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This chapter details how, with the People's Republic of China winning Mainland China and the diplomatic recognition of Indonesia, the positions of the Nationalists and Communists reversed. Having switched diplomatic recognition from Taipei to Beijing, Jakarta nevertheless allowed the Chinese Nationalist Party apparatus to continue its activities until 1958. Jakarta's ambiguous attitude induced a battle for influence between the two rival Chinese governments. As a regime in exile, the Chinese Nationalist government adjusted its past policies to fit the new circumstances resulting from its retreat to Taiwan. Having lost formal diplomatic representation, the Nationalists forged clandestine alliances with the Indonesian right-wing forces through the personal networks of the remaining Chinese Nationalist loyalists. In contrast with Taipei, Beijing prioritized state-to-state diplomacy over its connections to the overseas Chinese. By suspending the activities of the Chinese Communist Party (CCP) among the overseas Chinese and signing the Sino-Indonesian Dual Nationality Treaty, Beijing attempted to ease Jakarta's concern that the ethnic Chinese could be used as a Communist fifth column.

This chapter illustrates the complex issue of citizenship facing the ethnic Chinese as well as the raging competition between pro-Beijing and pro-Taipei factions in the diasporic community. By signing the 1955 Sino-Indonesian Dual Nationality Treaty, Beijing hoped to encourage the assimilation of the ethnic Chinese in Indonesia and clear the way for the future development of bilateral relations. The treaty marked two fundamental changes. First, Beijing announced that Chinese nationality could no longer be inherited indefinitely and unconditionally through the law of blood. Second, Jakarta no longer automatically recognized all local-born Chinese as Indonesian citizens. Instead, individuals had to take active legal action to acquire Indonesian citizenship if they desired to do so. Yet, due to misinformation, the shortage of legal services, and the inefficiency of Indonesian bureaucracy, hundreds of thousands of ethnic Chinese lost their Indonesian citizenship even though they planned to continue living in Indonesia. Moreover, despite Beijing calling upon the ethnic Chinese to “correct the deep-rooted feelings of racial superiority” and not to regard opting for Indonesian citizenship as “losing face,” many still purposefully repudiated Indonesian citizenship. The chapter then looks at how the pro-People's Republic of China bloc launched aggressive attacks against their pro-Republic of China rivals for control over Chinese-language media, civic associations, and Chinese-medium schools.