China appears to be having success in using diplomacy to disarm Taiwan (which it considers a rebellion province, and threatens to take by force, if peaceful means fail.) For decades, China has been putting economic and diplomatic pressure on other nations to prevent them from supplying Taiwan with weapons. Even the U.S. has constantly been pressured, despite the fact that there is a three decade old American law that mandates U.S. sales of weapons to Taiwan. But China has leaned on the U.S. despite that law, and has succeeded in stalling Taiwanese efforts to buy 66 more F-16 fighters. While the U.S. did approve the sale of anti-aircraft missile systems, helicopter gunships and anti-submarine aircraft to Taiwan last year, the constant Chinese complaints about F-16 sales have worked. The Chinese efforts to halt U.S. arms sales to Taiwan have come more and more successful. In response, Taiwan is implementing some far reaching military reforms, and expanding its own weapons development and production efforts.
For the last five years, Taiwan has been reducing its armed forces from 350,000 back then, to 275,000 now and 215,000 by 2014. At that point, the military will be all volunteer. Conscription has long been unpopular, and fewer troops will mean more money for new equipment.
Defending the island against Chinese attack is seen more a matter of technology than masses of troops. To that end, Taiwan has resumed development and production of the Hsiung Feng 2E cruise missile. This project was halted two years ago to appease China, but that didn't work. Taiwan has also developed its own laser guided bomb kits (like the U.S. JDAM).
The Hsiung Feng 2E is a 19 foot long cruise missile that weighs a ton (with a 450 pound warhead) and has a top speed of 800 kilometers an hour. Max range is 600 kilometers. It uses inertial and GPS guidance. The Hsiung Feng 2E was developed from the Hsiung Feng 2 anti-ship missile. This was a smaller weapon (.685 ton), with a range of 160 kilometers. It entered service in the early 1990s, and by the late 1990s, developers were working on turning it into a cruise missile. The Hsiung Feng 2E can be launched from ships or from land and can threaten Chinese targets several hundred kilometers inland.
Meanwhile, the F-16s are still needed, mainly because this type aircraft is the key element in the Taiwanese Air Force. Currently they have 140 F-16s, 55 Mirage 2000s, and 120 Ching-Kuos, which is sort of F-16 Lite. The F-16s Taiwan wants to buy are more modern and powerful models.