to hold another round of direct negotiations in late October or early November, trade issues are expected to dominate the talks.
If Taipei follows through, the move could serve as a welcome boost to the economy, which has seen a sharp fall in capital inflow in the first half of the year. In the six months ending June 30, inward Foreign Direct Investment (FDI) fell by 11.4% year-on-year, totaling $3.72bn, according to figures released by the Ministry of Economic Affairs in late July. Over the same period, outward FDI hit $2.27bn, a rise of 59.8%.
Taiwan's telecommunications industry has also been singled out as a destination for mainland investment. According to the local press, the government is considering granting investors from China the same rights as other foreigners when investing in Taiwan's telecoms sector. Currently, foreign investors are allowed to hold a maximum direct stake of 49% in fixed-line and long-distance phone operators, and up to 60% if indirect investments are taken into account.
The government has also flagged opening up its "Love Taiwan" programme, a series of major infrastructure projects, to Chinese investment. These projects, including transport networks, urban renewal schemes and upgrading of the power grid, will be carried out under the build-operate-transfer model, and have a total budget of around $12.7bn.
Fang Liang-shiow, the minister responsible for Taiwan's Public Construction Commission (PCC), confirmed on August 17 that work was being conducted to facilitate and encourage private participation in the "Love Taiwan" projects, including the participation of mainland Chinese investors.
Another potential beneficiary of the thaw in relations between Taipei and Beijing is the Taiwan stock market, with a number of local companies trading on overseas exchanges now considering listing on their home bourse. More than 60 Taiwanese firms are listed on the Hong Kong's Hang Seng Index, and more on the Singapore market.
Until recently, Taiwanese companies listed on the local stock market were limited to investing a maximum of 40% of their operating capital in ventures on the mainland. In mid-July, the government lifted this ceiling to 60%, a move designed to bring local firms back home.
The Hon Hai Precision Industry Company has already announced it will list its overseas units on the local exchange. The company, one of the world's largest contract producers of electronic products, is currently listed on the Hang Seng through its subsidiary Foxconn International Holdings.
The Taiwan exchange, which has lost more than 14% in value so far this year, got another boost on July 31 when the governement announced that qualified domestic institutional investors - firms given Chinese state approval to conduct investments - would be allowed to invest in the Taiwan Stock Exchange and over-the-counter GreTai Securities Market from October this year.
Wu Tang-chieh, the deputy minister of Taiwan's Financial Supervisory Commission, said the move would channel an estimated $1.125bn into Taiwan's stock market when the measure is implemented.
The open door policy towards China adopted by President Ma Ying-jeou since he came to office in May has not met with universal approval. The opposition Democratic Progressive Party (DPP) has criticised the rapid breaking down of trade barriers as being a threat to the country's economic ad political sovereignty.
However, following its defeat in January's parliamentary elections, followed by the eviction of then President Chen Shui-bian in the March presidential ballot, the DPP is in disarray. The party's credibility was done further damage in mid-August when Chen admitted his wife had transferred up to $20m out of the country prior to the electoral result.
With the political opposition in turmoil and big business generally in favour of closer economic ties with the mainland, there appear few obstacles to Ma's government continuing to woo the fast evolving neighbour.