Chinese President Jiang Zemin has rejected Taiwan's calls for peace talks, saying that it must first accept reunification with China.

The 'One China' principle must first be recognised

President Jiang Zemin

Mr Jiang was reacting to Taiwan president-elect Chen Shui-bian's call for a peace summit with China following his victory in Saturday's election.

"The 'One China' principle must first be recognised, and under this prerequisite, everything can be discussed," Mr Jiang said.

"One China" principle

The recognition that Taiwan is a Chinese province and can never be an independent country

But Mr Chen said he was prepared to discuss all aspects of Taiwan's relationship with China, provided Beijing treated Taiwan as an equal and did not insist on its definition of the "One-China" principle - that Taiwan is a Chinese province and can never be an independent country

"There is nothing that we cannot talk about. We can talk about any issue but under an equal relationship," he said.

"One China, as long as it's not a principle, is something to discuss and I'm willing to talk about the One China issue."

Stocks fall

Fears of heightened tension with Beijing led to a sharp fall in shares on the Taiwanese stock market on Monday morning.

The Nationalist Party's HQ has come under siege

They fell by more than 2.5% - close to the limit set by the authorities to prevent any panic selling.

The government decreed that the market would not be allowed to fall more than 3.5% before trading was shut down.

The sell-off reflects investors' fears that Mr Chen's election will lead to increased tension between Taipei and Beijing.

But elsewhere in Asia, stock market losses were less severe than earlier feared.

Mr Chen's victory in the presidential election brought an abrupt end to the Nationalist Party's unbroken half-century in power.

During the election campaign, there were threats from Beijing of invasion if Taiwan sought independence.

But fears of military action eased after Beijing indicated it would take a "wait-and-see" stance until Mr Chen's inauguration in May.

Demonstrations

The headquarters of the Kuomintang party has come under siege by hundreds of party members protesting over its humiliating defeat.

A humilating defeat for the Nationalist Party

For the second day on Monday, angry protesters gathered outside the party headquarters in Taipei to demand the immediate resignation of Lee Teng-hui, who is party chairman.

On Sunday, Mr Lee agreed to step down in September, a year ahead of schedule, after thousands of protesters pelted the building with rocks and eggs and clashed with riot police firing water cannon.

Many Nationalists members blame Mr Lee for the party's humiliating defeat.