In the mid-1980s, the party-state in Taiwan began a process of political liberalization. Under the circumstances, the legitimacy of its control over teacher preparation institutions was questioned. Therefore, certain changes reflecting a lessening of state control were made. Between the mid-1980s and the mid-1990s, party cells and intelligence units were removed from the campus, the function of military units was adjusted, and compulsory course contents previously used by the state to indoctrinate party ideology were diluted. Moreover, Teacher Education Act was revised to allow universities to prepare teachers as well. It was argued that, the supply and demand of teachers should not be regulated by the state and should be left to market forces. However, in the mid-1990s, with the expansion of both higher education institutions and educational programmes encountering financial difficulties due to the slowing down of economic growth since the early 1990s, the state was able to re-legitimize its control in the name of market mechanism by establishing new control unit and measures. In this paper, it is argued that the prevailing argument of opening to market forces in order to oppose state control obscured the possibilities that the state could still intervene in the name of ensuring the functioning of market.