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Since the 1990s, a new cultural strategy that emphasizes local identities and community participation has resulted in the creation of new urban places in cities in Taiwan. This new cultural strategy is driven by post-industrial development and new identity politics. Global economic change affects new discourses of urban development. Neo-liberalism has replaced previous urban policies that emphasize redistribution and balanced development, to include principles of competitiveness, privatization, entrepreneurship, flexibility, and decentralization. Within the terms of neoliberalism, however, community development becomes a double-edged sword. It can mean an increasing burden on community groups in mitigating social problems caused by the retrenchment of the state. It can also potentially re-cast people as ‘active subject in politics’ who are able to transform space into meaningful place. Two urban projects are used to explore the political and economic contexts of place-making in Hualien City. The paper argues that the rise of local identities and community participation in Taiwan has led to some degree of community empowerment, but that this is due primarily to a state project to build a Taiwanese identity and a democratic citizenry. In other words, exogenous global forces driven by capitalist restructuring were not the main factor initially; in fact, it was the increasing economic stagnation that caused the original political purposes to be replaced by economic goals. Place-making today is more reliant on profitability, but nonetheless, state-led cultural projects have encouraged the growth of community organizations and their active political involvement in local affairs.