FALSE is real and real is false; know yourself, know the enemy.'' This dictum on mainland policy enunciated on April 9 was the most substantial one that could be coaxed out of Taiwan President Lee Teng-hui. In spite of the great expectations building up for the ''summit'' this month between Mr Koo Chen-fu and Mr Wang Daohang, respectively the heads of Taiwan's semi-official Straits Exchange Foundation (SEF) and Beijing's Association for Relations across the Taiwan Strait (ARATS), Lee watchers are urging caution. This is notwithstanding that the preparatory session earlier this month nor the ''Koo-Wang summit'' (or the Wang-Koo summit, as Beijing styles it) between SEF Vice-chairman Cheyne Chiu and his ARATS counterpart Mr Tang Shubei went off very well. On April 10 the pair signed pacts on document verification and arrangements on registered mail. Mr Chiu also reached initial agreements with Beijing on ''non-official'' exchanges in areas including business, technology, culture, youth, and the media. Channels of communication between the SEF and ARATS would be ''institutionalised''. Both sides would regularly hold meetings on economic and trade co-operation. Taiwan sources said the summit scheduled for April 27 and 28 in Singapore could yield more progress in what Taipei insisted to be ''functional and procedural'' - but not ''political'' - matters. Especially in view of the recent hijacking incident, Taipei and Beijing could join hands on more aspects of crime prevention and extradition. This will supersede the Kinmen Accord of 1991, which only deals with cases relating to smuggling, piracy and illegal immigration. The crucial point, of course, is whether the talks could take a leap forward to the ''political'' level of unification. As Mr Wang of ARATS said on April 11: ''Reunification is a [long] process and both sides must first sit down and talk. We can start with administration and procedural matters.'' President Lee, however, reiterated this month there would be no santong [direct mail, telephone, shipping and air links] and unification talks until Beijing makes major concessions. These include a guarantee that no force be used against the island; and that the mainland allows Taiwan to play an active role in international politics. Indeed, for Lee critics on the mainland and at home, ''talks about talks'', seems to be Taipei's gameplan for keeping the Chinese Communist Party (CCP) at bay while pursuing de facto independence. In their view, the President, who leads the native Taiwanese Mainstream Faction within the Kuomintang, is buying time by dangling before Beijing the prospects that informal, ''functional'' talks between quasi-official bodies could lead to the real thing, or ''the third co-operation between the KMT and the CCP''. Domestically, Mr Lee is mollifying the KMT's Non-Mainstream faction, which comprises mainlanders who still have sentimental reasons for re-embracing the motherland. To convince Beijing - and the Non-Mainstream Faction - of his sincerity, Mr Lee installed two of his most trusted aides in key mainland-related posts: Mr Chiao Jen-he as Vice-Chairman of the cabinet-level Mainland Affairs Council, and Mr Chiu at the SEF. At the same time, however, Mr Lee has unveiled bold plans to stake out Taiwan's status as a quasi-independent political entity on the world stage. Hence his announcement last Friday that under the guise of ''the Republic of China on Taiwan'', Taipei hopedto ''take part in the United Nations'' within three years. In his interview on CNN on April 9, Premier Mr Lien Chan also appealed to the world community to ''respect a Republic of China whose sovereignty is independent''. The Mainstream Faction is flexing its muscles from a position of strength: its victory over the Non-Mainstream clique seems lasting and its alliance with the moderate wing of the opposition democratic Progressive Party solid. Deliveries of jet fighters from America and France are on their way. The President's strategy: with Beijing lured with the prospects of eventual reunification talks, it would at least not openly condemn Taipei's pursuit of quasi-independence. To a certain extent, Mr Lee's gameplan seems to be working. With the honeymoon tipped to last at least until later this year - a few Koo-Wang meetings are scheduled - Beijing's reaction to the KMT's UN gambit has been relatively mild. The President has put the ball in Beijing's court: the CCP is under pressure to liberalise further its Taiwan policy by meeting one of Taipei's demands. There are signals that, since recovering from the shock realisation of the ascendancy of the Mainstream Faction - best illustrated by the ease with which Mr Lee substituted last February former premier and Non-Mainstream stalwart Mr Pei-tsun with protege Mr Lien - Beijing has displayed unwonted flexibility on Taiwan. In recent addresses on the island, senior cadres have stressed economic integration, notably santong, rather than political reunification. More significantly, Mr Wang has hinted Beijing might drop the military option. He told a Taiwan paper this month that Beijing was studying ways to declare an end to cross-Strait hostility. There is no sign, however, that the CCP might look the other way with reference to Taiwan's bid to re-claim the international limelight. At his recent press conference, Premier Li Peng merely indicated Beijing was not opposed to other nations maintaining economic and trade ties with the island. Moderates among Beijing's Taiwan policymakers have yet to convince the conservatives, including patriarch Mr Deng Xiaoping, that the CCP should make further concessions in anticipation of the multiplier, domino effects that will accrue with santong and higher-level ''talks about talks''. Pessimists among China watchers have warned that the hardliners are losing patience. The latter have leaked stories that unnamed generals have proposed a ''blockade'' against the ''renegade province''.