This article argues that the existing literature on world city formation overlooks geopolitics and political struggles in accounting for a city’s transformation. Using Taipei as a case study, the article shows that geo‐economics, geopolitics and local politics each played an important role in Taipei’s ambiguous world city formation in the late 1990s and are expected to continue to do so in the not too promising future. It is argued that the globalization process in the 1980s and the corresponding restructuring of the Taiwan economy induced the state to adopt a new developmental strategy that enhanced Taipei’s competitiveness. However, the democratization process facilitated a new nation‐building process in the late‐1990s and the newly‐elected regime suppressed the city of Taipei’s ongoing development, as a consequence of which Taipei’s competitiveness as a regional world city has been declining. Geopolitics and local politics are thus found to explain to a large degree the ambiguities currently defining Taipei’s world city formation.