DESPITE ALL THE SNIPING, IT'S STILL BUSINESS AS USUAL

By JULIE K.L. DAM

MORE RELIABLY THAN ANY MARKET ANALYST, EVERY STEP and misstep in the undiplomatic dance between Taiwan and Beijing can foretell major moves in the Taipei stock exchange. Last week, when the Hong Kong press reported that Chinese Premier Li Peng would announce a timetable for reunification in a key speech, share prices tumbled 3.5%, and the Taiwan dollar took a beating. The next day, when Li made no mention of this schedule, prices rebounded on a wave of buying.

Such is the skittishness of investors in this period of strained relations between Taiwan and China. Confidence within Taiwan has been shaken, leading to unprecedented capital outflows. Since last summer, Taiwanese have siphoned an estimated $8 billion from the island. "Quite a few wealthy people have sold their homes and sent their money abroad, sometimes following as immigrants," says Thomas Chien, managing director of James Capel Taiwan, a securities company.

A popular destination is California, where many Taiwanese have business and family ties. From July to October 1995, $3 billion flowed from Taiwan into Southern California banks alone. Before 1995, the inflow to the U.S. averaged just $250 million a year. Considering Taiwan's abundance of capital, however, its recent flight has not reached alarming levels.

If some capital is fleeing Taiwan because of the tensions with mainland China, much more is staying put in an unlikely spot--mainland China. Taiwanese companies hurt by rising manufacturing costs on the island have found a perfect alternative, a place that offers a common language and cheap labor. China has encouraged investors from Taiwan by giving them generous tax breaks. Some 30,000 Taiwanese firms have committed $28.85 billion to various types of projects. Cross-strait trade, which was first allowed in 1990 and must be channeled through third-party locations like Hong Kong, is expected to total $20 billion for 1995. In the past year Taiwan's exports to China increased 25%, while the volume of goods flowing from China to Taiwan shot up 85%. Says Beijing trade official Guo Dongpo: "The boom in our bilateral trade is an irresistible trend."

Observers are not surprised that business is flourishing despite the ominous political situation. "It's one thing to posture, to fling your arms in the air," says Andrew Freris, an economist for Salomon Brothers in Hong Kong. "But trade goes on. Look at the figures, and you say, 'Crisis? What crisis?'" Unfortunately, as history shows, politics usually trumps trade when military passions are inflamed.

--By Julie K.L. Dam. Reported by Mary Binks/Hong Kong, Jaime A. FlorCruz/Beijing, Jacqueline Savaiano/Los Angeles and Donald Shapiro/Taipei

With reporting by MARY BINKS/HONG KONG, JAIME A. FLORCRUZ/ BEIJING, JACQUELINE SAVAIANO/LOS ANGELES AND DONALD SHAPIRO/TAIPEI