Understanding the Big, Historical Picture

China’s civilization is one of the oldest on the planet, dating back almost 4,000 years. Of course, you don’t have to go back quite that far to get an idea of the historical events that shaped China’s current business scene. The following sections give you a briefing on some of the more pivotal events and situations. Understanding some Chinese history is essential so you sound knowledgeable about China in front of your business partners or contacts.

Introducing the Middle Kingdom: The rule of dynasties

The founding father of imperial China was Qin Shi Huang, or the First Emperor. Shi Huang was a member of the Qin (pronounced chin), the strongest kingdom in China at the time. They came into power in 221 BCE. Before Qin’s rule, China was controlled by smaller and less powerful kingdoms that didn’t recognize any central government in China. Qin brought the country together.

Qin’s accomplishments are considered to be among the greatest of any ruler in the history of the world. Qin standardized the written language, weights and measures, and coins. He also expanded China’s borders by seizing territory in the south and to the north of China and was the impetus behind the first Great Wall northwest of Beijing and the marvelous Terracotta Army soldiers in Xi’an.

Qin developed the imperial system in China that would last for more than 2,000 years. Along the way, China made incredible advances in science, medicine, military, agriculture, and more, making China one of the most advanced civilizations in the world for a long, long time — a great source of Chinese pride. (In today’s China, the leadership is looking for the country to modernize and advance, too, from space exploration to leading-edge technology to the most sophisticated hydropower capabilities in the world.) The First Emperor set the stage for future emperors to rule a larger, more powerful, unified Middle Kingdom.

Following the Qin were many other dynasties including the Han, Song, Tang, Yuan, Ming, and the Qing, the last dynasty. There was little handing down of power from generation to generation. Old dynasties were overthrown by new, more powerful dynasties for centuries. Finally, the early 20th century brought an end to imperial rule.

Ushering in modern China and the rise of the Communist Party

In the mid-19th century, China had some bad experiences with foreign influences. The West was entering its Age of Imperialism, and everyone seemed to want a piece of China — and its markets. The British insisted on selling opium to China, even though using the drug was illegal in both countries. This dispute led to two wars, and the eventual peace treaty forced China to open ports to foreign trade, set low tariffs, pay war reparations, allow foreign missionaries and embassies within the mainland, and hand over Hong Kong to the U.K. Other Western nations — and Japan and Russia — sought similar perks through other not-entirely-equal treaties. Foreigners made their own laws in China. And the Chinese, on their own soil, were governed by foreign laws. This was a great insult to the Chinese. Many Chinese are wary of foreigners to this day.

Famines, opium wars, military defeats, economic hardship, poverty, and Chinese tradition weakened the leaders’ rules. Qing leaders were incapable of managing the foreign occupation of China’s cities. Civil unrest was on the rise. Anti-foreign sentiment came to a head in the Boxer Rebellion (1899–1901), when Chinese peasants began attacking foreign railroads, embassies, and missions. Western powers banded together and suppressed the uprising, and many Chinese people lost faith in the current government and saw the need to modernize. China’s last dynasty finally collapsed in 1911 because of internal pressures and foreign influences.

Competing warlords once again fought for power. A leader named Sun Yat-Sen, considered the founder of modern China, attempted to organize a new democratic government in China after the fall of the last dynasty but failed to do so due to competing warlords and other forces. He died in the mid-1920s, and one of his followers, Chiang Kai-shek, gained control of the Kuomintang, or National Party (KMT). The KMT loosely unified all of China.

Meanwhile, a new political faction called the Communist Party of China (CCP) formed in 1921 in opposition to the KMT. Soon the two forces were involved in a Chinese civil war. During the Long March, a Communist retreat to get away from the Kuomintang army, a young man named Mao Ze Dong made a name for himself. After 20 years of war on China’s soil, the civil war ended and the Communist revolution had won. Mao and his Red Army defeated the Kuomintang. On October 1, 1949, Mao Ze Dong established the People’s Republic of China and the Kuomintang retreated to Taiwan. As they say, the rest is history.

The Civil War ended in the 1950s with the CCP in control of mainland China. The nationalists (KMT) fled to Taiwan before the Communists could retake it, and the U.S Navy’s 7th fleet was sent into the Taiwan Straits. This move guaranteed the separation of Taiwan from the mainland. Taiwan’s leaders claimed to be the legitimate government of China, which caused friction between Taiwan and the People’s Republic of China that still goes on today.

Sending in the Red Guards First-time visitors to China often note the callousness of the Chinese toward one another. Much of this relates to the Cultural Revolution. It’s the one mistake that many Chinese are officially willing to admit that Mao made. In 1966, Mao was over 70 years old, facing some public criticism, and possibly losing some power. He decided to rally China’s youth and university students against what he saw as a CCP that was losing touch with the revolutionary ideals of the People’s Republic of China. He convinced the Party that China was leaning toward capitalism. The Party allowed Mao and his close circle to begin a campaign to rid the party of any and all threats. And so began the Cultural Revolution. It started by trying to create zeal among students, but quickly spiraled out of control. China’s schools and universities were shut down for years because academics were considered counterrevolutionary. Public humiliation of honest people, the banishment of doctors and intellectuals to farms in the countryside, book burnings, the damaging of Chinese cultural relics, and other horrors were regular events during the Cultural Revolution. In perhaps the darkest time of the revolution, intellectuals and party officials were sent to prison camps for reeducation. People who had grudges against each other frequently tagged their enemies as counterrevolutionary, even if it wasn’t true. That “enemy” often ended up beaten or killed by a mob. Family members testified against their own blood in order to avoid being accused themselves. The Revolution created a sense of paranoia so deep that people worried more about protecting their own lives than using the truth to save others. No one felt safe, and the whole country was terrified by Mao’s Red Guards. The Cultural Revolution ended in 1976 after Mao died, but its effects linger even today.

Industrializing with Mao: The first five-year plans

In 1954, Mao Ze Dong was made chairman of the Communist Party of China. His goal was to make China a great socialist state and a world power. China was a mess after decades of war and hardship for its citizens. Hundreds of millions of peasants were barely getting by. Mao borrowed the planning model from neighboring Russia. After forming the People’s Republic of China, Mao created its first five-year plan.

Mao’s first five-year plan in 1952 called for China to industrialize with the help of Russia, which sent about 10,000 industrial engineers to China. Soon, China started to develop new industries while improving old ones. It was such a success that China developed another five-year plan. For the first time in a long time, things were looking pretty good for China.

The second five-year plan in 1957 was interrupted by the Great Leap Forward. Unfortunately, it was anything but. Because of some bad judgments by Mao (and to be fair, some extremely bad luck with the weather), food production fell drastically. In the years of the Great Leap Forward, China experienced one of the worst famines in the history of the world. Millions of people died from starvation.

Many people became disillusioned with the Chinese communist leadership. Most of the ordinary Chinese people went back to the old ways of doing things. Because of mass starvation in some rural areas, local leaders and peasants took matters into their own hands by reinstating private land ownership for farming.

Mao gave up his title as president of China, and a junior Chinese leader named Deng Xiaoping took over after 1976 to clean up Mao’s mess. Deng and others restored order to the Chinese country and economy in the early 1980s. Despite his failings, Mao is viewed as a cult figure today.

Opening the door to foreign investment

After Chairman Mao Ze Dong died, Deng Xiaoping gained more authority in the late 1970s. Deng never held the top government job, but he primarily wielded the power. Deng wanted to modernize China by introducing faster reforms, saying about capitalism versus communism, “Black cat or white cat, either will do as long as it catches mice.”

Deng and his comrades created the Open Door Policy, which allowed foreign investment into China for the first time since the founding of the People’s Republic of China. Deng saw the need for China to modernize and to open to the outside world after too many years of isolation. In the early 1980s, China opened its first Special Economic Zones (SEZs), mainly in coastal cities, which allowed for more flexible and capitalist policies. Foreign money began rushing into the SEZs — mostly in manufacturing. The SEZ experiment was a huge success, and the government began relaxing its control of the economy. The government then started to let private (initially mainly Chinese) investors buy state-owned companies (more commonly called state-owned enterprises, or SOEs) and even created stock exchanges.

Deng Xiaoping called this system socialism with Chinese characteristics, which is now China’s official term to describe its economy. (For more information on China’s economy, go to Chapter 2.) Some other people describe it as market socialism. China’s mixed economy allows private and state-owned businesses to compete in the marketplace. But socialism isn’t fading away altogether; after all, China is a party-state government.

With some exceptions, the socialist market structure now in place sets its own prices based on supply and demand. China’s government generally allows the market to work by itself with little interference except in sensitive areas such as currency exchange, strategic industries (such as telecommunications and energy), and anything related to the military industrial complex.

Overseas Chinese The Chinese have emigrated all over the world. Many of the emigrants are now significant investors in China. Those who live abroad, the overseas Chinese, are estimated to number more than 60 million. The most significant pockets are in Southeast Asia, the U.S., and Canada. Your company may be able to use this talent pool to its advantage. About 200,000 foreign-trained and -educated Chinese have returned to China in recent years. They’re commonly called sea turtles, or hai gui, because they’re returning to where they were born.