1978
Chiang Ching-kuo became the President and Hsieh Tung-min, the Vice President. The United States broke ties with Taiwan and established relations with the People's Republic of China.

1979
Kaohsiung Incident (Kao-hsiung hsi-chien) took place in Kaohsiung, the southern port city, where supporters of Formosa(mei-li-tao) magazine demonstrated against Government's failed foreign policies.

1980s
Leaders of the Kaohsiung Incident were tried in military court. On February 28, 1980, family members of Assemblyman Lin Yi-hsiung, who was imprisoned for participating in the Kaohsiung Incident, were gruesomely murdered. KMT's attempt to use the military trial to crush the opposition forces not only failed, it created sympathy for the victims, and raised the consciousness of the general populace. Condemnation of the inhumanity of KMT behavior was one of the characteristics of literary works in the 1980s.

However, most of the media and literary forums were still controlled by the Government and the Nativist's works had difficulty finding publishers. The new publication Literary World (wen-hsueh-chie, 1982) provided a substantial forum exclusively for the literary works, but had to discontinue in 1988. Several magazines which provided some spaces for literary works but were short-lived. In late 1980s, literary works with Taiwanese indigenous heritage had limited choices and were usually published in the fu-k'an, literary supplement, of the Tsu-li Newspaper Group (tsu-li pao-shi), People's Daily (min-tsong jhi-pao), Taiwan Times (T'ai-wan hsi-pao), or newly published magazines such as Taiwan Spring and Autumn (T'ai-wan chung-chiu), New Culture (hsin-wen-hua), etc. Same can be said of the book publishing sector. Chien-wei Publishing Company, which insisted on publishing indigenous professional works, had to work under very difficult conditions.

In the late 1970s, People's Republic of China started large scale studies and publishing of Taiwanese literature. In Japan and North America, Taiwan Literature Study Associations (T'ai-wan wen-hsueh yen-chiou-hui) were formed. Writers of this period belonged to the third generation, such as Wu Ching-fa, Wang You-hua, Hong Shin-fu, Chung Yen-hao, Chang Da-chung, Tung Nien, Huang Huan, Hiao Sa, Wu Nien-chen, and aborigine writer Tien Ya-geh, etc.