Chapter 22 : Asia and the Pacific Japan rebounded from its World War II defeat to become a major economic power. In China, a Chinese Communist victory in 1949 established the People's Republic of China on the mainland, while the Nationalist government retreated to Taiwan. Beginning in the 1970s, China combined its Communist system with free enterprise and contacts with the West. In South Asia, the retreat of colonial powers resulted in the formation of new nations. However, ethnic and religious rivalries in that area persisted. Wars erupted in Korea and Vietnam—both divided into Communist north and non-Communist south parts. American-led United Nations forces fought to a stalemate in Korea. U.S. involvement in Vietnam ended with America's withdrawal and a takeover of the whole country by the Communist North Vietnamese. Since then nations along Asia's Pacific Rim have become increasingly involved in trade with their neighbors.