In 2005, China met with several Taiwanese opposition leaders in an effort to undermine Taiwan's defiant president. Lien Chan, who heads the opposition Nationalist Party, traveled to China in April and met with President Hu Jintao. It was the first meeting between Nationalist and Communist Party leaders since 1949, when the defeated Nationalists retreated to Taiwan. Lien called the visit a “journey of peace.” In May, Hu met with another opposition leader, James Soong, chairman of the People First Party. In a joint communiqué intended to restart negotiations between Taiwan and China, they agreed to a principle of “two sides of the strait, one China.” President Chen tested China in February 2006, when he announced that he was rescinding the National Unification Council, a group that was established in 1990 to deal with reunification issues with China. He stopped short of abolishing the council, saying, “Taiwan has no intention of changing the status quo.”

In June 2006, Taiwan's legislature initiated proceedings to oust President Chen because of allegations of corruption involving his family and senior administration officials, but the motion failed later that month. In November, prosecutors indicted Wu Shu-chen, the wife of President Chen Shui-ban, charging that she spent $450,000 in public funds on personal expenditures. Authorities also said that President Chen submitted fake receipts when drawing from the same fund and lied about how he spent the money.

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The Republic of China today consists of the island of Taiwan, an island 100 mi (161 km) off the Asian mainland in the Pacific; two off-shore islands, Kinmen (Quemoy) and Matsu; and the nearby islets of the Pescadores chain. It is slightly larger than the combined areas of Massachusetts and Connecticut.

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Taiwan has a dynamic capitalist economy with gradually decreasing guidance of investment and foreign trade by government authorities. In keeping with this trend, some large, government-owned banks and industrial firms are being privatized. Exports have provided the primary impetus for industrialization. The trade surplus is substantial, and foreign reserves are the world's third largest. Agriculture contributes less than 2% to GDP, down from 32% in 1952. Taiwan is a major investor throughout Southeast Asia. China has overtaken the US to become Taiwan's largest export market and, in 2005, Taiwan's third-largest source of imports after Japan and the US. Taiwan has benefited from cross-Strait economic integration and a sharp increase in world demand to achieve substantial growth in its export sector and a seven-year-high real GDP growth of 6.1% in 2004. However, excess inventory, higher international oil prices, and rising interest rates dampened consumption in developed markets, and GDP growth dropped to 3.8% in 2005. The service sector, which accounts for 69% of Taiwan's GDP, has continued to expand, while unemployment and inflation rates have declined.

GDP/PPP (2005 est.): $611.5 billion; per capita $26,700. Real growth rate: 3.8%. Inflation: 2.3%. Unemployment: 4.2%. Arable land: 24%. Agriculture: rice, corn, vegetables, fruit, tea; pigs, poultry, beef, milk; fish. Labor force: 10.6 million; agriculture 6%, industry 35.8%, services 58.2%. Industries: electronics, petroleum refining, armaments, chemicals, textiles, iron and steel, machinery, cement, food processing, vehicles, consumer products, pharmaceuticals. Natural resources: small deposits of coal, natural gas, limestone, marble, asbestos. Exports: $189.4 billion f.o.b. (2005 est.): computer products and electrical equipment, metals, textiles, plastics and rubber products, chemicals (2002). Imports: $181.6 billion f.o.b. (2005 est.): machinery and electrical equipment 44.5%, minerals, precision instruments (2002). Major trading partners: China, U.S., Hong Kong, Japan, South Korea (2005).

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