(CNN) -- As part of a special television edition of Inside Asia, CNN's Mike Chinoy spoke to Taiwan's President Chen Shui-bian in the presidential palace in Taipei. The following is an edited transcript of this interview.

MIKE CHINOY, CNN: What is your evaluation of your performance in the past two years?

PRESIDENT CHEN SHUI-BIAN: Over the past two years, what I feel most proud of is the fact that we have been able to deepen democracy here in Taiwan and to stabilize cross-straits relations. Now we are more confident that we will be able to further deepen democracy in Taiwan and other reforms, and we are more confident to embrace the international community and to invest in the future.

CNN: Recently you said that Taiwan is already an independent country. Is that not the kind of independence that mainland China has always warned Taiwan against talking about or pursuing?

CHEN: Taiwan is an independent sovereign state and it is called the Republic of China, and my country is not a part of the People's Republic of China. This is not my view alone. This is the consensus view of the 23 million people in Taiwan, regardless of their political affiliation, and no one dares to say that Taiwan is part of the People's Republic of China here in Taiwan.

CNN: So where does this leave the whole ques tion of one China? Beijing insists that you and you government has to accept this principle that there is only one China, and that Taiwan is part of that China, before there can be any political progress. Is that something that you could ever accept as a precondition for talks?

CHEN: The PRC's one China principle insists that there is only one China and the PRC is the sole legitimate government of China, and Taiwan is part of the People's Republic of China. This is a position that cannot be accepted by the 23 million people here in Taiwan.

CNN: Do you personally see any benefit to Taiwan with the idea of reunifying with the mainland?

CHEN: So far there is no way I can accept it because I have to ask, what are the advantages of unification for the 23 million people here in Taiwan? The PRC regime has raised its military budget, and expanded its arms and deployed more than 400 tactical missiles along the coastal areas. And 85% of those missiles have a range of more than 600 kilometers, and is increasing by the number of fifty every year.

The PRC is trying to suffocate us in the international community. They point guns and missiles at us and this simply cannot be tolerated by anyone. The PRC's military threat and diplomatic suppression will only undermine the friendship between the people on both sides of the Taiwan Straits, and will make the notion of unification simply impossible.

CNN: The mainland has said that if you try to visit Washington D.C. that will be a kind of "red line" that will trigger a very, very sharp Chinese response. Are you working towards such a visit? Are you concerned at all that if you can manage to make such a visit in the coming months that it could endanger stability in the Taiwan Straits?

CHEN: I believe the United States is not a local province of the People's Republic of China or a part of the PRC. The PRC's overreaction to these kinds of decisions is actually 100 percent interference in the internal affairs of the US and I don't think this is the right way to do (things). The United States is very supportive of my country, and for that I want to express my heartfelt gratitude. The United States arms sales to Taiwan have kept the military balance between the two sides of the Taiwan Straits and safeguarded the hard-won democracy of Taiwan. I believe that in the future, when the opportunity presents itself and when we have to make such an arrangement, the United States government will provide courteous treatment to me under the principle of safe comfort and dignity.

CNN: I'm struck listening to you by what seems quite a tough tone towards Beijing and I'm wondering are you concerned that this kind of quite tough language could provoke China. Or are you confident that China -- because of its internal problems, strong American support for Taiwan, and your own stronger political position here -- really isn't going to be able to do anything other than make angry statements.

CHEN: As the president of the Republic of China I have the duty and the responsibility to stabilize cross-strait relations. I should like to call upon the leaders of the PRC that we should use our creativity, wisdom and upon existing foundations and under the principle of democracy and parity, to jointly handle the so-called One China issue. The other side is just like a piece of hard rock. It's hard and it's stubborn. Not only do they not accept our goodwill and good intentions, they refuse to enter into negotiation with us, they refuse to make contacts with us and they suppress us in the international community even more. This simply cannot be accepted by many of my people. However, I will never give up the hope of seeking goodwill conciliation active cooperation and permanent peace between the two sides.

CNN: Are you concerned about the so-called "China fever" or "Shanghai fever" that is drawing so many Taiwanese companies and business people to the mainland?

CHEN: If we want to deeply cultivate Taiwan with a global perspective, then we cannot ignore the mainland market. As long as our roots and our hearts and our research and development remains in Taiwan, then I think its quite alright for our businessmen to invest in mainland China, and I think this is normal. I am not afraid of the so-called "China fever." I believe it will cool down sooner or later. It is not a concern of mine.

CNN: How serious are you about allowing private companies and non-governmental organizations negotiate the opening of direct trade and transport links with the mainland, and specifically how would you envisage that process moving forward?

CHEN: A couple of days ago when I mentioned the cross-straits economic and trade relations I said the three major links is the road that we must take. However, there are certain principles that we must follow. And that is that Taiwan must not be belittled, Taiwan must not be localized and Taiwan must not be marginalized.

We hope that the cross-strait relations can be improved and there will be breakthroughs. However, this cannot be accomplished by our wishful thinking.

Many government functions will have to be involved in the process of negotiation, and the government will have to participate, will have to lead, but the government does not have to stand on the front line all the time. Under the control and the lead of the government, it is possible that we ask the private sector to make contacts, and to help the government enter into consultation with the other side.

But the problem is that there is no distinction between the private sector and the government as far as China is concerned. The private sector in most cases represents their government. But here in Taiwan the government is the government and the private sector is the private sector. There is a clear distinction between the two. I think the government can consider asking the private sector to help in making contacts with the other side. We can be more flexible and pragmatic in our approach.

A special insight into life in the presidential palace in Taipei will air on CNN's Inside Asia this weekend: Saturday 0830 HKT, Sunday 1930 HKT and Monday 0430 HKT.