By Ben Blanchard
BEIJING (Reuters) - China is steeling itself for another presidential election in rambunctiously democratic Taiwan, hoping a victory for the ruling Nationalists enables even better ties but also girding for an opposition win that may inflame tensions.
China sees self-ruled Taiwan as a breakaway province and the island's close, unofficial relations with the United States, which include arms sales, are a major irritant in ties between Washington and Beijing. Analysts say the United States could one day be dragged into a war over Taiwan.
Beijing has never been comfortable with elections on Taiwan and has warned any attempt to set up an independent "Republic of Taiwan" would end in conflict.
Even so, relations have improved rapidly since 2008, when the island elected Ma Ying-jeou as president. Ma, the head of the Nationalist Party, or KMT, which ruled all of China before fleeing to Taiwan at the end of a civil war in 1949, signed landmark economic deals with China.
Beijing has found working with Ma much more favorable than his predecessor Chen Shui-bian of the Democratic Progressive Party (DPP), who it refused to deal with and accused of pushing for independence.
"They're very concerned about this upcoming election," said Dafydd Fell, senior lecturer in Taiwan Studies at the School of Oriental and African Studies in London, of China's leaders.
"Even when the DPP was at its lowest point, when I was talking to Taiwan people in China, they were still very worried at the prospect of the DPP coming back to power."
Chen was jailed for corruption after stepping down from power. The DPP however has bounced back from that scandal and has put up the steely, U.S. and British-educated Tsai Ing-wen to face Ma in January.
Chinese leaders will be hoping desperately that Ma gets back into office and continues a rapprochement that thus far has focused on economic issues but which China will eventually want to cover much harder and more sensitive political matters.
China vented its anger at Washington rather than Taipei after September's announcement of U.S. arms sales to Taiwan because it understood that rhetoric directed at Taiwan could play into the DPP's hands and lessen the chances of Ma getting back into office, Beijing-based diplomats say.
The day before Washington unveiled the package, the honorary chairman of the Nationalist Party and former Taiwan Vice President Lien Chan was greeted warmly in Shanghai, home to many Taiwanese companies and about 300,000 Taiwanese expatriates.
Lien lauded last year's bilateral economic cooperation framework agreement trade deal that cut import tariffs on about 800 items, something China hopes will engender goodwill on Taiwan toward Beijing, especially at the ballot box.
"It is clear to all that this agreement has promoted cross-Strait exchanges and Taiwan's economic development," China's Taiwan Affairs Office quoted Lien as telling Shanghai's powerful Communist Party chief Yu Zhengsheng.
China will have to tread carefully, however. Previous attempts to influence Taiwan elections have backfired.
In 1996, then-Chinese President Jiang Zemin ordered live fire missiles tests and war games in the seas around Taiwan to try and intimidate voters not to back Lee Teng-hui, who China believed was moving the island closer to formal independence.
The crisis bought the two sides to the verge of conflict and prompted the United States to sail a carrier task force through the Taiwan Strait in a warning to Beijing.
Even worse for China, Lee won the election by a landslide.
CHINA'S DPP STRATEGY
China has made little attempt to hide its suspicions of current DPP presidential contender Tsai, once a strong proponent of Taiwan independence who has since largely moderated her tone.
In May, the Communist Party's official newspaper, the People's Daily, accused Tsai of flip-flopping on China policy and still ultimately wanting to push the island's independence.
"Tsai Ing-wen's stance so far on cross-Strait relations has been very unclear," said Zheng Zhenqing, assistant professor at Beijing's Tsinghua University Institute of Taiwan Studies. "If she is elected, the crux will be on what she says and what she does."
Last week in the southern Taiwan port city of Kaohsiung, a bastion of DPP support, Tsai said that Taiwan and the Republic of China, the island's formal name, were the same thing, signaling a much softer line on the island's future status.
She had previously referred to the Republic of China as an illegitimate, foreign government.
China was not convinced.
"This is obfuscation, a backdoor way of supporting Taiwan independence," said Taiwan Affairs Office spokesman Yang Yi, when asked about Tsai's remarks.
The DPP would not likely rule out contact with China if elected, Tsai campaign manager Bi-Khim Hsiao told Reuters, but added: "We don't expect the Chinese to respond to us positively."
China has not closed the door to dealing with the DPP though.
In 2009, Kaohsiung Mayor Chen Chu became the most senior DPP official ever to visit Beijing, ostensibly to promote a sporting event to be held in her city.
"They are betting on both sides. If Ma is going to win re-election, they will be happy. If the DPP's Tsai Ing-wen is going to win, they will have preparations for that outcome as well," said Bo Zhiyue, political scientist at the National University of Singapore's East Asian Institute.
President Hu Jintao has been much more patient in dealing with Taiwan than Jiang Zemin, who menaced the island in 1996.
"His patience has paid off so far because he is not cornering Taiwan so Taiwan feels much more relaxed in dealing with Hu," added Bo.
With economic integration gathering pace, including direct flights which benefit Taiwanese living and working in China and an influx of Chinese tourists to Taiwan, it would not be easy for either side to step back in the event of a DPP victory.
"If the DPP wins, while China may be dissatisfied or displeased, it will not cancel groups or suspend direct flights in the beginning," said I-hsin Chen, professor at the Graduate Institute of the Americas at Taipei's Tamkang University.
"Instead, it will send congratulations to Tsai Ying-wen first and take a wait-and-see approach," Chen said. "China will see if there is any possibility that they can accommodate each other on the issue of cross-Strait relationship and exchange their viewpoints."
(Additional reporting by Sally Huang, and Jonathan Standing and James Pomfret in Taipei, editing by Brian Rhoads and Raju Gopalakrishnan)