I guess the whole China-HK-MFM-TW thing is because the strange status they have in each other's mind. China does not consider HKG, MFM, TW as other countries. HKG, MFM and TW also officially do not consider China a separate country. Taiwan ROC passport is no good in China and China PRC passport is no good in Taiwan.

Another factor for this not moving forward is competition - this is probably the major reason. Chinese airlines obviously do not want this to happen - they have more passengers to lose than the Taiwanese passengers.

I just read an article yeterday saying the TW carriers are doing 50% connecting traffic on their TPAC service and the load factor is between 80-90%.

It almost seems to me that they really don't need too many Chinese passengers transiting through TPE anyway, at least for TPAC service. The money making part is the O&D Taiwan/Mainland market - they want to manage the inventory in a way where O&D Mainland/Taiwan passengers have priority over connecting passengers.