Lai, vice president for the past four years, succeeds President Tsai Ing-wen at a time Beijing has been increasing military and political pressure to assert sovereignty - a claim he and Tsai reject - over democratically governed Taiwan.

In the run-up to Lai's election victory in January, Beijing repeatedly denounced him as a supporter of Taiwan's formal independence, framing the vote as a choice between war and peace.

China says any move by Taiwan to declare formal independence would be grounds to attack the island. The government in Taipei says Taiwan is already an independent country, the Republic of China, and that it does not plan to change that. The Republican government fled to Taiwan in 1949 after losing a civil war with Mao Zedong's communists.

Lai, 64, widely known by his English name William, has offered talks with China many times, including this week, which Beijing has rebuffed. He says only Taiwan's people can decide their future.

Beijing will be closely watching the inaugural speech by Lai, a doctor by training and son of a coal miner, at the Japanese-colonial era presidential office in central Taipei.

Puma Shen, a lawmaker for Lai's Democratic Progressive Party (DPP) who sits on parliament's foreign affairs and defence committee, says Lai wants to show Taiwan is not a "troublemaker" and is looking for peace.

"But no matter what he says during the inauguration, China will always disagree," Shen said.

China's Taiwan Affairs Office, asked on Wednesday about Lai's speech and how China would respond, said the "Taiwan region's new leader" had to make a clear choice between peaceful development or confrontation.

"Taiwan independence is incompatible with peace in the Taiwan Strait," spokesperson Chen Binhua told reporters.

Since Lai's win, China has maintained pressure on Taiwan but has avoiding mentioning Lai by name, unlike in the run-up to the vote, when it called him and his running mate Hsiao Bi-khim, formerly Taiwan's de facto ambassador to Washington, an "independence double act".

In the days leading up to Lai's inauguration, China has escalated its daily military activities, including staging mock attacks on foreign vessels near Taiwan, sources say.

"They are trying to pressure the new Lai government, wanting him to make concessions under military pressure," a senior Taiwan security official, who requested anonymity given the sensitivity of the matter, told Reuters.

Taiwan is expecting high-level foreign delegations for the inauguration, including former U.S. officials sent by President Joe Biden, in a show of international support from other democracies.

Although it is Taiwan's most important arms supplier and international backer, Washington transferred diplomatic recognition to Beijing from Taipei in 1979. Only 12 countries now formally recognise Taiwan diplomatically, mostly poorer developing nations like Guatemala, Haiti, Palau and Eswatini.

FRACTIOUS PARLIAMENT

Domestically, Lai also faces problems after the DPP lost its parliamentary majority in the election that brought him to power.

Taiwan's largest opposition party, the Kuomintang (KMT) - several of whose senior members have visited China this year - has more legislative seats than the DPP but not a majority. The small Taiwan People's Party, which has no love for the DPP, holds the remaining seats.

DPP caucus whip Ker Chien-ming said last week the KMT was abusing its position to try to force through legislation without consultation. The KMT says it strictly follows the correct procedures, and that the DPP complaints are sour grapes.

Lai has pledged to keep boosting Taiwan's defence modernisation with big-ticket items like submarines, but those spending plans could be more challenging to pass given the DPP's lack of a majority.

Chen Yi-fan, an assistant professor of diplomacy and international relations at Taiwan's Tamkang University who advised the KMT's presidential campaign, said Lai will have to learn how to compromise but the KMT must also behave responsibly, especially on issues like defence spending.

"If the KMT wants to win back executive power in the next four years, I think they have to block the budget reasonably - they can't just blindly block all the budgets," he said.

KMT Chairman Eric Chu this week called on the DPP to give proper consideration to things it was proposing, like reforms to give lawmakers the ability to question the president in parliament.

"The DPP should be open-minded and not merely boycott anything the opposition proposes," Chu said.