Koo Chen-fu was speaking during a visit to Shanghai's stock exchange, which he headed before the Communist take-over of China in 1949.

Mr Koo, now 81, stressed the need for transparent management and the rule of law.

Taiwan has invested heavily in mainland manufacturing plants

He praised Taiwanese investors who have put an estimated three point six billion dollars into Shanghai and expressed hope that they would play a further role in helping the region's growth.

Mr Koo is on the second day of a ground-breaking visit to mainland China aimed at developing increased understanding between long-standing rivals.

In a speech to Taiwanese businessmen Mr Koo raised the need for investment protection and measures to ensure personal safety to increase the security of Taiwanese investments in the mainland.

Sightseeing visit

He emphasised that his visit was only an unofficial sightseeing visit and not a negotiating mission, but expressed hope that it would "work wonders" in developing closer relations between the two sides.

China and Taiwan, he said, were still technically in a state of hostilities.

Mr Koo's comments came a day after Taiwan announced the lifting of some restrictions on investments in China.

So far there have been no indications of progress on direct transport links which China is calling for and which one senior Shanghai-based Taiwanese businessman said were eagerly awaited.

In spite of their political disputes, economic links between Taiwan and mainland China continue to flourish.

Some estimates put Taiwanese investments as high as $30 bn, although an accurate assessment has been complicated by investments channelled through third countries to get round a ban on direct financial contact.

Inter-dependence concerns

Both sides hailed the talks as a good beginning

Taiwan's government, anxious about the political implications of economic inter-dependence, has imposed limits on the size of new investments.

Mr Koo's visit marks the highest-level talks between the two sides in five years.

Later on Wednesday Mr Koo, the chairman of Taiwan's Straits Exchange Foundation, was held a second meeting with his Chinese counterpart, Wang Daohan, who heads Beijing's Association for Relations Across the Taiwan Strait.

In the absence of official relations between the two sides, China and Taiwan hold all contacts through these semi-official organisations.

Later in the week Mr Koo is due to hold an unprecedented meeting with Chinese President Jiang Zemin.