Taiwan scrapped planned war games on Wednesday as part of efforts to defuse tensions with China, but Beijing told President Chen Shui-bian he may risk attack if he presses ahead with a referendum on independence. Taiwan's military announced it was canceling anti-submarine drills off eastern Taiwan set for August 15 to "avoid speculation and misunderstanding" after Chen enraged Beijing by backing a referendum on formal independence for the island.

"The situation in the Taiwan Strait is tense. We canceled the exercises to avoid misunderstanding," a Defense Ministry spokesman said. He declined to give further details.

Taipei's mass-circulation China Times said in a front-page report on Wednesday that Chen had ordered the ministry to cancel the drills to "express goodwill to the other side."

Beijing considers Taiwan a rebel province and has threatened to attack if the democratic island of 23 million people declares independence or drags its feet on unification talks.

Chen said on Saturday that holding a referendum was a "basic human right" and that in reality there was "one country on each side" of the Taiwan Strait. This triggered an angry response from Beijing, which said he was leading the island to disaster.

However, on Tuesday -- after his comments roiled financial markets and public opinion polls showed his support falling to record lows -- Chen said his remarks were oversimplified.

He sought to soften his comments, saying "equal sovereignty" would be a more appropriate way to sum up his speech.

PHOTO CAPTION

A small band of pro-unification Taiwan activists, shouting 'We don't want war, we don't want independence,' stage a protest outside the American Institute in Taiwan, Washington's de facto embassy, in Taipei August 7, 2002. Tensions between Taiwan and China have risen after Taiwan President Chen Shui-bian's controversial backing of a referendum on independence for the island viewed by Beijing as a renegade province. (Simon Kwong/Reuters)