SINGAPORE, Nov. 7 (UPI) -- The Taiwanese government is lifting a 50-year ban on trade and investment relation with China and abandoning the 5-year-old "go slow, be patient" policy in favor of a policy of "proactive openness, effective management."
The move was widely expected following recommendations made in August by the 120-member Taiwan Economic Development Advisory Council.
On Wednesday, the chairwoman of the Cabinet's Mainland Affairs Council announced the government would scrap a $50 million ceiling on individual investments in China and allow offshore units of Taiwan banks to remit money to and from China. Local businesses can directly invest in China instead of routing investments through a third country, Tsai Ing-wen said.
The review process for applications for China investment will be also be streamlined, with the investment ceiling on projects that require government approval being raised from $3 million to $20 million. Larger investments larger than this will still be reviewed on a case-by-case basis.
Meanwhile, overseas branches of domestic banks will be allowed to conduct direct business with parties in the mainland, in order to improve cross-strait capital flows and encourage capital repatriation.
The move came a day after China and 10 Southeast Asian nations agreed to create a free trade area within 10 years, forming a $1 trillion market.
Both China and Taiwan are also expected to gain entry into the World Trade Organization this weekend at a meeting in Qatar.
Credit Suisse First Boston noted that the timing of the changes in rules comes a month before Taiwan legislative elections and a couple of weeks before the third quarter gross domestic product data are released.
The liberalization is expected to boost the standing of President Chen Shui-bian and his Democratic Progressive Party among moderate voters. Chen has been coming under criticism for sacrificing Taiwan's economic good for a policy of confrontation with China.
Talks between China and Taiwan remain deadlocked as Beijing insists on Taiwan recognizing the "One China" policy before the sides sit down to talks -- a condition Taiwan refuses to accept.
Taiwan and China have been separated since 1949 and Beijing considers the island as a renegade province.
Taiwan's new-found enthusiasm for closer economic ties was born out of necessity, analysts said. The island's economy is expected to contract by more than 1 percent this year.
But the government did not announce any changes related to three direct links with China, as well as increasing mainland tourist flows, other recommendation made by the council.
Many Taiwanese corporations had previously found loopholes in the policy and have invested an estimated $60 billion in China through foreign companies or by establishing front companies based offshore.
The curb on mainland-bound investment, known as a go-slow policy, was adopted by Taiwan in 1996 by former President Lee Teng-hui. It was aimed at reducing the island's economic dependence on the mainland, while preventing an exodus of capital and technological know-how.
