Taiwan wants peace and dialogue with China but the government must continue to strengthen the island's defences, President Lai Ching-te said as he completed one year in office.
China calls Lai a "separatist" and has rebuffed his multiple offers for talks.
Lai rejects China's sovereignty claims over the democratic and separately governed island, saying only Taiwan's people can decide their future.
The government has warned that Beijing could mark the anniversary with military drills but speaking to reporters at the presidential office in central Taipei, Lai offered a message of peace.
"I, too, am committed to peace. Because peace is priceless and war has no winners. But when it comes to seeking peace, we cannot have dreams nor illusions," he said.
Taiwan will continue to strengthen its defences as preparing for war is the best way to avoid it, Lai added.
"I also reiterate here — Taiwan is happy to have exchanges and cooperation with China as long as there is reciprocal dignity. Using exchanges to replace hemming in, dialogue to replace confrontation."
China's Taiwan Affairs Office on Tuesday called Lai's speech a "two-faced tactic" that's a "waste of effort and doomed to fail."
"No matter what the leaders of the Taiwan region say or how they say it, it cannot change the fact that Taiwan is a part of China … nor can it stop the inevitable trend of national reunification," the office's spokesperson Chen Binhua said in a statement.
China's defence ministry last week said Lai was a "Taiwan Strait crisis maker" who had increased antagonism and confrontation and undermined peace and stability.
Lai also faces a challenge from possible US tariffs, currently on pause, and said talks with Washington were continuing "smoothly".
The government also plans to establish a sovereign wealth fund to boost the tech-focused economy, he added.
"The government will set up a sovereign fund to create a national investment platform, making full use of Taiwan's industrial strengths, led by the government, in collaboration with the strengths of private enterprises," Lai said, without giving details.
Taiwan on high alert after Chinese military detected
In a daily report detailing Chinese military activities, Taiwan's defence ministry said in the past 24 hours it had detected six Chinese planes and 11 vessels near the island.
Taiwan's coast guard has also documented five cases involving 38 Chinese citizens crossing the 160-kilometre wide Taiwan Strait, separating the self-governing island democracy from the authoritarian Chinese mainland, according to the body's deputy director-general Hsieh Ching-chin.
That includes at least one case posted to Douyin, the Chinese version of TikTok, in which a man speaking with a strong mainland Chinese accent is seen planting a Chinese flag on what he says is a Taiwanese beach.
Scenes in the background appear to show a stretch of coastline south of the capital Taipei.
The small size of the boats, some which are toys used for having fun at the beach, makes it difficult for Taiwan's radar to pick them up.
More cameras and other detection devices and manpower would be needed to cover the vast spaces of inhospitable coastline surrounding the island, but the terrain would make a Chinese D-Day-type landing highly challenging.
ABC/wires
