BEIJING (Reuters) - A proposed anti-infiltration bill in Taiwan which the government says is needed to combat Chinese influence is spreading alarm amongst the Taiwanese business community in China, the Chinese government said on Wednesday.

The legislation is part of a years-long effort to combat what many in Taiwan see as Chinese efforts to influence politics and the democratic process on the island. China claims Taiwan as its territory, to be brought under Beijing’s control by force if necessary.

Taiwan’s ruling Democratic Progressive Party (DPP) has begun a renewed push for the legislation, ahead of presidential and parliamentary elections on Jan. 11, and it could be passed before the end of the year.

The draft bill prohibits anyone donating to a political party, influencing elections or otherwise seeking to sway in Taiwan politics on the instructions of or with the financial support of “infiltration sources” - generally taken to mean China.

Speaking at a regular news briefing in Beijing, Zhu Fenglian, spokeswoman for China’s policy-making Taiwan Affairs Office said the DPP had been using such “law revisions” to incite hostility and restrict normal exchanges across the Taiwan Strait.

“In fact for Taiwan’s people, especially Taiwanese businessmen and students, it has already caused alarm and panic that everyone is treated as an enemy,” she added, referring to Taiwanese in China.

No matter how their tactics change, the DPP’s aim is to intimidate and punish Taiwanese people who participate in exchanges across the Taiwan Strait, Zhu said.

“They are trying to use this for political gain, but they will neither succeed nor enjoy popular support.”

China, with its 1.3 billion people, is Taiwan’s favorite investment destination with Taiwan companies investing over $100 billion there in total, private estimates show.

Taiwan’s main opposition party the Kuomintang, which favors close ties with China, has also condemned the proposed legislation, saying it is a “political tool” of President Tsai Ing-wen and her DPP to gain votes while trying to paint them as Chinese Communist Party agents.

Tsai and the DPP have repeatedly said the threat they face from China’s disinformation and meddling is real.

China’s Zhu reiterated that they had never gotten involved in what she termed “elections in the Taiwan region”.

Reporting by Beijing newsroom; Writing by Ben Blanchard; Editing by Michael Perry