The chairman of a Taiwan shipbuilding company that won a contract to build six naval ships was charged in a loan fraud case Tuesday, dealing a blow to the island's ambition to grow its domestic defence industry.

Taiwan relies on its main ally the US as its biggest arms supplier, but President Tsai Ing-wen has been pushing to strengthen its own military equipment technology and manufacturing capabilities since she came to power in May 2016.

The biggest threat to the island is China, which sees Taiwan as a breakaway province to be brought back within its fold -- by force if necessary.

But concerns have been swirling since it emerged that Ching Fu Shipbuilding Co may have taken out loans illegally after it won a defence ministry contract in October 2014 to build six minesweepers for Tw$34.9 billion ($11.9 billion).

Ching Fu chairman Chen Ching-nan and four others, including his son and wife, were indicted by the Kaohsiung District Prosecutors Office, seeking a jail sentence of 30 years for Chen.

The defendants conspired to falsify documents and invoices with offshore companies to obtain $202 million of loans, prosecutors said in a statement Tuesday.

The scandal hurt the image of the navy and caused up to Tw$13.1 billion of losses for the lending banks, it said.

Prosecutors found no wrongdoing by the defence ministry, which had dissolved the contract with Ching Fu in December amid the probe.

"(The defendants) caused the public to question whether there was abuse in the navy's procurement process, and caused the navy's efforts over the past 10 or so years to be wasted," prosecutors said.

Their actions also "seriously damaged national interests".

Taiwan last year launched its first ever home-grown submarine project after years spent waiting for US models.

The defence ministry also announced last year a new generation of jet trainers is being built locally, to be completed by 2026.

Tsai warned in December against what she called Beijing's "military expansion" -- the increase in Chinese air and naval drills around the island since she took office.

Beijing has cut off official communications with Taipei as Tsai refuses to acknowledge the self-ruling, democratic island is part of "one China."

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