In 1945, after Japan’s defeat in the Second Sino-Japanese War, the Nationalist government (KMT) took over all administrative institutions, factories, machinery, weapons, granaries, companies, banking assets, railway equipment, and other properties left behind by the Japanese in China. In theory, these were national assets, but in practice the process turned into a massive looting operation carried out by KMT bureaucrats and the military. This was especially severe in the Northeast, because Manchuria had the most complete industrial base: modern facilities such as arsenals, steel companies, railways, and machinery, with enormous resources. The KMT had no long-term governing foundation in the region, and discipline was even harder to enforce.

From 1945 to 1946, while the Soviet army occupied the Northeast, it had already dismantled and shipped vast quantities of Japanese industrial equipment to the Soviet Union, especially from the Anshan Steel Works. After the KMT took over, large amounts of equipment were again diverted or stolen, and production was severely damaged. Some senior officers transported machinery south to sell privately; equipment that could have been used for national defense production was stripped clean within months. At the time, Shenyang and Changchun still held massive Japanese stockpiles—grain, cloth, medicine, industrial parts, military supplies, and daily necessities. KMT officials drove trucks in and hauled the goods away by the truckload. Many materials were never registered and were simply handled internally. The public, expecting distribution of supplies, instead found the warehouses emptied; prices soared and the black market exploded. The Communist Party barely needed to run propaganda in the cities—people naturally turned toward them.

Harbin originally had a large number of former Japanese military residences and corporate dormitories. After the KMT takeover, reception officials directly moved into these high-end properties. Japanese household furniture and appliances were openly auctioned off. Some officials renovated the residences into private mansions, and news spread of high-ranking officers holding drinking parties and enjoying luxurious lifestyles. The Communist Party seized this opportunity for urban propaganda, calling the KMT a “bureaucratic capitalist class,” and reality seemed to prove the accusation true. The railway system left by the Japanese in the Northeast was also extremely complete, but later wheels were dismantled, tracks stolen, ties sold off, and locomotive parts broken down and carried away—entire trains disappeared. The result was chaos in rail transport, disruptions in grain distribution, reduced military mobility, and spiraling inflation.

Reception personnel also took over the largest coal mines in the Northeast and shut down shafts to sell off machinery. Coal mines in places like Fushun and Benxi—originally strategic resources—were seized by “reception commissioners” appointed by the KMT leadership. They first confiscated cash and coal reserves, then cancelled workers’ wages. Some mines had to cease operations entirely because equipment had been stolen down to the last piece. Tens of thousands of workers lost their jobs, and the CCP seized the opportunity to organize labor movements and gained strong support from workers. This series of events pushed three key groups toward the Communist Party simultaneously: urban residents, who saw corruption and chaos; the working class, who suffered unemployment and extortion and were then mobilized by the CCP; and intellectuals, who were dismayed by the KMT’s incompetence and began to support political change. Meanwhile, the CCP secured control in the countryside and grassroots communities, entering rural areas, redistributing land, and organizing peasant associations. Land reform, though harsh, mobilized large numbers of peasants. Once they received land, they became grateful and willing to fight for the Communists. The KMT, by contrast, relied on landlords and the baojia system, leaving it with a shrinking social base.

The Liaoshen Campaign resulted in the loss of the entire Northeast; the Nationalist army abandoned Jinzhou, and of the 470,000 troops in the region, more than half were lost. With the Northeast completely under Communist control, the Nationalists’ strategic position became irreversibly weak. In the Huaihai Campaign, roughly 800,000 Nationalist troops participated, and around 550,000 were lost. The most elite reorganized divisions were annihilated, and the KMT no longer had effective fighting capacity in East China or the Central Plains. After the Pingjin Campaign, North China collapsed; Fu Zuoyi chose to surrender, and Beiping (Beijing) was taken with almost no fighting. The KMT lost all strategic positions in the north. The United States initially hoped for KMT–CCP cooperation, but later became disappointed by Nationalist corruption and inefficiency. Even with American aid, KMT forces kept collapsing, prompting the U.S. to abandon the idea of fully supporting the Nationalists against the Communists. By 1949, the U.S. had essentially decided not to intervene forcefully in the civil war.

By 1949, North China, East China, and Central China were largely under Communist control, and Nanjing, Shanghai, and Guangzhou fell one after another. The KMT considered Taiwan to be its final redoubt: it had the infrastructure Japan had left behind—railways, electric grids, schools—plus the Taiwan Strait as a natural barrier, agricultural and industrial foundations, and potential strategic value to the United States at the dawn of the Cold War. During the mass relocation to Taiwan, the KMT transported the National Palace Museum treasures from the mainland, shipped large portions of the Central Bank’s gold reserves, and moved tens of thousands of high-ranking officials, their families, and military personnel to Taiwan. Scholars, technicians, and cultural figures also followed in large numbers.

The KMT retreat to Taiwan did not happen overnight; it accelerated gradually from 1948 to 1950. In 1948, as the war situation deteriorated, the KMT began moving valuable materials to Taiwan—shipping Central Bank gold reserves, transporting the National Palace Museum treasures and national archives from Nanjing, and repositioning key research institutions and universities (including parts of Academia Sinica) to Taipei. From 1948 to 1949, as Nationalist forces suffered successive defeats, Taiwan was designated the final fallback zone. Chiang Kai-shek concluded that the mainland could no longer be held and prepared to relocate the entire government. From January to June 1949, central government ministries moved to Taiwan; large groups of technical staff, intelligence personnel, and cultural workers boarded ships; generals and their families left Shanghai and Guangzhou. Nationalist remnants withdrew from Fujian, Guangdong, and Zhejiang to Penghu, Keelung, and Kaohsiung. By late 1949, the Taiwan provincial government had effectively become the central government. Huge numbers of mainland soldiers, officials, teachers, police, and factory employees entered Taiwan, the military redrew its defensive lines entirely around the Taiwan Strait, and intelligence agencies such as the Military Bureau of Investigation and Statistics, the Investigation Bureau, and the Taiwan Garrison Command established full operations on the island. In June 1950, the Korean War broke out, and the U.S. Seventh Fleet entered the Taiwan Strait, preventing the PRC from invading Taiwan. The KMT regime unexpectedly gained international protection, transforming Taiwan from a fleeing government into a Cold War frontline ally. Without the Korean War, Taiwan might not have survived; the martial-law regime might not have lasted decades.

Martial law, in turn, resulted from a series of events between 1945 and 1949. In 1945, after the KMT took over Taiwan, its poor governance quickly triggered public anger. Taiwanese people, who had expected to welcome the “motherland” after Japan’s surrender, instead saw within months: corrupt KMT officials, rampant black markets, soaring prices, an unprofessional bureaucracy, undisciplined troops, and rapidly worsening living conditions. Whatever goodwill Taiwanese once had toward the mainland government collapsed.

On February 27, 1947, near Taipei’s Roundabout area, Monopoly Bureau agents discovered Lin Jiang-mai, a woman selling contraband cigarettes. The agents violently attempted to confiscate her goods and injured her; bystanders surrounded them in anger, and the agents opened fire, killing a passerby. The next day, crowds marched to the Taiwan Broadcasting Company to protest, and gunfire broke out again, igniting public outrage. The incident escalated rapidly, and protests erupted across Taiwan. People in cities throughout the north, center, and south demanded the arrest of those who fired shots, the removal of corrupt officials, and political reform and self-government. Students, lawyers, doctors, and businesspeople all participated. Calls for autonomy surged, and Taiwanese gentry formed settlement committees, proposing the opening of a provincial assembly, ending military interference in administration, allowing Taiwanese participation in governance, investigating corruption, and guaranteeing freedom of speech.

The KMT government stalled, deceived, and then resorted to military suppression. Chen Yi’s administration pretended to negotiate while secretly telegraphing Nanjing for reinforcements and compiling lists of “rebellious elements,” treating Taiwanese elites as potential insurgents. In early March, Nanjing decided to quell the island by force. On March 8, Chiang Kai-shek arrived in Keelung, and the 21st Division and Third Corps landed. Once troops entered cities, they conducted door-to-door searches, arrested suspects, executed people, or caused them to disappear. Those persecuted were not only protesters but also doctors, teachers, lawyers, students, business leaders, local gentry, journalists, and civic organizers—regarded as potential leaders of rebellion. The purpose of eliminating them was to remove Taiwan’s native elite class so that the regime would face no further challenge. Academic estimates of the death toll range from 1,000 to 3,000 at minimum, with Taiwanese scholars estimating 10,000 to 20,000, and contemporary analyses suggesting even higher numbers, though no official figure exists.

By this point, the ethnic and political rift was firmly established. Taiwanese fear and hostility toward the mainland regime became embedded in collective memory. With the native elite purged, the KMT held complete political control over Taiwan, profoundly shaping the island’s political ecosystem. For decades afterward, Taiwan had no native political leaders; all authority was held by mainlander officials, opposition forces disappeared, and a long-term culture of political fear took hold. For generations, families passed down a single warning: “Don’t talk about politics.”

Between 1947 and 1948, underground Communist organizations began infiltrating Taiwan. The CCP secretly established student groups, labor organizations, underground propaganda networks, and democratic movement cells. Though small in number, they were enough to alarm the KMT. On May 19, 1949, the Taiwan Garrison Command issued the Martial Law Order. It remained in effect until President Chiang Ching-kuo lifted it on July 15, 1987, lasting a total of 38 years.