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Taiwan is an island off the southeast coast of China and is reputed to be the custodian and preserver of the world's oldest culture. Previously known as Formosa, the island was originally inhabited by mainland Chinese until the 17th century. It was then occupied by the Dutch and Spanish for about 40 years. In 1684, Taiwan was taken over by supporters of the deposed Ming Dynasty and was a tao (a sub-province or county) of the mainland province of Fukien across the Taiwan Straits. (The island's use as a refuge for deposed rulers from the mainland is a recurring feature of Taiwanese history.) In 1885, Taiwan was completely controlled by the Qing Dynasty and made into a province in its own right.

A decade later, Chinese defeat in the first Sino-Japanese War brought the first occupations of Chinese territory by the Japanese. Taiwan was 'ceded in perpetuity' to Japan by Article 2 of the Treaty of Shimonoseki. Although it was fiercely resented and actively resisted by the population, Taiwan remained under Japanese rule from 1895 until its defeat at the end of World War II.

The Chinese Civil War, which had already been in progress for some years, came to a head in 1948. The nationalist forces of Chiang Kai-Shek were defeated by Mao's Communists, and the nationalist leadership, along with thousands of supporters, fled to Taiwan. Here, their political vehicle, the Kuo Min-Tang (KMT) rapidly came to dominate Taiwanese politics ? having ensured its own survival, the KMT then set about developing the economy. In this, the KMT regime was spectacularly successful and Taiwan has been one of the fast-developing ‘tiger economies’ of the Pacific Rim. Politically, Taiwan relied for a long time upon the support of the USA until the early-1970s, when the rapprochement between Washington and Beijing took place. The Chinese still consider Taiwan to be part of the national territory and continue to harbor the long-term objective of reunifying Taiwan with the mainland. International recognition of Taiwan (by the United Nations, for example) is therefore unacceptable to Beijing. For all their political disagreements, extensive trade, travel and communications links have built up between Taiwan and China since the early 1970s: annual bilateral trade is now worth well over US$50 billion and one million people travel between the two countries each year.

Many in Taiwan believe that the two countries should be reunited but dispute the terms under which this should take place; the idea of a Hong Kong-type solution is given short shrift. But in the mid-1990s, a different option came under consideration for the first time ? full independence. This drew a furious reaction from Beijing but, inside Taiwan, it has attracted growing support. An important part of the reason has been the shift in Taiwanese domestic politics which began after the death of Chiang Ching-Kuo (Kai-Shek's son, president from 1978) in 1988. His Kuo Min-Tang successor, Lee Teng-Hui, took over as president. President Lee amended the original ROC constitution to consolidate representative democracy on the island. The KMT maintained control of the presidency and the national assembly throughout the 1990s, but its share of the vote inexorably declined.

Finally, in March 2000, the main opposition party, the Democratic Progressive Party (DPP), gained control of the presidency through its candidate Chen Shui-Bian. The DPP also became the largest party in the Li Fa Yuan (see Government) the following year, although it lacked an overall majority. For the first time, the KMT was completely excluded from political power. The KMT-led pan-blue opposition camp still controls the legislature, having won 114 of the 225 seats in legislative elections in December 2004. A few months after the election of President Chen, George W Bush, who at the time was the Republican candidate at the 2000 US Presidential election, endorsed Taiwanese independence and gave a major boost to the pro-independence lobby. This, however is not representative of US policy on Taiwan. The US remains committted to both the 'One China' policy and the defense of Taiwan (Taiwan Relations Act).

While denouncing what it describes as ‘splittist forces’, the Chinese continued to develop their links with Taiwan. Trade especially has prospered since the inauguration of new airline connections and China's entry into the World Trade Organization. Taiwan and China launched historic charter flights on Jan 29, 2005 for the Lunar New Year celebrations with commercial jets flying non-stop between the two for the first time since 1949. Many hope that this is the signalling of improving relationships. Chen was re-elected by a narrow majority in the 2004 elections. The election day referendum was not on issues of sovereignty or renaming Taiwan but on upgrading anti-missile defense systems and opening talks with Beijing. Voting on the referendum fell short of the required 50 per cent.
In the foreign policy arena, the ‘recognition competition’ continues. 28 countries recognize Taiwan, against more than 160 who recognize the People's Republic. Both sides have ‘bought’ certain countries, typically by offering a substantial aid package and/or soft loans in exchange for recognition.

Under the amended 1947 constitution, Taiwan has an executive who is Head of State and is directly elected for a four-year term. The Parliament has two chambers. The Li Fa Yuan (Legislative Yuan) has 225 members ? 168 elected for a three-year term in multi-seat constituencies, 41 elected by proportional representation, eight representing ethnic minorities, and six representing the overseas Chinese community. After six constitutional amendments between April 1991 and 2000, the National Assembly is now a non-standing body and its delegates are nominated by political parties on the basis of proportional representation. Most of its original functions have been transferred to the Legislative Yuan.
A 300-member non-standing body will be selected by proportional representation according to laws to be passed by the Legislative Yuan. The National Assembly's functions will be limited to voting on constitutional amendments, presidential impeachment, or alteration of national boundaries as proposed by the Legislative Yuan. Its former powers have been transferred to the Legislative Yuan.

Taiwan was one of the first ’tiger economies’ of the Pacific basin. After phenomenal growth from the 1950s onwards, Taiwan had by 1980 become one of the top 20 trading nations in the world and until the mid 1990s grew at an average annual rate of 8% (much higher than most industrialized countries).

Taiwan's success was built on a policy of rapid industrialization coupled with low overheads and labor costs, which allowed Taiwanese products to compete successfully on world markets. This achievement has been all the more impressive, considering the island's dearth of raw materials (excepting small quantities of coal and marble).

Massive foreign currency reserves accumulated over the years have since helped Taiwan to minimize the effects of turbulence in the world economy: this was amply illustrated by the 1997 Asian financial crisis in which Taiwan suffered the least damage of any major economy in the region. However, the crisis drew attention to structural problems in the economy, especially an urgent need for reform of the tax and banking systems.

Taiwan's principal industries are textiles, shipbuilding, metals, plywood, furniture and petrochemicals. Agriculture and fisheries, though declining in relative terms, are large enough to allow Taiwan considerable self-sufficiency in basic foodstuffs such as rice, sugar cane, maize and sweet potatoes; fishing is of comparatively minor significance.

After a brief recession in 2000/01, the economy is now growing steadily (4.3% in 2006). Export volumes are once again on the increase, and Taiwan runs a healthy trade surplus.

The performance of the Taiwanese economy is significantly affected by external political and economic conditions, especially in China (PR). Despite the 2004 re-election victory of the Sino-Sceptic President Chen, trade volumes with the mainland, already over US$50 billion annually, have increased sharply. Bilateral trade between Taiwan and the mainland rose from US$41 billion in 2002 to US$58 billion in 2003 and is expected to have passed US$70 billion in 2004.

In January 2002, Taiwan was admitted to the World Trade Organization.

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