Council on Foreign Relations

Taiwan, home to twenty-three million people, is an island off the southern coast of China that has been governed independently from mainland China since 1949. The People's Republic of China (PRC) views the island as a province, while in Taiwan—a territory with its own democratically elected government—leading political voices have differing views on the island's status and relations with the mainland. Some observe the principle that there is "One China" comprising the island and the mainland, but in their eyes this is the Republic of China (ROC) based in Taipei; others advocate for a de jure independent Taiwan. China and Taiwan maintain a fragile relationship, which has improved during the past seven years but is periodically tested.

Beijing and Taipei sharply disagree on the island's status. The PRC asserts that there is only "One China" and that Taiwan is an inalienable part of it. Beijing says Taiwan is bound by an understanding reached in 1992 between representatives of the Chinese Communist Party (CCP) and the Kuomintang (KMT) political party then ruling Taiwan. Referred to as the 1992 Consensus, it states that there is only one China, but with differing interpretations, allowing both Beijing and Taipei to agree that Taiwan belongs to China, while the two still disagree on which is China's legitimate governing body. The tacit agreement underlying the 1992 Consensus is that Taiwan will not seek independence. Taiwan's KMT accepts the consensus as a starting point for future negotiations with the CCP. However, strong Taiwanese political forces, including some leading voices of the Democratic Progressive Party (DPP), have rejected the very existence of the consensus, leaving open the option of a future independent Taiwan. The island's president, Tsai Ing-wen, leader of the DPP, is striving for a formula that will not shatter the current stability in cross-strait relations.

In 1979, the United States established formal diplomatic relations with Beijing by concluding a joint communiqué stating that "the United States of America acknowledges the Chinese position that there is but one China and Taiwan is part of China." At that time, U.S. President Jimmy Carter terminated diplomatic relations with the ROC government in Taiwan. But soon after, the U.S. Congress passed the Taiwan Relations Act (TRA) affirming important unofficial ties with the island. The new legislation replaced the previous bilateral defense treaty with a qualified commitment to the island's security and providing for the supply of necessary "defense articles and services."

U.S. arms sales to Taiwan, totaling more than $46 billion (PDF) since 1990, have led to U.S.-China friction and an upsurge in bellicose rhetoric across the strait.

"Taiwan has a messy history of invasion, occupation, colonization, refuge, and intermarriage."—Salvatore Babones, University of Sydney

Ethnic Han Chinese settlers, primarily merchants, began to arrive in Taiwan in the seventeenth century. The island, now inhabited by a Han Chinese majority, many of whom identify as distinctly Taiwanese, is also home to indigenous peoples who account for around 2 percent of the population. "Taiwan has a messy history of invasion, occupation, colonization, refuge, and intermarriage," writes University of Sydney Professor Salvatore Babones. Annexed by the Qing dynasty in the late 1600s, Taiwan was later ceded to Japan in 1895 by imperial China in accordance with a treaty that concluded the Sino-Japanese War. Japan governed it as a colony until 1945, when Japanese forces on the island were required to surrender to Chiang Kai-shek's ROC military forces.

The ROC, which had governed China for decades, fled to Taiwan after losing the civil war to the Communists in 1949. But Chiang insisted his government continued to represent all Chinese people both on the island and the mainland. Washington and most Western powers affirmed the KMT's stance by long refusing to recognize the Communist government in Beijing, a position most countries later reversed.

Washington's position began to shift under the Nixon administration. Back-channel diplomacy ultimately resulted in Washington's formal recognition of the PRC in 1979. The ROC  lost its seat representing China at the United Nations in 1971 to Beijing.

The KMT governed the island from 1949 to 1987 under martial law. Political dissent was harshly repressed and Taiwanese who had long inhabited the island before 1945 faced discrimination. Taiwan held its first free legislative elections in 1992 and presidential elections in 1996. The KMT and coalition partners have historically seen Taiwan as a part of "One China" and do not support the island's independence. After 2000, the KMT often found itself in opposition to parties representing Taiwanese who had been on the island before 1949 and their descendants. Although riven with its own factionalism, the KMT retains deep ties to the island's business leaders and consistently calls for closer ties with Beijing. The party lost its majority in Taiwan's legislative body for the first time in the 2016 elections.

The KMT's chief rival, the DPP, was founded in 1986 and became legal in 1989 after a ban on opposition parties was dropped. The DPP has traditionally called for a de jure independent Taiwan as a separate political entity from China, and has become an outlet for the expression of Taiwanese identity. Chen Shui-bian was the first non-KMT politician to serve as president (2000–2008) and pushed for Taiwanese sovereignty. Shortly after his term, Chen was convicted and imprisoned on charges of embezzlement and accepting bribes (he is now on medical parole).

Beijing closely observes the island's elections. Though it is unclear how the PRC's leadership will manage relations with a DPP-led government after the 2016 elections, Beijing has typically favored a steady deepening of ties with Taiwan, forging economic linkages that could become too costly for the island to sever, thus nudging it closer to unification with the mainland. However, since the PRC's own leadership transition in 2012, President Xi Jinping has embraced a tougher, nationalistic stance toward all of the special regions it claims, including Hong Kong, Tibet, Xinjiang, and Taiwan alike.

Meanwhile, Taiwanese leaders consider the reestablishment of formal diplomatic relations with major powers and international organizations essential if Taiwan is to survive separately from the Communist mainland, but only twenty-two countries maintain diplomatic ties with the island.

China has deployed  missiles along the Taiwan Strait and continues to modernize the bulk of its military capabilities. "Preparing for potential conflict in the Taiwan Strait remains the focus and primary driver of China's military investment," according to a 2015 U.S. Defense Department report (PDF). Although Beijing continues to seek progress with Taiwan through the discussion of economic issues and  high-level people-to-people exchanges, it has refused to renounce the use of force to resolve the dispute over the island's status. The PRC's introduction of the 2005 Anti-Secession Law, intended to strengthen Beijing's approach to "peaceful national reunification," also included language stating that in the event secessionist forces sought independence, Beijing would "employ non-peaceful means" to protect its national sovereignty.

In response, Taiwan continues to purchase weapons, primarily from the United States. In December 2015, the United States announced a $1.83 billion arms sale to Taiwan—the first in four years. Between 1979 and 2014, Taiwan ranked as the ninth largest recipient of arms globally. During the same period, the United States supplied more than three-quarters of Taiwan's imported weapons, according to the Stockholm International Peace Research Institute's arms transfers database. 

"Preparing for potential conflict in the Taiwan strait remains the focus and primary driver of China's military investment."—U.S. Defense Department

Taiwan's strategic security rests heavily on guarantees offered by the United States under the Taiwan Relations Act. Yet in recent years, security analysts have cited concern over the emerging military imbalance between Beijing and Taipei. "Given the pace of PLA(N) [People's Liberation Army Navy] modernization, the gap in military capability (PDF) between the mainland and Taiwan will continue to widen in China's favor over the coming years," writes the Congressional Research Services' naval affairs specialist Ronald O'Rourke. When former President Ma Ying-jeou's KMT government came to power in 2008, the ROC government committed to boosting military spending to 3 percent of GDP, up from 2.2 percent. However, Taiwan's $10.4 billion defense budget (PDF) in 2014 was a mere 2 percent of GDP and represented 16.2 percent of the total budget, compared to 1994 levels of 3.8 percent and 24.3 percent, respectively.

Taiwan began investing in China after the reform policies implemented by PRC leader Deng Xiaoping in the late 1970s. Despite intermittent friction, the cross-strait economic relationship has blossomed. China entered the World Trade Organization in 2001 and, within a month, Taiwan entered as "Chinese Taipei." The island holds member, observer, or other status in more than forty organizations (PDF), such as the Asian Development Bank, APEC, OECD committees, the International Civil Aviation Organiation, and regional fishery organizations. Beijing said in November 2015 that it would welcome Taiwan's membership in the Chinese-led Asian Infrastructure Investment Bank "under the appropriate name."

Bilateral trade between China and Taiwan in 2014 reached $198.31 billion, up from $8 billion in 1991 (PDF) . China is Taiwan's largest trading partner, accounting for almost 30 percent of the island's total trade (including the mainland, Hong Kong, and Macao), according to Taiwan's bureau of foreign trade. Likewise, Taiwan ranks seventh among China's top ten trading partners. Over ninety-three thousand Taiwanese businesses have invested in the mainland since 1988. Reciprocal mainland investment by Taiwanese firms is on the rise but at a slower rate, totaling $34.5 billion between 2008 and mid-2015. China and Taiwan have also agreed to allow banks, insurers, and other financial service providers to work in both markets. In 2015, the number of direct flights between China and Taiwan hit 890 per week, up from 270 in 2009. More than 9.4 million people traveled across the strait in 2014, and in September 2015 Taiwan upped its daily quota of mainland visitors from four thousand to five thousand.

President Ma (2008–2016) signed more than twenty pacts with the PRC, including the 2010 Economic Cooperation Framework Agreement (ECFA) (PDF), a cross-strait agreement to lift barriers to trade. Large Taiwanese corporations reap the majority of the benefits from stronger commercial ties with the mainland while average Taiwan residents' concerns over economic security mount. (Taiwan's economy grew only 1 percent in 2015, youth unemployment is almost 13 percent, and property prices are soaring.) Many residents also believe that Ma brought Taiwan closer to Beijing without transparency and against the will of the Taiwanese people. Ma attended a historic meeting with China's Xi in November 2015, the first between cross-strait political leaders, but Ma's approval ratings hovered around record lows in his last two years in power. KMT electoral losses in November 2014 and 2016 have been widely interpreted as dissatisfaction with Ma's China warming policies.

Taiwan has sought to diversify its commercial partnerships to avoid outright dependence on Beijing. In addition to ECFA, Taiwan has signed a handful of other free-trade pacts, including a deal with New Zealand in 2013—Taiwan's first with a developed economy. The government in Taipei has also repeatedly expressed its interest in joining the U.S.-led Trans-Pacific Partnership, a multinational free-trade agreement that would account for nearly 40 percent of the world's economy. U.S. trade officials have said they are open to (PDF) Taiwan's participation in the TPP.

The subsequent backlash against the ruling KMT in exit polls from recent elections raises further questions about societal views over ties with Beijing. Scholars cite the 228 incident, a Taiwanese uprising against the KMT-led ROC that was violently suppressed in 1947, as the root of a strong ethnic Taiwanese identity that sowed the seeds for democratization.  

Generations of democratic practices (PDF) seem to have bound together the Taiwanese people and polity. Though most people on across the Taiwan Strait speak Mandarin as their first language, more than a century of separation has led a growing number of Taiwanese to feel they deserve the right to continue a separate existence. Nearly 60 percent of the island's residents regard themselves as exclusively Taiwanese, according to a 2015 survey conducted by the National Chengchi University. Comparatively, 33.7 percent identify as both Taiwanese and Chinese, down from 47.7 percent in 2004, while only 4.1 percent consider themselves only Chinese, a figure that has dwindled since its peak at 26.2 percent in 1994.

Quartz

"The political awakening of youth in Taiwan was driven as much by practical frustrations as by political ideals," wrote freelance writer Anna Beth Keim in a January 2016 post for the Asia Society. Frustrations over financial insecurity, economic inequality, and a dissatisfaction with Taiwan's political factions have given birth to a groundswell of domestic political activity—largely referred to as Taiwan's "third force."

Meanwhile, China's Xi has emphasized the need for Taiwan's leaders to adhere to the "One China" principle. In March 2015, he said that Taiwan's independence forces "are the biggest hindrance for the peaceful development of the cross-strait ties [and the] biggest threat of the cross-strait stability." China-based experts say that the election of pro-independence leaders in Taiwan may shift Beijing's top security concern from territorial disputes in the East and South China Seas to defending its territorial integrity across the Taiwan Strait.

Though Taiwan's political parties diverge on how best to manage the island's relationship with Beijing, experts caution that both Beijing and Taipei must both take responsibility for avoiding a crisis. "A peaceful cross-strait relationship (PDF) is central to the stability and prosperity of the Asia-Pacific region and therefore is of vital importance to the United States," said Bonnie S. Glaser, senior advisor for Asia at the Center for Strategic and International Studies, in a February 2016 statement before a subcommittee of the U.S. House Foreign Affairs Committee.