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 China and the other government is illegitimate.
Another interpretation is that there exists only one geographical region of China, which was split into two Chinese states by the Chinese Civil War. Supporters of Chinese reunification believe that this "one China" should eventually reunite under a single government.
The acknowledgement of the One China policy is also a requirement by the People's Republic of China government for reunification talks with the Republic of China government on Taiwan. The 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 accepted by the ROC government before the 1990s, but it was asserted that the one China was the Republic of China. 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, who 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 has not explicitly endorsed 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." This has proven unsuccessful, and many commentators believe that the strategy of the PRC is to wait until the 2004 elections in the hopes that Chen will be defeated by a candidate more sympathetic to Chinese reunification. In response, President Chen, after assuming the Democratic Progressive Party Chairmanship in July 2002, appears to be rhetorically moving 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 the one-China policy, but oppose defining this "one-China" as the PRC.
The One China policy became an issue during the 2004 ROC Presidential election. Chen Shui-bian abandoned his earlier ambiguity and has publicly rejected the one China policy. His opponent Lien Chan has publicly supported a policy of "one China, different interpretations," as done in 1992, by which the PRC and ROC would each agree that there is one China, but disagree as to whether that China is the People's Republic of China or the Republic of China.
The PRC requires that all countries with diplomatic relations with Beijing agree to a one China policy with the PRC as the sole China, and do not have formal diplomatic relations with the Republic of China. In many cases, this has resulted in very careful language. For example, in the case of the United States, the one China policy is stated in the Shanghai Communique which states that "the United States acknowledges that Chinese on either side of the Taiwan straits maintain that there is but one China. The United States does not challenge that position." Since 1972, the United States has consistently supported a one China policy. Although it has sometimes been unclear what was meant, one consequence is that 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.