The proposed sales of eight diesel-electric submarines and ships equipped with the hi-tech Aegis air defence system "could be shelved by mounting political and financial problems," the London-based magazine said in an article to be published on Wednesday,

US President George W. Bush approved the submarine sale in April 2001 as part of the most comprehensive arms sales to the island since 1992.

However, the deal which could be worth 11 billion US dollars has progressed slowly as the United States has not built conventional submarines for more than 40 years.

"Nothing has changed since 2001," Jane's quoted sources in Taiwan as saying.

They said insistence the submarines be built in Taiwan "is very likely going to kill the whole deal", adding that Taiwan lacked the construction and testing infrastructure needed for such a project.

Taiwan's cabinet in September proposed to Washington that local technicians should be engaged in building the submarines to provide the state-run China Shipbuilding Corporation with the technical expertise.

One key hurdle of the submarine deal is that the US has still not secured a modern design that satisfies Taipei, the defence sources in Taiwan complained.

According to Northrop Grumman Ship Systems president Philip Dur, the company is offering a modernised version of the Barbel-class submarine similar to the USS Blueback, Jane's said.

The offer, Dur said, was being made in partnership "with a European submarine house". Jane's said a US defence official confirmed the company is Germany's Howaldtswerke-Deutsche Werft.

Germany and Spain had reportedly declined to offer their designs for fear of offending China, which regards Taiwan as part of its territory to be reunified, by force if necessary.

Taiwan has also long sought Aegis-equipped ships. While Taipei bought four ex-navy Kidd-class destroyers as an interim measure, to date no progress has been made on securing the Aegis system further than a promise that it would be approved "in principle".

"With the prospect of US policy toward arms sales to the region shifting dramatically if there is a change in administration following the November presidential elections, time for deals could be running out," the weekly said.

The US remains the leading arms supplier to Taiwan despite its shift of diplomatic recognition from Taipei to Beijing in 1979.

Beijing has repeatedly protested against Washington's arms sales to Taiwan.

WAR.WIRE