Taiwan's new president took office on Tuesday with a historic offer to reopen dialogue with China, which claims the island as its territory, but pledged to maintain Taipei's existing self-rule and separate international profile.

Ma Ying-jeou, 57, the Nationalist Party (KMT) candidate and a former Taipei mayor, took over from Chen Shui-bian of the rival Democratic Progressive Party (DPP), beginning a four-year term after his landslide win in March.

Chen and Ma shook hands and walked, smiling, through a hallway lined with military officials to hand over power in the presidential office, where the Taiwan flag and a portrait of Sun Yat-sen, founder of modern China, hung in the background.

China has claimed Taiwan since 1949, when Mao Zedong's Communists won the Chinese civil war and Chiang Kai-shek's KMT Party fled to the island. Beijing has vowed to bring Taiwan under its control, by force if necessary, if it declares independence.

The two sides have not talked since the 1990s.

"The normalisation of economic and cultural relations is the first step to a win-win solution," Ma said in his inaugural speech in a Taipei arena packed with 15,000 people, including 540 foreign dignitaries. "Accordingly, we are ready to resume consultations."

But in his speech, absent from Chinese state-run TV but aired on Phoenix TV, which is available to many urban viewers in China, Ma pledged to maintain the status quo by neither declaring independence nor seeking unification with China.

"Taiwan doesn't just want security and prosperity," he said. "It wants dignity. Only when Taiwan is no longer being isolated in the international arena can cross-Strait relations move forward with confidence."

China opposes Taiwan membership in the United Nations and other bodies that require statehood to join.

Ma said he would strengthen ties with major ally the United States and "cherish" relations with its existing 23 diplomatic allies, which Taiwan uses to push its agenda in international organisations dominated by China and its roughly 170 partners.

Taiwan's ties with Washington and Beijing frayed under Chen's hardline pro-independence policies since 2000.

"Ma Ying-jeou has a mandate to improve relations with China," said Alexander Huang, professor of strategic studies at Tamkang University in Taiwan. "He's going to use that mandate to change course from over the past eight years."

AMBITIOUS PROMISES

But analysts also warned that Ma's ambitious promises could set the stage for disappointment and noted that China in the past has taken a tough negotiation stance toward the island.

Ma campaigned for the presidency on a platform focused on breathing new life into Taiwan's economy and pushing Beijing for trade ties, direct transit links and a peace accord.

"It's a big day," said Joseph Cheng, a political science professor at City University of Hong Kong. "China will definitely be expressing hopes for a new beginning."

Zhang Jianping of the Institute for International Economic Research under China's National Development and Reform Commission said that as long as Taiwan does not emphasise independence, consultation and dialogue will be possible. "Once that window opens, they can speak deeply and broadly," said Zhang.

Ma has pledged to launch direct weekend flights to China by July and initially allow up to 3,000 Chinese tourists in per day. Fights would axe time-consuming stop-overs in Hong Kong or Macau for Taiwan investors in China and ease the passage for tourists.

Taiwan stocks, which had risen 5.3 percent over the past five sessions, fell by about 2 percent on the inauguration day. The Taiwan dollar had also rallied in the days before the inauguration but was flat on Tuesday.

However, China-listed shares of several Chinese airlines surged on hopes of direct flights under Ma. China Eastern Airlines Corp had risen 9 percent by midmorning while Shanghai Airlines Co was up more than 5 percent.

Ma has also said he would make the Chinese yuan convertible with the Taiwan dollar, let Chinese buy Taiwan real estate and push for a common market.

"We must upgrade Taiwan's international competitiveness and recover lost opportunities," he said in the speech.

Ma also promised a clean government and ethnic unity in Taiwan. Chen's family, aides and vice president have been hit by graft charges, while Chen was accused of fostering division between older Taiwan natives and those who came after 1949.