In April 1661 the half-Japanese son of a pirate named Zheng Cheng-gong set out from an island outside Xiamen with a fleet and 25,000 soldiers and recaptured Taiwan for China by defeating the Dutch army that had controlled it for 31 years.
Ever since that day, the destiny of Xiamen has been linked inextricably to that of Taiwan. The bond is stronger than ever now that the 80-year struggle between the Communists and Nationalists has turned from howitzers and war planes into a struggle over investment, technology, money and the hearts and minds of Chinese.
Xiamen is on the front line of that struggle. For the first 30 years of Communist rule, its harbour was a major naval base. In 1958 the Communists conducted a two-month artillery barrage in a bid to capture the Nationalist island of Jinmen, just 2km offshore and the starting point of Zheng's expedition. The Nationalist garrison replied with shells that reined down on the city. This exchange of artillery continued on and off for the next 20 years, turning the city into an economic backwater.
But, when Deng Xiaoping took over the reins of power after Mao Zedong died in 1976, his vision for Xiamen was not as a military frontline but an economic one, a place to attract Taiwan visitors and businesses and bring the island back into the Chinese mainstream.
In 1981 he declared the city one of China's four special economic zones, offering low taxes, cheap land and labour and access to one of the best ports situated on the south-east coast. His main target was investors from Taiwan, followed by those from Hong Kong and overseas Chinese.
Were Deng to return to Xiamen now, 18 years later, he would find his mission half-completed. The city has attracted 1,553 projects from Taiwan, with investment of US$2.2bn, accounting for 24 percent of total 'foreign' investment of US$9.1 bn. GDP has grown by an average of 20 percent over the past 18 years, according to official figures.
The city has a total population of 1.1 million, of which 600,000 live in the urban area. About 5,000 Taiwan people live in Xiamen, including many who did their military service across the water in Jinmen, where they slept in underground bunkers and patrolled the silent beaches during the night curfew, on the look-out for infiltrators from 'Red China.'
There is a lively unofficial trade between the city and Jinmen, conducted by fishermen from the two sides, with meat, vegetables, fruit and other food items going from the Mainland in exchange for electrical appliances, cosmetics and medicine from the Taiwan side.
The Taiwan connection
All this would have been unimaginable during the Maoist era but is still far from the integration Deng intended and which has been realised between the economies of Hong Kong and neighbouring Guangdong which have become inseparable.
The Nationalist leaders in Taipei have watched the example of Hong Kong and how its major businesses transferred their manufacturing into low-cost cities on the Mainland, making them politically subject to Beijing. They have drawn the opposite lesson. To prevent this process being repeated, the Taipei government forbids the transfer of high-technology and strategic projects to China and bans direct trade and shipping and air links.
Of all cities in China, Xiamen is the biggest loser from this policy, since its strongest advantage is its proximity to Taiwan and the fact that a majority of Taiwan people are descended from migrants who left Xiamen and neighbouring areas of southern Fujian and speak the same dialect.
Were Taiwan President Lee Teng-hui to allow direct trade and investment, Xiamen would enjoy an economic boom. But the restrictions he has imposed mean that most Taiwan factories in Xiamen make low-value electronics, clothes, bicycles and motorcycles, with few in high-technology. They export 80 percent of what they make, against an average of 60 percent for all foreign-invested firms.
Ten years ago, Xiamen set up the Haicang industrial zone to house a giant petrochemical plant to be built by Wang Yong-Ching, head of Formosa Plastics and one of Taiwan's big businessmen. However, because of pressure from his government, Wang did not go through with the project.
In April 1997 the Taipei government said ships could sail directly from its south-ern port of Kaohsiung to the Fujian ports of Xiamen and Fuzhou but that they could not bring goods made on one side to the other, only to a third destination. This cuts costs – for example, a Taiwan-invested factory in Xiamen making shoes for the US market can ship them via Kaohsiung instead of via Hong Kong or Yokohama, as before. But it is not what Xiamen wants because it cannot fully exploit the competitive advantage of its excellent harbour. The facilities there, built for direct trade, are under-utilised.
These restrictions imposed by the Taiwan government mean that Xiamen has not been able to fulfill the mission given it by Deng Xiaoping. So the city government has been forced to cast its net wider in the search for the foreign investment that accounts for three-quarters of its industrial output and half of its exports.
This strategy was given even more urgency by the Asian crisis which has cut the inflow of foreign investment into China from the region. Before 1997, money from Taiwan, Hong Kong and Macau accounted for 70 percent of Xiamen's total foreign investment.
The strategy has brought dividends and helped weather the Asian crisis. Last year the city caught two big fish – Eastman Kodak and Dell Computer – which helped to make US contracted investment in the city account for nearly half the total of US$1.3bn for the first 11 months, up 0.3 percent over the same period in 1997. Actual investment rose 13.7 percent to US$1bn. Other American investors in Xiamen include General Electric, Emerson, Boeing and Coca-Cola, the first US arrival, in 1983.
Kodak is spending US$650m on a new plant to make photographic film, the biggest single foreign investment in Xiamen. It involves a total investment of US$1bn and the takeover of three Chinese film producers.
Dell Computer has chosen Xiamen for the factory where it will make computers to the order of individual consumers all over China, following a formula it has followed around the world.
Officials say several factors swung the decision in Xiamen's favour, including its good port and large and modem airport, vital for delivering computers to customers nationwide. The city also has a pleasant environment, with one-third of its area covered by trees or parks, which appealed to those who will manage the plant. Xiamen is among the least polluted of Mainland cities because of its 30 years on the front line against Taiwan, meaning that the state did not build large industrial plants there. A large botanical garden is being built in the centre of the city. To attract foreigners, the city has built three golf courses and an inter-national school offering classes in English.
The major drawback for an investor is the lack of a large local market. Fujian has just 33m people, one of the smallest Mainland provinces. Companies aiming at the domestic market prefer the Pearl River delta, greater Shanghai and the Beijing-Tianjin region, with their larger populations and higher average incomes.
The centre is close to the beach facing Jinmen, which used to be a military area closed to the public but has become a tourist attraction. Visitors can walk along the beach, take a swim, sunbathe or pay Yn5 to look through a pair of binoculars to see the Nationalist island across the water. Speedboats can be hired for Yn100 to take tourists round Little Jinmen island.
They can see the flag of Taiwan waving proudly next to a giant slogan that proclaims that “the Three Principles of the People will Unite China.” On the Mainlandside, overlooking the beach, is a slogan, equally large, proclaiming “One Country, Two Systems.”
"This is the cleanest beach in Xiamen," says a man in the smart blue and yellow uniform of the private company that has leased a 2km stretch of the beach. "At low tide, the distance between here and Jinmen is about 500 metres. It is popular with tourists, including those from Taiwan."
Visitors also come to see Gulangyu, an island in the middle of Xiamen harbour that was the foreign concession for 100 years after the Opium War. The former US consulate building, constructed on the island in the 1930s, is being renovated and will open as a guest house this spring. Gulangyu is famous for the lavish European-style villas built there by foreign diplomats and rich Chinese merchants, and its tradition of music and piano-playing.
The island boasts a music school and tourists are taken to concerts in people's homes. The only motor cars allowed on the narrow, winding alleys are electric-powered tourist vehicles.