Claim: Taiwan had a neighbor to the south.

Taiwan -LRB- -LSB- taɪˈwɑːn -RSB- -RRB- , officially the Republic of China -LRB- ROC -RRB- , is a state in East Asia . Its neighbours include China -LRB- officially the People 's Republic of China , PRC -RRB- to the west , Japan to the northeast , and the Philippines to the south .  Taiwan is the most populous state that is not a member of the United Nations , and also possesses the largest economy of any state outside of the UN .   The island of Taiwan , also known as Formosa , was mainly inhabited by Taiwanese aborigines before the 17th century , when Dutch and Spanish colonies opened the island to Han Chinese immigration . After a brief rule by the Kingdom of Tungning , the island was annexed by the Qing dynasty , the last dynasty of China . The Qing ceded Taiwan to Japan in 1895 after the Sino-Japanese War . While Taiwan was under Japanese rule , the Republic of China -LRB- ROC -RRB- was established on the mainland in 1912 after the fall of the Qing dynasty . Following the Japanese surrender to the Allies in 1945 , the ROC took control of Taiwan . However , the resumption of the Chinese Civil War led to the ROC 's loss of the mainland to the Communists , and the flight of the ROC government to Taiwan in 1949 . Although the ROC continued to claim to be the legitimate government of China , its effective jurisdiction since 1949 has been limited to Taiwan and its surrounding islands , with the main island making up 99 % of its de facto territory . As a founding member of the United Nations , the ROC continued to represent China at the United Nations until 1971 , when the PRC assumed China 's seat , causing the ROC to lose its UN membership .   In the early 1960s , Taiwan entered a period of rapid economic growth and industrialization , creating a stable industrial economy . In the 1980s and early 1990s , it changed from a one-party military dictatorship dominated by the Kuomintang to a multi-party democracy with a semi-presidential system . Taiwan is the 22nd-largest economy in the world , and its high-tech industry plays a key role in the global economy . It is ranked highly in terms of freedom of the press , healthcare , public education , economic freedom , and human development . The country benefits from a highly skilled workforce and is among the most highly educated countries in the world with one of the highest percentages of its citizens holding a tertiary education degree .   The PRC has consistently claimed sovereignty over Taiwan and asserted the ROC is no longer in legitimate existence . Under its One-China Policy the PRC refused diplomatic relations with any country that recognizes the ROC . Today only a few smaller nations recognize the ROC as the sole legal representative of China , but many other states maintain unofficial ties through representative offices and institutions that function as de facto embassies and consulates . Although Taiwan is fully self-governing , most international organizations in which the PRC participates either refuse to grant membership to Taiwan or allow it to participate only as a non-state actor . Internally , the major division in politics is between the aspirations of eventual Chinese unification or Taiwanese independence , though both sides have moderated their positions to broaden their appeal . The PRC has threatened the use of military force in response to any formal declaration of independence by Taiwan or if PRC leaders decide that peaceful unification is no longer possible .