This paper is adapted from essays written for the Britannica Book of the Year--1986. In it, the author reviews key political, economic, and foreign policy developments in China and Taiwan during 1985. In the case of China, he notes its continued pursuit of far-reaching reforms of its political and economic institutions, expanded commercial and technical ties with the industrialized world, and accelerated promotion of younger, better-educated leaders into positions of political responsibility. Although complications arose due to China's departures from rigid central economic control, the leadership reaffirmed its support for the economic reforms. Relations with the United States experienced some difficulties but were generally stable. Relations with the Soviet Union, although subject to larger differences, also made headway. In contrast, 1985 was a trying year for Taiwan: there were economic uncertainties and concern about the political succession to President Chiang Ching-kuo. Finally, the increasing emergence of the People's Republic of China and trade tensions with the United States accentuated Taiwan's growing diplomatic isolation.