By 1949, the Communist Party of China's (CPC) People's Liberation Army had largely defeated the Kuomintang (KMT)'s National Revolutionary Army in the Chinese Civil War on the mainland. This forced the Kuomintang to relocate the Government and institutions of the Republic of China to the relative safety of Taiwan, an island which was placed under the control of the Republic of China after the surrender of Japan at the end of World War II in 1945. With the establishment of the People's Republic of China on October 1, 1949, the CPC-controlled government saw itself as the sole legitimate government of China, competing with the claims of the Republic of China, whose authority is now limited to Taiwan and other islands. This has resulted in a situation in which two co-existing governments compete for international legitimacy and recognition as the "government of China".
The phrase "mainland China" emerged as a politically neutral term to refer to the area under control of the Communist Party of China, and later to the administration of the PRC itself. Until the late 1970s, both the PRC and ROC envisioned a military takeover of the other. During this time the ROC referred to the PRC government as "Communist Bandits" (共匪) while the PRC referred to the ROC as "Chiang Bandits" (蔣匪). Later, as a military solution became less feasible, the ROC referred to the PRC as "Communist China"" (中共). With the democratization of Taiwan in the 1990s, the phrase "mainland China" soon grew to mean not only the area under the control of the Communist Party of China, but also a more neutral means to refer to the People's Republic of China government; this usage remains prevalent by the KMT today.
Due to their status as colonies of foreign states during the establishment of the People's Republic of China in 1949, the phrase "mainland China" excludes Hong Kong and Macau. Since the return of Hong Kong and Macau to Chinese sovereignty in 1997 and 1999, respectively, the two territories have retained their legal, political, and economic systems. The territories also have their distinct identities. Therefore, "mainland China" generally continues to exclude these territories, because of the "One country, two systems" policy adopted by the PRC central government towards the regions. The term is also used in economic indicators, such as the IMD Competitiveness Report. International news media often use "China" to refer only to mainland China or the People's Republic of China.