U.S. urged Taipei to pass long-stalled defence spending bill allowing it to purchase U.S. missiles. Mainland China and Taiwan each held high-profile simulations of cross-strait attack.

During annual military exercises 25 April, Taiwan made first open declaration they would fire missiles at mainland if attacked. Pro-independence think-tank promoted idea of interim “second republic” constitution in absence of democratic process with China; plan rejected by opposition KMT as clear independence move. During visit of KMT delegation to Bejing, Chinese President Hu Jintao urged closer ties. Trial of opposition leader Ma Ying-jeou began 3 April; outcome expected to influence upcoming presidential elections.

Taiwan President Chen made new calls for full independence in 4 March speech Beijing called “criminal”. U.S. Defence Department announced plans to make $421m missile sale to Taipei; Beijing said deal would harm regional security. In visit to Beijing, U.S. military chief Peter Pace called for increased transparency in China’s military ambitions.

Taipei removed word “China” from names of several state institutions, including postal and shipbuilding companies, drawing sharp criticism from Beijing. Opposition leader Ma indicted on corruption charges and same day announced candidacy for President 2008, vowing to oppose unification until full democracy established across Strait.

Beijing tested anti-satellite weapon 11 January, drawing international concern. Taipei called test “bad for regional security” and said over 900 mainland missiles now pointed across Taiwan Strait.

Beijing issued biennial defence white paper 29 December, calling for increase in military spending and citing Taiwan among major security threats. Report stated official PRC 2006 defence expenditure $36bn. Chinese President Hu Jintao separately called for major upgrade in naval power. Taipei legislature voted for first time 29 December to refer $192m in funding for U.S. weapons purchases for initial review after opposition agreed to stop blocking bill. Chinese New Year charter flights to mainland approved again for 2007.

President Chen Shui-bian continued to face leadership challenges, surviving another opposition attempt at forcing recall referendum 23 November, and facing indictment of his wife and 2 aides on corruption charges. 7 December mayoral elections in Taipei and Kaohsiung will test support for Chen’s DPP party. Chen continued to push 3 proposals provocative at home and abroad: constitutional reform, admission to UN, and redistribution of improperly obtained Kuomintang assets.

President Chen Shui-bian continued to provoke Beijing with proposals for constitutional reform and arms procurement, despite widespread domestic opposition. Tens of thousands gathered in Taipei 10 October calling on Chen to step down; second recall motion failed in parliament 13 October. Proposed revisions to 1947 constitution unpopular at home and lack U.S. support. Taiwan relaxed controls on visits to mainland by low-ranking civil servants and police, amid expanding cross-Strait economic exchange; ban on travel to mainland remains for high-ranking officials.

Taiwan exchanged promises of aid and economic cooperation for recognition of its sovereignty at 4 September summit with Pacific Island nations, while China focused on fostering links with Central American countries. Taiwan’s bid to enter UN blocked by China for 14th time on 13 September. Direct cross-strait medical flights began; 3-day application process involves obtaining both sides’ approval. Rallies called for President Chen to step down over corruption scandal and opposition called again for referendum on his ouster: Chen’s constitutional reform proposal dismissed by some as attempt at distraction.

Both sides stepped up diplomatic war of attrition: China lured Chad to re-establish ties, and continued negotiations with 3 Taiwan allies - Guatemala, Paraguay and Sao Tome & Principe - for oil/gas exploration. Taiwan rallied support in Central America and Solomon Islands, and made 14th attempt at UN membership 10 August when several supporting states wrote to UNSG Annan requesting issue be raised in September General Assembly. Beijing called proposal attempt for Taiwanese independence.