Sabre-rattling continued on both sides of Strait as China and Taiwan each held military exercises simulating Chinese attack; U.S. appealed for caution. China said U.S. policy on Taiwan issue threatening bilateral relations and warned against arms sales to Taipei.

Tension across Strait remains despite softening of Taipei rhetoric since March presidential election. Chinese media lashed out at U.S. following Pentagon report noting argument that Taiwan could deter Chinese military action by threatening strike on high-value targets, including China’s Three Gorges dam.

Newly re-elected President Chen Shui-bian sworn in for second term 20 May. In widely-anticipated inauguration speech, took conciliatory tone but angered Beijing by refusing to acknowledge "one China" principle. Bejiing had raised rhetoric in lead-up to inauguration, saying Chen's pro- independence stance risks war. Recount completed of ballots from 29 March election, which Chen won by less than 30,000 votes. Results not expected for weeks, but in any case unlikely to affect election outcome.

President Chen Shui-bian, re-elected by wafer-thin margin in 29 March election, said would push ahead with plans for new constitution in 2006, angering China, which sees plan as step toward independence. U.S. cautioned Chen against aggressive pro-independence stance. Recount of election results demanded by opposition Kuomintang party likely to take place mid-May.

President Chen Shui-bian’s narrow victory - by approximately 29,000 votes out of more than 13 million cast in disputed 20 March presidential election looked increasingly secure after opposition Kuomintang party (KMT) dropped demand that military be given additional opportunity to vote. Opposition critics had said state of alert following shooting of Chen prevented many in military from voting: denied by authorities. Assassination attempt, in which both Chen and VP Annette Lu lightly wounded by gunfire, took place day before election. KMT leader Lien Chan said sympathy vote cost him presidency, and demanded recount: expected to go ahead in early April but unlikely to alter result.

Polls indicated President Chen Shui-ban running neck and neck with Lien Chan, leader of Kuomintang party (KMT), ahead of 20 March presidential elections. President Chen continued to draw fire – from China and further abroad – for plan to hold election-day referendum asking voters to approve boost in defences should China fail to redeploy missiles aimed at Taiwan. U.S. officials said referendum unnecessary, repeating opposition to any unilateral attempt to change status quo across Strait. Over 1 million people joined together in human chain along Taiwanese coast 28 February to protest Chinese missile deployments.

Under U.S. pressure, President Chen Shui- ban modified language of proposed 20 March referendum: voters now to be asked whether they approve increasing purchases of U.S. weapons should China fail to redeploy missiles aimed at Taiwan; earlier version involved direct call for removal of missiles. China condemned revised language, saying referendum would bring tensions to “brink of danger”. French President Jacques Chirac called poll “grave mistake”, angering Taipei.

President Chen Shui-ban announced government will hold referendum in March 2004, alongside presidential election, asking China to remove missiles aimed at Taiwan; move dismissed as further political stunt by critics. Parliament voted against government attempt to amend clauses in new referendum bill that restrict conditions in which referendums can be held. President Bush, seeking to calm rising cross-Strait tensions, said U.S. did not support unilateral moves by either side to change status quo. Comments seen as significant rebuke to Taiwan.

Chinese officials responded sharply to Taiwanese President Chen Shui-ban’s calls for new constitution and right to hold referendums, saying moves toward independence could make use of force “unavoidable”. Threat to use force first since 2000. In step thought designed to boost re- election chances by provoking China, President Chen set timetable for referendum on new constitution (December 2006) and implementation (May 2008). But Taiwanese parliament voted down controversial bill allowing referendum on independence; instead passed watered-down version permitting such a vote only in extreme circumstances. China cut ties with Kiribati after island chain recognised Taiwan.

Talk of independence back on front pages in Taiwan after President Chen Shui-bian called for new constitution in 2006 and right to hold referendums, and gave outspoken interview to Washington Post. U.S. officials responded with concern and reaffirmed support for “One China” principle. 100,000 marched in southern Taiwanese city of Kaohsiung in support of president, prompting rebuke from China.