This study tested whether social identity theory can explain the prejudice of Taiwanese college students towards Chinese people in China (labeled Chinese). In 1998, 538 students from 4 colleges in southern Taiwan responded to a questionnaire that assessed respondents' attitudes towards Chinese and Taiwanese, their group identification, and their attitudes toward issues of Taiwan’s unification with China and Taiwan’s commercial exchanges with China. Participants held more negative attitudes towards Chinese than they did towards Taiwanese. However, the individual’s group identification as either a Taiwanese or a Chinese was found to moderate the degree of prejudice towards the Chinese. Those respondents classifying themselves with a pure Taiwanese identity held the most negative attitudes towards the Chinese. The respondents classifying themselves with a pure Chinese identity tended to hold more favorable, though still negative, attitudes towards the Chinese. The respondents classifying themselves with a double identity of being both Taiwanese and Chinese tended to hold an intermediate attitude towards the Chinese. The study also found: (1) group identification was related to the respondent's attitude as to whether or not Taiwan should unify with China; (2) negative attitudes towards the Chinese may undermine the individual’s willingness for Taiwan to conduct economic or cultural exchanges with China; and (3) after controlling for the previous two factors, group-belongingness, which was based on parents’ birthplace (in Taiwan or China), was found to have a direct effect on both these attitudes. Implications of these findings for social psychological theories and for future relations between Taiwan and China are discussed.