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EXPLAINER-What is at stake in Taiwan's election

TAIPEI, Jan 10 (Reuters) - Taiwan votes in presidential and parliamentary elections on Saturday, which will set the course for the democratic island's ties with its giant and autocratic neighbour China, which claims Taiwan as its territory.

Here is what is at stake in the election, and its potential global impact.

WHY IS TAIWAN IMPORTANT?

Aside from its key role in the global supply chain as a high-tech manufacturer, mostly notably as an Apple Inc supplier, Taiwan is in a strategic location just off the coast of China and on the edge of the Pacific.

It is a potential military flashpoint between China and the United States, which sells arms and provides other assistance to Taiwan.

The self-ruled island lies on major shipping lanes between Southeast Asia and U.S. allies Japan and South Korea, and on the disputed South China Sea, where China has built artificial islands and air bases.

Taiwan is also close to a major U.S. military base on the southern Japanese island of Okinawa.

WHO ARE THE CANDIDATES AND WHAT ARE THEIR POSITIONS?

President Tsai Ing-wen is seeking a second term in office. Her Democratic Progressive Party (DPP) favours the island's formal independence. Tsai has said repeatedly in the campaign that Taiwan is already an independent country called the Republic of China, its official name.

Tsai says it is up to Taiwan, not China, to decide the island's future, and has warned of the Chinese threat to democracy and liberty.

Her main opponent is Han Kuo-yu of the Kuomintang party, which ruled China until 1949 when forced to flee to Taiwan after losing a civil war with the Communists.

Han favours close ties with China as the only way to ensure Taiwan's security and prosperity, though says he will defend the island's freedoms and democracy.

WHAT DOES CHINA THINK OF THE ELECTION?

China says it is not seeking to interfere in the vote, which it considers merely a local election in one of its provinces. State media often refers to Tsai as "provincial governor" and regularly denounces her.

But China will be closely watching.

For Beijing, the best outcome would be a Han victory.

If Tsai wins, China will probably further ratchet up pressure on Taiwan, perhaps even by conducting military drills close to the island.

However, it could also realise it must resume talks, as any conflict would be hugely damaging for China as well as Taiwan.

The real danger would come if Taipei ever tries declare a formally independent Republic of Taiwan. China passed a law in 2005 that authorises the use of force against Taiwan if China judges it to have seceded.

WHAT DOES THE UNITED STATES THINK OF THE ELECTION?

Although Washington has no formal diplomatic ties with Taiwan, it is bound by law to provide the island with the means to defend itself.

It has taken no position on who should win, but has expressed concern at Chinese efforts at intimidation and influence.

Taiwan enjoys strong bipartisan support in Washington, and the Trump administration has approved billions in new arms sales.

Geopolitically, Washington has watched with alarm as China has taken Taiwan's allies in Central America and the Pacific, traditionally strong areas of U.S. influence.

The Pacific is a big concern for Washington, and it has lobbied Taiwan's remaining allies there to stick with Taipei and not give Beijing a further foothold. (Reporting by Ben Blanchard. Editing by Gerry Doyle)