UPDATE 4-US sale of fighter jets to Taiwan unlikely-sources
* Taiwan sought jets to counter China's strength
* China had warned US that deal could inflame tensions
* Upgrades to existing fighters still possible (Recasts throughout with comments, Lockheed statement)
By Phil Stewart
WASHINGTON, Aug 15 (Reuters) - A U.S. sale of 66 new Lockheed Martin (LMT.N) F-16 C/D fighter jets to Taiwan appears unlikely to go through, people familiar with the matter said on Monday, although they cautioned that no final decision has been reached.
Taiwan has repeatedly asked Washington to agree to sell it the advanced F-16 fighter jets, citing the need to counter the growing military strength of China, which views the island as a breakaway province.
China cut off ties with the U.S. military for most of last year to protest an American arms package for Taiwan. While other deals were possible, sources following the issue said they believed Washington would probably opt against the sale of new F-16s.
"If the Obama administration goes this way, as expected, then it's a political decision," said Rupert Hammond-Chambers, president of the U.S.-Taiwan Business Council, which supports the sale of new fighter jets to Taiwan.
A source familiar with the matter, who declined to be named, also said the deal appeared unlikely but said no decision had been made.
Defense News, citing an unnamed Taiwan defense official, reported on Sunday that the United States had formally refused Taiwan's request for the Lockheed Martin jets, claims that were not confirmed in the United States.
A State Department official said no decisions have been made on potential arms sales to Taiwan.
A spokeswoman at Lockheed Martin said the company had not been informed by the U.S. government of a final decision regarding the sale of new F-16s to Taiwan or of upgrades to its existing fleet.
Hammond-Chambers said he believed the Obama administration was expected instead to offer Taiwan a package for upgrading existing F-16A/B jets worth up to $4.2 billion.
Taiwan's Defense Ministry said it could not comment on the Defense News report, as it had not heard from the United States.
"However, we want to point out that the Republic of China (Taiwan) does hope the sale of new F-16C/D fighter aircraft will go through. We are in urgent need of the aircraft," spokesman Luo shou-he told Reuters.
BIDEN TO VISIT CHINA
The House Foreign Affairs Committee last month urged Obama to sell Taiwan "all the F-16 fighter jets that are needed by Taiwan." A Republican aide to the committee said it had not been notified of any decision on the matter.
Any fresh U.S. arms support to Taiwan is likely to raise hackles in Beijing, but the advanced fighter jets have been an especially touchy point for China, which this week will host U.S. Vice President Joe Biden. [ID:nN1E77E11A]
The United States switched diplomatic recognition from Taiwan to China in 1979 and recognizes Beijing's "one China" policy. But it is also Taiwan's biggest ally and arms supplier and is duty-bound by legislation to help the island in the event of attack.
Washington had been set to make a decision by October on Taiwan's request for the fighter jets, balancing its legal obligations to Taiwan under the Taiwan Relations Act against the need to avoid upsets with a major creditor and trading partner, China.
"Frankly, it is not a real surprise. The real surprise is that they sold them the F-16s in the first place," said Richard Bitzinger, a senior fellow and regional defense expert at Singapore's S. Rajaratnam School of International Studies.
But Bitzinger said it was not a total victory for Beijing because a potential upgrade to existing fighters would go a long way in covering Taiwan's loss of a new batch of F-16s.
"The types of upgrades they are talking about would make them the most advanced F-16s in the world. This is a significant upgrade, and I am sure a lot of that work will go to Taiwanese companies. In that regard, it may be a better deal," he said.
In May, a visiting Chinese military commander warned against any future U.S. arms sales to Taiwan. And recently, a popular tabloid linked to China's Communist Party's mouthpiece argued that China should use its "financial weapon to slap Washington" over any arms sales to Taiwan. (Additional reporting by Faith Hung in Taipei; Chris Buckley and Michael Martina in Beijing and Andrew Quinn, Jim Wolf and Susan Cornwell in Washington, and Karen Jacobs in Atlanta; Editing by Nick Macfie, Dave Zimmerman and Christopher Wilson)