After leaving office Lee was expelled from the KMT for his role in founding the pro-independence Taiwan Solidarity Union (TSU), which forms part of the Pan-Green Coalition alongside Taiwan's Democratic Progressive Party. (Lee is considered the "spiritual leader" of the TSU.) Lee has been outspoken in support for Taiwan independence though not necessarily a formal declaration, given Taiwan's longstanding de facto independence.
After World War II, after the Republic of China took over Taiwan, Lee enrolled in the National Taiwan University, where in 1948 he earned a bachelor's degree in agricultural science. Lee joined the Communist Party of China (CPC) in September 1946, apparently briefly. He participated in the 228 Incident during this time. According to Wu Ketai, who inducted Lee into the Communist Party, the KMT was aware that Lee had been a Communist, but deliberately destroyed the records when Lee was promoted to the vice-presidency to protect his image. Lee himself admitted that he was a communist in a 2002 interview. Ironically, Lee stated that he joined out of hatred of the KMT. In any case Marxism at best had little influence on Lee's intellectual development.
In 1953, Lee received a master's degree in agricultural economics from the Iowa State University in the United States. Lee returned to Taiwan in 1957 as an economist with the Joint Commission on Rural Reconstruction (JCRR), an institution sponsored by the U.S. and aimed at modernizing Taiwan's agricultural system and at land reform. During this period, he also worked as an adjunct professor in the Department of Economics at National Taiwan University and taught at the Graduate School of East Asian Studies at National Chengchi University.
In the mid-1960s Lee returned to the United States, and earned a PhD in agricultural economics from Cornell University in 1968. Lee's doctoral dissertation, Intersectoral Capital Flows in the Economic Development of Taiwan, 1895-1960 (published as a book under the same name) was honored as the year's best doctoral thesis by the American Association of Agricultural Economics and remains an influential work on Taiwan's economy during the Japanese and early KMT periods.
Lee encountered Christianity as a young man and in 1961 was baptised. For most of the rest of his political career, despite holding high office, Lee has made a habit of giving sermons at churches around Taiwan, mostly on apolitical themes of service and humility.
In 1978 Lee was appointed Mayor of Taipei, where he solved water shortages and improved the city's irrigation problems. In 1981, he became governor of Taiwan Province and made further irrigation improvements.
As a skilled technocrat, Lee soon caught the eye of President Chiang Ching-kuo as a strong candidate to serve as Vice President. Chiang sought to move more authority to the bensheng ren or native Taiwanese (the term does not include Taiwan's aboriginal peoples) instead of continuing to promote waisheng ren (Chinese mainlanders who immigrated during or after the Chinese Civil War) as his father had. President Chiang nominated Lee to become his Vice President. Lee was formally elected by the National Assembly in 1984.
As he consolidated power during the early years of his presidency, Lee allowed his rivals within the KMT to occupy positions of influence: when Yu Guo-hwa retired as premier in 1989, he was replaced by Lee Huan, who was succeeded by Hau Pei-tsun in 1990. At the same time, Lee made a major reshuffle of the Executive Yuan, as he had done with the KMT Central Committee, replacing several elderly mainlanders with younger native Taiwanese, mostly of technical backgrounds. Fourteen of these new appointees, like Lee, received Ph.D.s in the United States. Prominent among the appointments were Lien Chan as foreign minister, and Shirley Kuo as finance minister.
1990 saw the arrival of the Wild Lily student movement on behalf of full democracy for Taiwan. Thousands of Taiwanese students demonstrated for democratic reforms. The demonstrations culminated in a sit-in demonstration by over 300,000 students at Memorial Square in Taipei. Students called for direct elections of the national president and vice president and for a new election for all legislative seats. On 21 March Lee welcomed some of the students to the Presidential Building. He expressed his support of their goals and pledged his commitment to full democracy in Taiwan. The moment is regarded by supporters of democracy in Taiwan as perhaps his finest moment in office. Gatherings recalling the student movement are regularly held around Taiwan every 21 March.
In May 1991 Lee spearheaded a drive to eliminate the Temporary Provisions Effective During the Period of Communist Rebellion, laws put in place following the KMT arrival in 1949 that suspended the democratic functions of the government. In December 1991 the original members of the Legislative Yuan, elected to represent mainland constituencies in 1948, were forced to resign and new elections were held to apportion more seats to the bensheng ren. The elections forced Hau Pei-tsun from the premiership, a position he was given in exchange for his tacit support of Lee. He was replaced by Lien Chan, then an ally of Lee and the first native Taiwanese to hold the premiership.
The prospect of the first island-wide democratic election the next year, together with Lee's June 1995 visit to Cornell University, sparked the Third Taiwan Strait Crisis. The previous eight presidents and vice-presidents of Taiwan had been elected by the members of the National Assembly. For the first time Taiwan's leader would be elected by majority vote of Taiwan's population. The People's Republic of China conducted a series of missile tests in the waters surrounding Taiwan and other military maneuvers off the coast of Fujian in response to what Communist Party leaders described as moves by Lee to "split the motherland." The PRC government launched another set of tests just days before the election, sending missiles over the island to express its dissatisfaction should the Taiwanese people vote for Lee. The military actions disrupted trade and shipping lines and caused a temporary dip in the Asian stock market. The 1996 missile launches boosted support for Lee.
On 23 March 1996, Lee became the first popularly elected ROC president with 54% of the vote. Many people who worked or resided in other countries made special trips back to the island to vote.
Lee, in an interview that same year, expressed his view that a special state-to-state relationship existed between Taiwan and mainland China that all negotiations between the two sides of the Strait needed to observe.
Lee, observing constitutional term limits he had helped enact, stepped down from the presidency at the end of his term in 2000. That year Democratic Progressive Party candidate Chen Shui-bian won the national election with 39% of the vote in a three-way race. Chen's victory marked an end to KMT rule and the first peaceful transfer of power in Taiwan's new democratic system.
Supporters of rival candidates Lien Chan and James Soong accused Lee of setting up the split in the KMT that had enabled Chen to win. Lee had promoted the uncharismatic Lien over the popular Soong as the KMT candidate. Soong had subsequently ran as an independent and was expelled from the KMT and with Lien had garnered 60% of the vote (but individually still finishing behind Chen). Protests were staged in front of the KMT party headquarters in Taipei. Fuelling this anger were the persistent suspicions following Lee throughout his presidency that he secretly supported Taiwan independence and that he was intentionally sabotaging the Kuomintang from above. Lee resigned his chairmanship on 24 March and was expelled as a party member in December of the same year. KMT officials expressed dissatisfaction with efforts to "localize" the KMT and his tacit support of the new Chen administration.
Since leaving office Lee and the new party he went on to found, the TSU, have generally supported "green" causes in Taiwan. Lee continues to travel, make speeches, campaign for TSU candidates, and offer independent-minded commentary on Taiwan politics. Lee Teng-Hui University in Taiwan is named after him.
Lee has publicly supported the Name Rectification Campaigns in Taiwan and proposed changing the name of the country from the Republic of China to the Republic of Taiwan. He generally opposes unlimited economic ties with mainland China, though he supports trade.
Lee has also stated that he believes that Taiwan cannot avoid being assimilated into the People's Republic of China unless it completely rejects its historical Chinese identity and that he believes that it is essential that Taiwanese unite and develop a unified and separate identity other than the Chinese one. Furthermore, in reference to Mainlanders, he believes that to be truly Taiwanese, one must assume a "New Taiwanese" identity.
He dismisses both the notion that the strategy will trigger an invasion by the Communist regime and the notion that Taiwan benefits economically by developing economic ties with China. He argues the People's Republic of China is a paper tiger and both its military strength and economic strength have been far overestimated. Lee asserts that when presented with a united and assertive Taiwan, Taiwan will receive support from the international community and also from the United States and that the PRC will be obliged to back down. He also believes that the PRC economy is doomed to collapse and that unlimited integration with the PRC economy, on the part of Taiwan or any country, is unwise.
During the 2004 Presidential campaign, President Chen Shui-bian publicly campaigned with Lee Teng-hui and developed a campaign platform, including a call for a new constitution adopted by referendum, which could be interpreted as an opportunity to make the symbolic changes which Lee supports. There was concern in the United States and in the People's Republic of China that Chen would be supportive of Lee's positions, a belief which was reinforced by Lee's own actions while President and by Lee's public statements that Chen Shui-bian agreed with him.
The concern shared between the United States and the People's Republic of China was the possible unilateral change of the cross-strait status quo by President Chen, leading to a public rebuke of Chen from the United States President George W. Bush in December 2003. It is believed that this rebuke in part was intended to challenge the notion, which Lee had advanced, that American support of Taiwan was unconditional. After his close election in March 2004, Chen moved to distance himself from Lee, by stating explicitly that his regime's constitutional reforms would not rename "The Republic of China" to Taiwan. The difference in the two leader's positions was further highlighted by Chen's stated intent to establish greater economic links with China.
In February 2007 Lee shocked the media when he announced that he has never backed Taiwanese independence, when he was widely seen as the spiritual leader of the movement. Lee also said that he supported opening up trade and tourism with China, a position he had opposed before. Lee later explained that Taiwan already enjoys de facto independence and that political maneuvering over details of expressing it is counterproductive. He maintains that "Taiwan should seek 'normalization' by changing its name and amending its constitution.
In his retirement Lee became the first former president of a country known to participate in cosplay. The cosplay was centered on Heihachi Edajima (江田島平八 Edajima Heihachi), a hawkish principal of a boarding school in the Japanese manga Sakigake!! Otokojuku (魁!!男塾) (Shonen Jump). His cosplay interest and eponymous "school" called "輝！李塾" was mentioned on his personal website, beginning in late 2004. This manga comic was a comedy centered on a fictitious reform school for contemporary boys, modelled under the Imperial Japanese Army.
In a May 2007 trip to Japan, Lee visited the controversial Yasukuni Shrine, where World War II Class A criminals are enshrined among the other soldiers, to pay tribute to his older brother. He is also expected to receive the first Shimpei Goto award, named after the former Japanese colonial governor of Taiwan, and to give a speech on 7 June regarding the global situation after 2007.