In the early 1600s, Dutch traders claimed the island as a base for Dutch commerce with Japan and China, focusing their activities around present day Taiwan. The Spanish occupied the northern parts of the island for a few years, but were ousted by the Dutch in 1642. Taiwan became a trading and transshipment center for goods between a number of areas, such as Japan, China, and Holland. During this period there were large inflows of migrants from the Chinese Mainland, on account of the political and economic chaos on the China coast during the Manchu invasion and the end of the Ming Dynasty. In 1664, retreating Ming loyalists occupied the island and forced the Dutch to flee, but the Manchu rulers from the Mainland established control over the island in the 1680s. During Manchu rule, migration from the Mainland, particularly from the Fujian and Guangdong provinces, continued to increase. The Manchus ruled Taiwan as a prefecture for about 200 years, but in 1887 the island became a separate Chinese province.

Taiwan remained a Chinese province for almost ten years. As a result of the Sino-Japanese War, however, Taiwan was ceded to Japan in 1895 under the terms of the Treaty of Shimonoseki. During its 50-year rule of Taiwan, Japan expended significant efforts in developing the island's economy, and development was extensive in areas such as railroads, agricultural research and development, public health, banking, education and literacy, etc. The Japanese focused heavily on improving transportation infrastructure, and built an agriculturally based economy on Taiwan that was fairly modern in comparison to many neighboring economies. At the same time, Japanese rule led to a significant Japanese cultural influence, as the population of Taiwan were forced to adopt Japanese names and undergo compulsory Japanese language education, while Chinese dialects and customs were discouraged.

At the end of World War II in 1945, Taiwan reverted to the Republic of China. The first troops sent to take over Taiwan were poorly trained and undisciplined, while the major fighting component of Nationalist troops remained on the Chinese mainland. The administration of Taiwan during this period was repressive and corrupt, which angered both natives and new arrivals from the mainland. The tensions of this time, sparked by an incident in which a cigarette seller was injured and a passerby was shot to death, led to island-wide rioting which was brutally put down by nationalist Chinese troops. The accounts of this February 28, 1947 incident were repressed until recently, when former President Lee Teng-hui publicly apologized for the incident on behalf of the Nationalist troops.

Since the 1930s, a civil war had raged on the mainland between the Nationalist (KMT) government led by Chiang Kai-shek and Mao Zedong's Chinese Communist Party. When the conflict ended with a Communist Party victory in 1949, around two million soldiers and civilians from the Chinese mainland fled to Taiwan, where Chiang Kai-shek established a provisional KMT government with its capital in Taipei. With the outbreak of the Korean War in 1950, the US began to provide Taiwan with considerable economic and military assistance in an effort to contain the PRC government on the mainland. From 1951 to 1965, large amounts of economic aid came to Taiwan from the US as part of its Cold War efforts to contain communism in Asia.

The 1950s saw the beginnings of an economic transformation for Taiwan, based on a highly successful land reform program. In 1959, 90 percent of exports were agriculture or food related, but further reforms in the 1960s allowed the resource-poor but labor-rich island to expand into light manufacturing. The economic structure of the nation shifted from reliance on agricultural exports in the 1950s to light manufacturing in the 1960s and 70s, and on to high technology and chemical product exports in the 1980s and 90s. By 1995, technology-intensive products constituted 46.7 percent of exports. A significant trend beginning in the 1980s was rising investments in the Mainland, helped by the lifting of martial law, a remnant of the Chiang Kai-shek days, in 1987. Although politically divided, investment and trade have begun a process of bringing the two sides closer together.

Government

The Republic of China on Taiwan started as an authoritarian one-party system, but has been a multi-party democracy since the first direct presidential election in 1996. Chiang Kai-shek's successor, his son Chiang Ching-kuo, began the liberalization of the political system that continued under former President Lee Teng-hui.

The President is the leader of Taiwan, and has authority over the five administrative branches. The Executive Yuan (EY), headed by the Premier who is appointed by the President, consists of cabinet members who are responsible for policy and administration. The Legislative Yuan (LY) is the main lawmaking body and the body responsible for determining budgets, approving national policy, and supervising government administration. The Control Yuan (CY) monitors the performance of public service and investigates instances of corruption. The Judicial Yuan (JY) administers Taiwan's court system, and the Examination Yuan (ExY) functions as a civil service commission and is responsible for recruiting officials and managing civil service.

The four major parties in Taiwan are the Kuomintang (KMT), the Democratic Progressive Party (DPP), the Peoples First Party (PFP), and the Taiwan Solidarity Union (TSU), although there are over 70 registered parties. The KMT was the ruling party from the establishment of the ROC government until March 18, 2000, when DPP candidate Chen Shui-bian was elected President in a peaceful transfer of political power.

Language and Culture

The official language of Taiwan is Mandarin Chinese, which is used in the media and taught in schools. Large portions of the population also speak Taiwanese, a variant of the Chinese dialect used in the Fujian Province. The Hakka dialect, as well as other aboriginal dialects, is also used on Taiwan. Older people may speak Japanese as a result of the Japanese occupation, and many residents also have a working knowledge of English.

Taiwan's culture is a blend of old and new, and a mix of traditional Chinese culture as well as Western and Japanese influences.

Economy and Trade

Taiwan's dynamic economy has benefited from gradually decreasing investment and foreign trade controls, and has moved from an economy with an agricultural base to one based on production of high-technology goods. GDP growth has averaged about 8% during the past three decades, and exports have grown even faster, while inflation and unemployment have been low; the trade surplus substantial; and foreign reserves among the worlds largest. Because of its conservative financial approach and entrepreneurial strengths, Taiwan suffered little compared with many of its neighbors from the Asian financial crisis in 1997-99.

The United States is Taiwan's largest trading partner, accounting for about 27% of Taiwan's exports and supplying about 17% of its imports. In 2001, Taiwan's two-way trade with the US amounted to about $51.5 billion. Other important trade partners include Hong Kong (as an important conduit for indirect trade with China), Japan, and Singapore. Imports consist mostly of agricultural and industrial raw materials, while exports include electronics, consumer goods, textiles, chemicals, and machinery equipment. Electronics is Taiwan's most important industrial export sector and is the largest recipient of US investment. Taiwan has been successful in diversifying its trade markets, however, and the country's dependence on the US market should continue to decrease as trade with mainland China, other Asian countries, and Europe continues to grow. Taiwan became a member of the World Trade Organization (WTO) as a special customs territory in January 2002.