In September 1945, the Republic of China set up the Taiwan Provincial Government^[50] and declared October 25, 1945, as "Taiwan Retrocession Day," marking the day Japanese troops surrendered. However, this unilateral annexation of Taiwan was not recognized by the Allies of World War II, as Japan had not yet formally given up sovereignty over the island. During the early post-war years, the Kuomintang (KMT) administration led by Chen Yi was plagued by corruption and a breakdown in military discipline, which severely compromised the chain of command. The island's economy also faced significant challenges, entering into a recession and causing widespread financial hardship.

Prior to the end of the war, approximately 309,000 Japanese residents lived in Taiwan.^[51] After the Japanese surrender in 1945 until April 25, 1946, Republic of China forces sent back 90% of these Japanese residents to Japan.^[52] Alongside this repatriation, a policy of "De-Japanization" was implemented, leading to cultural rifts. The transition period also generated tensions between the incoming population from mainland China and the island's pre-war residents. Chen Yi's monopolization of power exacerbated these issues, leading to an unstable environment marked by both economic difficulties and social tensions.