In January of 1979, diplomatic relations between the Republic of China and the United States were severed. In response to this sudden change and with its goal being to ensure stable economic development and further growth, the ROC's Central Government drew up the very crucial "Measures for Financial and Economic Reforms." Among other things, it proposed the establishment of an independent research institution with government funding and financial support from the industrial and business sectors. This legal entity was to undertake the task of studying the local and international economic situation, with participation from academics and experts both from here and abroad, and to offer policy recommendations to the government. After the project was approved, the Executive Yuan entrusted the Council for Economic Planning and Development (CEPD) with guiding and planning the institution's establishment. The institution was named the "Chung-Hua Institution for Economic Research" (CIER).
On February 1, 1980, the Council for Economic Planning and Development appointed Dr. Tsiang Sho-chieh and Dr. Yu Tzong-Shian as director and deputy director, respectively, of the preparatory body that was named the "Preparatory Commission for Chung-Hua Institution for Economic Research." The funding for the Commission's operations was provided for by the CEPD through the ROC-US Economic and Social Development Fund. Initially, the Commission borrowed office space in a building belonging to the First Commercial Bank, located at 59 Chang-an East Road, Sec. 1, in the city of Taipei. In December of the same year, the Commission moved to leased office space located on the 8th Floor, 35 Kuangfu South Road, Taipei. On July 10, 1981, during the second meeting of the Chung-Hua Institution for Economic Research's First Executive Board of Trustees, it was decided that the official date of the founding of the institution be set as July 1, 1981.
In line with the regulations specified in the "Establishment Guidelines for the Chung-Hua Institution for Economic Research," the institution was founded with an establishment fund totaling NT$1 billion, with NT$900 million coming from the Central Government and the ROC-US Economic and Social Development Fund, and the remaining NT$100 million being donated by the industrial and business sectors.