Just recently, the Wall Street Journal published an article stating the incredible growth in automotive component manufacturing in China, as well as other industries. Many people are mystified by the details of how to do business in China. In particular, many people ask me about the chances for reform, and what it means as growth continues to occur. Is China a democracy? What is the impact of communism? What do I need to know if I do business in China?

One of the important elements that any visiting executive should think about before going to China is an understanding of the political history that has led to the position of China today. One of my recently graduated MBA students, Hao Xie, educated me with a brief history lesson that I will share with you. Hao is now dutifully employed at Chevron, working on procurement best practices with the company’s CPO.

Before 1911, China was still characterized as a feudalistic economy run by the Qing authorities. Even by 1949, China was primarily an agricultural economy. However, colonial capitalism did have a long and significant impact in some coastal cities, Shanghai and Guangzhou in particular.

The general economic condition of the nation was terribly bad because of the World War II and continuous civil wars. A crucial reason why Jiang Jieshi did not defeat Mao Zedong was that the capitalist economy was just forming and the industrial power was still very weak in most parts of China.

From 1949 – 1978, China, for the first time, systematically built its industrial base and transformed itself from an agricultural economy to an industrial one. The period between 1949 and 1956 was recognized as the golden period of Chinese industrialization, as the country established its primary industries including steel, automobile, textile, chemical, and defense. The GDP grew at the rate of over 20% per year.

Because of over-optimism, Mao made his first huge mistake by summoning his nation to speed up the industrialization. This was the “Great Leap”, which resulted in the significant economic recession in 1958 and 1959 and also the disaster in early 1960s.

The economy recovered, however, under the leadership of Liu Shaoqi in the early 1960s. As Liu accumulated much power in the communist party, Mao felt a threat from him and made his second huge mistake by starting the famous “Cultural Revolution” to suppress Liu and his followers, including Deng Xiaoping.

Nevertheless, it was during this period when China as a nation, rather than in a few cities, started its industrialization, though a lot of ups and downs. China created its college system and built hundreds of national labs throughout the country, and developed its most advanced technology under Mao’s dictation, such as nuclear weapons, satellites and rocket science, and super computers. Under his dictation, the most talented Chinese students chose science and engineering majors instead of law or economics, which Mao saw as trouble-making majors. This, maybe unintentionally, prepared today’s China with many talented scientists and engineers, many of whom became the technocrats in the government.

If Mao was the person who led the Chinese to the entrance of the industrial highway, Deng was the one who led the Chinese to drive on the highway. During this period, China has grown at a rate of over 10% per year. It is a common mistake that many Americans believe the rapid growth in China only happened in recent years. Jiang basically continued Deng’s philosophy, and harvested the fruits of the economic reform started by his predecessors.

During this period, China started to migrate from the economy of import-substituting to export-led. Jiang, originally from the Shanghai area, also did a lot of favors to his home city, and helped it overshadow the rapid development of Guangdong Province, where Deng first tested his pro-capitalism economic policy and has been open to the West since 1979.

Like Japan and the US, the power of China was not built overnight, but was a cumulative growth over the past 50 years. Though China has experienced rapid economic growth for over 25 years, most western countries paid attention to it only after its entry into WTO and the hosting of the 2008 Olympics.

Further, the CIA World Fact Book confirms the impact of these changes on the economy and its growth. Specifically, they note that: