This article analyzes recent tendency in Taiwan’s pursuit of independence and China’s reactions to it. Especially, the analysis focuses on Taiwan’s pursuit of independence after the presidential election in 2000 and subsequent cross-strait tensions. It is true that since his election Chen Shui-bian has made some ‘conciliatory’ gestures to Beijing. But Beijing questioned his sincerity for the last four years. According to China, Chen’s flexibility has not meant the abandonment of his pursuit of independence, but only a change from an overt pursuit of independence to a covert one. In China’s eyes, Chen Shui-bian is unreliable and undesirable because he will pursue Taiwan’s independence as he did before. The main theme of China’s current Taiwan policy centers on “economic development” with the hope that Taiwan issue should not delay or undermine China’s economic development. Nevertheless, as for Chinese leadership, the highest priority still is to keep national unity and internal stability. Economic development will be delayed without these two conditions. Therefore, what Beijing seeks as of now is the assurance that Taiwan will not be lost forever. Chen’s reelection to a second term as President of Taiwan raised serious questions about the future of cross-strait peace and stability again. Because Chen prefers to hold a referendum on a wholly new Taiwan constitution in 2006, which would be effective in 2008. It would mean de facto independence for Taiwan, but a nightmare for China. Considering the importance of cross-strait relations, we need to keep an eye on further progress and China’s responses.