By Francis Markus in Taipei

It has long been clear that after the return to China of Hong Kong in 1997 and the subsequent handover of Macau, the focus of Beijing's attentions will shift to Taiwan.

The island, often referred to by Chinese leaders as a "renegade province", is the last piece of so-called Greater China outside of Beijing's control.

Taiwan, meanwhile, insists that its case is very different from the two former colonies. It says China must recognise the Taipei government as an equal and renounce its threats to use military force before it will consider relaxing its ban on direct transport and communications links with the mainland.

Now, as Macau follows Hong Kong in reverting to Chinese control, Taipei is standing firm in its insistence that political concessions from Beijing must precede any change in its policy.

So, for the time being at least, flights between Taipei and Beijing or Shanghai will continue to be indirect - passing through Hong Kong or Macau, with a stop and a change of flight number.

Out of touch

Nonetheless there is a growing sense that such restrictions on the part of Taiwan are becoming increasingly out of touch with reality.

The imminent entry of China into the World Trade Organisation - with Taiwan expected to follow soon afterwards - has put further pressure on Taipei to rethink its policy.

China argues that once the two rivals become WTO members, Taiwan will be bound by the trade body's regulations to set aside key restrictions on links with Beijing.

Taiwan for its part has been sticking to its assertion that such issues are not covered by WTO rules.

But the issues of direct or indirect communications and investment are merely symptoms of a deeper gulf in perceptions of the two sides' relations.

Building confidence

The return of Hong Kong and Macau to China may have pushed Taiwan further up Beijing's policy agenda, but political dialogue between the two sides is as bogged down as ever over fundamental differences about what future talks should concentrate on.

Beijing is keen to push ahead to the core political issues separating the two rivals. But Taipei wants to concentrate first and foremost on practical matters which it says could help build confidence.

It wants to see clear signs of action from China on such matters as protecting Taiwanese investment in China and repatriating thousands of illegal migrants from the Mainland.

Whether dialogue can resume in a meaningful way will depend in the first instance on Taiwan's own political climate.

Fragile balance

Incumbent President Lee Teng-hui, who steps down in March, has persistently enraged Beijing with his assertions of Taiwan's separate identity.

Whether his successor will take a similar line - or will be seen as less antagonistic by Beijing - is likely to be a crucial factor in maintaining the fragile status quo across the Taiwan Strait.

The next president will have to formulate a policy that reconciles Taiwan's growing sense of separate identity and the desire to maintain the island's security in the face of the Chinese threat of force.

As one senior Taiwanese minister put it in a recent BBC Chinese-language phone-in, there is "no market for reunification" among Taiwanese voters - at least not in the near or medium term.

Collision course

The government in Taiwan backs its position with polls saying the majority of voters favour neither reunification, nor a formal declaration of independence which would put the island on a collision course with China.

The Taiwan authorities continue to insist that the "One Country Two Systems" model, applied in Hong Kong and Macau, is not appropriate to Taiwan.

But there is every indication that China will continue its propaganda offensive to try to push the idea.

Hong Kong press reports say the Chinese government plans to organise a conference next year to review its policy on Taiwan reunification.

Meanwhile it is reported to be drafting investment policies for Macau designed to lure more Taiwan business.

While all this is going on, the military stakes are continuing to rise.

China is determined to narrow the technology gap between its forces and Taiwan's military, which has been supplied with US F-16 and French Mirage fighters.

Fragile balance

The status quo between the two sides has now held for 50 years, but it is becoming increasingly fragile.

Taiwan's own politics make for an increasingly difficult balance between asserting national identity and keeping the peace with China.

The US administration is under constant pressure from Congress to tilt the balance of its China policy more in favour of Taiwan in a potentially destabilising way.

The return of Macau means that China's leaders have one less excuse to procrastinate in their drive to resolve the Taiwan issue.

Finding a peaceful way to resolve Taiwan's future will test the creativity and political skill for leaders on both sides of the Taiwan Strait in the years to come.