updated 7/22/2005 10:45:24 AM ET 2005-07-22T14:45:24

Taiwan will allow computer maker Lenovo Ltd. to become the first mainland Chinese company to establish a subsidiary on the island in a significant step forward in commercial ties between the two rivals.

China and Taiwan split amid civil war in 1949. Business relations resumed in the early 1990s when Taiwanese companies were given the green light to invest in the mainland, but Chinese companies are still barred from making direct investments on the island because of the Taiwan government's fears of expanding Chinese economic influence.

On Friday, the Taiwanese government body in charge of relations with China said it had "agreed in principle" to allow Lenovo to take control of International Business Machines Corp.'s personal computer business in Taiwan. The decision followed Lenovo's January acquisition of IBM's PC unit, a move that made it the world's third-largest computer manufacturer.

The Mainland Affairs Council said its approval now only needed the assent of the investment and commerce departments at the Ministry of Economic Affairs. It declined to say when that might happen.

Copyright 2005 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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