The decision of going in or not is on China to bear the consequences of both choices. The US will not pull off a Taiwan invasion if there's not some kind of coup in Taiwan and pro-China government take the helm. The statu-quo is way better for them, slowly taking assets from Taiwan and giving the US occasions of messing with China. I would see an invasion of North Korea way more interesting for them to start a conflict in the region.
If China choose to go in and take Taiwan they need to do it quick and decisively. A blockade and some kind of coercision will only play in the US hands. Going in half handed and waiting to see if something will make Taiwan crumble or not is clearly what have happened in Ukraine and it's a total mess. Taiwan forces will encroaches themselves and most infrastructures will be loss. Will give time for help to arrive. Learning of Ukraine would give a giant stop to think like that.
It need to be a massive military and communication infrastructure strike. China need to go in full yolo, topple anything at the head and put feet everywhere on the ground by any means possibles, faster as possible. Going all out with paratroopers units and by sea and cut off all possibilities of reinforcements. Seeing flights of 20 or more Y-20 in the ADIZ practicing with electronic warfare aircrafts would be a good indication of things to come if they go that way.
The status quo is not good for US at all, otherwise they would not be trying their hardest to try and change it.
The mainland does not rely on Taiwan for its economy, not even 1% of it. If you read carefully, you will see that when the communist government reports their economy, they do not include areas occupied by KMT. Economy was never part of the calculus.
So no matter how much assets US think they can steal from there, as long as the land itself remains Chinese, it's value for China remains the same.
It is America that wants to take over the separatist areas, that is their main if not only condition to have a fighting chance in the Cold War game. Left to its own devices, China will eventually with extreme ease get rid of KMT through negotiation, force or a mix of both. Like LDPR is powerless without Russia, KMT is powerless without America.
Regarding how exactly China counters the rebel presence, it would depend if they come at the government alone or while the threat of a foreign invasion looms. If an US invasion is predicted, then China would likely act as you say, with total strikes at everything that moves. Because the priority then is to ensure that even if the unthinkable worst case happens and US succeeds, they will be left a scorched and useless land.
If its a relatively calm scenario, it can start with an embargo and then change as time goes on. The strategy would vary depending on the size of threat facing China.