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The One-China policy (Chinese: 一個中國) is the principle that there is one China and both mainland China and Taiwan are part of that China. The acknowledgement that the People's Republic of China is this sole China is required for all countries seeking diplomatic relations with the PRC. The acknowledgement that there is only one China (though not limited to the PRC in definition) is also a prerequisite the PRC has set for negotiations with the Republic of China government.
Interpretations of the One-China policy
One interpretation, which was adopted during the Cold War, is that either the People's Republic of China or the Republic of China is the sole rightful government of all China and that the other government is illegitimate. While much of the western bloc maintained relations with the ROC until the 1970s as a bastion of capitalism under this policy, much of the eastern bloc maintained relations with the PRC. While the ROC considered itself the remaining holdout of a democratic government of a country overrun by Communist "rebels", the PRC claimed to have succeeded the ROC in the Communist revolution. Though the ROC no longer portrays itself as the sole legitimate government of China, the position of the PRC has remained unchanged.
Another interpretation is that there exists only one geographical region of China, which was split into two Chinese states by the Chinese Civil War. This is largely the position of current supporters of Chinese reunification in Taiwan who believe that this "one China" should eventually reunite under a single government.
One-China policy and diplomatic relations
The One-China Policy is also a requirement for any political entity to establish diplomatic relations with the People's Republic of China. Countries that have diplomatic relations with Beijing recognize that "the Government of the People's Republic of China is the sole legal government of all of China...and Taiwan is an inalienable part of the territory of the People's Republic of China." Some countries use terms like "acknowledge", "understand", "take note of", while others explicitly use the term "support" or "recognize" for Beijing's position on the status of Taiwan. The name "Chinese Taipei" is the only acceptable name in most international arenas since "Taiwan" suggests that Taiwan is a separate country and "Republic of China" suggests that there are two Chinas, and thus both violate the One-China Policy. Most countries that recognize Beijing cirumvent the diplomatic language by establishing "Trade Offices" that represents their interests on Taiwanese soil, while the ROC government represents its interests abroad with TECO, Taipei Economic and Cultural Office. The United States (and any other nation having diplomatic relations with the People's Republic of China) does not have formal diplomatic relations with Taiwan. Instead, external relations are handled via nominally private organizations such as the American Institute in Taiwan or the Canadian Trade Office in Taipei.
In the case of the United States, the One-China policy was first stated in the Shanghai Communiqué of 1972: "the United States acknowledges that Chinese on either side of the Taiwan Strait maintain there is but one China and that Taiwan is a part of China. The United States does not challenge that position." Since then the United States has consistently stated its recognition of the One-China policy, but at the same time has treated Taiwan as a separate entity. When President Jimmy Carter in 1979 broke off relations with Taiwan in order to establish relations with the PRC, Congress responded by passing the Taiwan Relations Act, which while maintaining relations, stopped short of full recognition of the ROC. In 1982 under President Ronald Reagan, the US and PRC issued the Three Communiques, with the US backing off from a direct recognition that Taiwan is part of China to only an acknowledgement that it is "the Chinese position that there is but one China and Taiwan is part of China." Also, the Six Assurances were adopted, the sixth being that the United States would not formally recognize Chinese sovereignty over Taiwan. Still, United States policy has remained ambiguous. During the House International Relations Committee on April 21 of 2004, the Assistant Secretary of State for East Asian and Pacific Affairs, James A. Kelly, was asked by Rep. Grace Napolitano (D-CA) whether America’s commitment to Taiwan’s democracy conflicted with the so-called One-China Policy. He admitted the difficulty on defining the U.S.'s position: "I didn’t really define it, and I’m not sure I very easily could define it." He added, "I can tell you what it is not. It is not the One-China principle that Beijing suggests." 
One-China policy and cross-strait relations
The acknowledgement of the One China policy is also a prerequisite by the People's Republic of China government for any official cross-strait talks be held with the Republic of China government. The PRC's One-China policy rejects formulas which call for "two Chinas" or "one China, one Taiwan". The PRC has however hinted that it would be flexible about the meaning of "one China," and that "one China" may not necessarily be synonymous with the PRC. However, the One-China policy would apparently require that Taiwan formally give up any possibility of Taiwan independence, and would preclude any formula similar to ones used in German ostpolitik or in Korean reunification. In the Consensus of 1992, both sides agreed to disagree on the meaning of "one China" and this ambiguity allowed semi-official negotiations in Singapore.
One China was the formulation held by the ROC government before the 1990s, but it was asserted that the one China was the Republic of China rather than PRC. However, in 1991, President Lee Teng-hui indicated that he would not challenge the right of the Communist authorities to rule the mainland. However, over the course of the 1990s, President Lee appeared to drift away from the One-China formulation, leading many to believe that he was actually sympathetic to Taiwan independence. In 1999, Lee proposed a two states theory for mainland China-Taiwan relations which was received angrily by Beijing, which ended semi-official dialogue.
After the election of Chen Shui-bian in 2000, the policy of the ROC government was to propose negotiations without preconditions. While Chen did not explicitly reject Lee's two states theory, he did not explicitly endorse it either. Throughout 2001, there were unsuccessful attempts to find an acceptable formula for both sides, such as agreeing to "abide by the 1992 consensus." President Chen, after assuming the Democratic Progressive Party chairmanship in July 2002, moved to a somewhat less ambiguous policy, and stated in early August 2002 that "it is clear that both sides of the straits are separate countries." This statement was strongly criticized by opposition pan-blue coalition parties on Taiwan, which support a One-China policy, but oppose defining this "One China" as the PRC.
The One China policy became an topic during the 2004 ROC Presidential election and seemed to be abandoned by all major parties during the campaign. Chen Shui-bian abandoned his earlier ambiguity and publicly rejected the one-China policy claiming it would imply that Taiwan is part of the PRC. His opponent Lien Chan publicly supported a policy of "one China, different interpretations," as done in 1992. At the end of the 2004 election, Lien Chan and his running mate, James Soong, later announced that they would not put ultimate unification as the goal for their cross-strait policy and would not exclude the possibility of an independent Taiwan in the future.
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