Taiwan’s largest China-friendly political party is poised to abandon the policy that has underpinned its close relationship with Beijing, potentially raising the tension in one of the world’s most dangerous flashpoints.

The Kuomintang (KMT), which ruled China for 30 years and Taiwan for more than 50, will elect a new chairman this Saturday with both candidates set to discard a policy formula agreed in 1992 that Beijing regards as a precondition for dialogue.

After the KMT was heavily defeated in January’s presidential elections largely because of its pro-China stance, both candidates in the election for party chairman said the policy, known as the “1992 consensus”, was no longer fit for purpose.

The phrase refers to an agreement between semi-official envoys from Beijing and Taipei in 1992 that both sides of the Taiwan Strait belong to “One China”. The KMT claims that the envoys agreed to let each side have its own interpretation of One China.

This ambiguity allowed the Chinese Communist party and KMT-led governments in Taipei to build economic and social exchanges while sidestepping the dispute over Taiwan sovereignty.

A rejection of the diplomatic phrase will pose a test for Beijing’s strategy for dealing with Taiwan. The Chinese government has refused to engage with any Taiwanese government that — like the administration of Tsai Ing-wen, the current president — does not commit to the 1992 consensus.

The KMT ruled China, then known as the Republic of China, until it was defeated by Mao Zedong’s Communist party during the civil war in 1949. The KMT fled to Taiwan, which continues to be known as the Republic of China. But Beijing has refused to recognise its sovereignty and has threatened to invade if Taipei resists unification indefinitely.

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Xi Jinping, China’s president and Communist party general secretary, has grown increasingly strident in his rhetoric on Taiwan.

Senior KMT politicians said Mr Xi destroyed the 1992 consensus when he equated it last year with “One Country, Two Systems”, the model of government by which Beijing rules Hong Kong and which it wants to impose on Taiwan.

Taiwanese voters have emphatically rejected this formula, under which Hong Kong enjoys some legal and political autonomy but Beijing hand picks its leader.

Johnny Chiang, a KMT lawmaker and one of the candidates in Saturday’s vote, said the Communist party’s “distortion” of the “One China” formula and the Taiwanese people’s ever more sceptical view of Beijing meant his party could no longer win elections.

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“We need to find a new way to tell everyone what our position is,” he told the Financial Times. He said exchanges beneficial to both sides would be possible only if Beijing acknowledged the existence of the Republic of China in Taiwan.

Hao Lung-pin, former Taipei mayor and KMT vice-chairman who is also competing for the party leadership, told local media: “Without ‘respective interpretations’, there is no ‘92 consensus.”

Dafydd Fell, director of the Centre of Taiwan Studies at the School of Oriental and African Studies, said the KMT’s reaction to its election defeat differed from that to its loss of power four years ago.

“After 2016, the party opted for an even more extreme position, moving it further from the average voter,” he said. “At least this time they are talking about how they can move closer to the median voter on China relations.”

Ms Tsai’s Democratic Progressive party, which grew out of the local democracy movement against the KMT’s dictatorial rule, advocates a Taiwan-centred national identity.

But the DPP has moved towards the centre by setting aside its goal of formalising Taiwan’s de facto independence, which some voters fear could drive China to invade.

She won the presidency in 2016 with a pledge to preserve the status quo across the Strait. Since then, she has equated Taiwan with the ROC. She won re-election by a landslide in January by asserting Taiwan’s political identity as a democracy against Chinese threats.

“Because the DPP has taken a more centrist position, it is harder for the KMT to compete there,” said Mr Fell.

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