More explanation. Key: 倒數第二段

ARTICLE 18 of tax treaty. (read Treasury Technical Explanation of Article 18 below)
1.
a) Remuneration, other than a pension, paid by the government or a political subdivision or a local authority of a Contracting State to an individual in respect of services rendered to that government or subdivision or authority shall be taxable only in that Contracting State.
b) However, such remuneration shall be taxable only in the other Contracting State if the services are rendered in that other Contracting State and the individual is a resident of that other Contracting State who:
(i) is a national of that other Contracting State; or
(ii) did not become a resident of that other Contracting State solely for the purpose of rendering the services.
2.
a) Any pension paid by, or out of funds created by, the government or a political subdivision or a local authority of a Contracting State to an individual in respect of services rendered to that government or subdivision or authority shall be taxable only in that Contracting State.
b) However, such pension shall be taxable only in the other Contracting State -if the individual is a resident of, and a national of, that other Contracting State.
3. The provisions of Articles 14, 15, 16 and 17 shall apply to remuneration and pensions in respect of services rendered in connection with a business carried on by the government or a political subdivision or a local authority of a Contracting State.

Treasury Explanation of Article 18.
This article deals with the taxation of remuneration and pensions paid by the government of a Contracting State with respect to the performance of governmental functions for that State. It is based on the corresponding article in the OECD and UN model draft conventions.

Paragraph 1 provides that remuneration paid by the government of a Contracting State or a political subdivision or local authority thereof to an individual for services rendered may be taxed only in that State unless the services are performed in the other State and the individual is either a national of that other State or became a resident of that other State other than solely for the purpose of rendering such services. In the latter case, the remuneration may be taxed only in that other State. For example, the United States may tax the remuneration of an employee of the Embassy of the People's Republic of China if the individual is a U.S. citizen or was a U.S. resident prior to being hired by the Embassy, but it may not tax an employee who was a nonresident alien of the United States when assigned to work at the Embassy.

Paragraph 2 provides that a pension paid by or out of funds created by the government of a Contracting State or a political subdivision or local authority thereof to an individual for services rendered may be taxed only in that State unless the individual is both a resident and a national of the other Contracting State. Thus, the United States may tax such a pension paid by the People's Republic of China to a U.S. resident citizen but not to a resident alien. In the latter case, the exemption from U.S. tax is preserved by paragraph 3 of the Protocol.

The exemptions provided in this article are limited to remuneration and pensions with respect to services of a governmental nature. Paragraph 3 explains that services and pensions in government owned business are covered by Article 14, 15 , 16, or 17 as the case may be. Whether functions are of a governmental nature is determined by reference to the concept of a governmental function in the State in which the income arises. For example, in the United States, employment by a government-owned airline does not constitute employment of a governmental nature.