Interwar Turmoil: Economic Collapse and Rise of Communist China

When just the IGM, economic hegemony shifted from the UK to the U.S., and NY became the world financial center. The conflict had developed outside North American borders, and therefore no damage on its territory. In 1919, the U.S. had half the world’s gold reserves and were creditors of almost all European countries. The decade of the 1920s was a period of great prosperity in that country. Europe, however, had to cope with the destruction caused by war. After some difficult early years, by 1923 European countries had reached the level of production before the outbreak of the war and began a period of prosperity. Thus began an era of optimism, caught by the U.S., it was hoped that a conflict of such magnitude would not happen again. The society, eager to forget past suffering, was quick to enjoy the moment. It was the Roaring Twenties. However, this was based on weaknesses in the welfare economic structure. The period of U.S. economic expansion ended abruptly in 1929. The economy had a major weakness: excessive reliance on credit (loans). Encouraged by the bonanza, companies had embarked on ambitious expansion plans, but were asking for too many loans from banks in relation to their own resources. Consumers also relied on credit to meet the needs of housing, automobile, entertainment, and more. In addition, some companies and individuals, in view of the profits from previous years, borrowed to invest in the stock market. The first drops in stock prices triggered panic among investors, who sold to repay the loans. On October 24, 1929, known as Black Thursday, almost 13 million shares went on sale, and because of the lack of buyers, their value dropped drastically, a fact that caused the collapse of the NY Stock Exchange. This collapse prevented many shareholders from repaying their loans, leading to a succession of bank failures. These failures meant the loss of savings that businesses and individuals had deposited in these banks. This crisis was named the Crash of ’29. The crisis spread throughout the economy because many businesses, small business owners, and individuals were ruined. There was a domino effect: the closure of companies, unemployment, and a significant decrease in the purchasing power of the population, curbing consumption. Economic activity remained paralyzed. To cope with this situation, the U.S. repatriated foreign investments and demanded payment of their loans to foreign countries. Therefore, from 1931, the crisis spread to Europe and the rest of the world, and was maintained over the years. This was the era of the Great Depression.


The Republic of China was introduced in 1911, amidst serious internal conflict, which consisted of a struggle between two factions of opposing ideologies. On the one hand, the Nationalist Party or Kuomintang sought power to create a strong, centralized, and militarized state. However, the impositions of the Versailles Treaty, which recognized the dominance of Japan on the basis of China-Tchen Kiao, made them seek an alliance with the Soviet Union. Precisely in line facing the opposition and Soviet Communism, Mao Zedong, Chinese Communist Party leader, had attracted popular support among the disaffected of the social marginal living situation, beset by foreign imperialism, especially after the Opium Wars, which broke out after 1840, forcing China to open its doors to foreign trade. China had a largely agrarian economy, with most of its land in private hands, organized under a strict feudal system. During World War II, the Japanese invaded China, and both conflicting internal forces united to face the external danger. However, the Kuomintang army focused more on the domestic anti-communist struggle than defeating the Japanese, being unable to promote a guerrilla war as the Communists did. The Communists had a dual purpose: to defeat the Japanese external enemies and demonstrate their power against Chiang Kai-shek, leader of the Kuomintang, to spread the revolution in the field. After the world war, internal strife continued even more strongly, showing the strength of the revolutionary forces. The Communists moved from north to south, and in 1948, controlled the city of Harbin in the far north and almost all rural areas of Manchuria, changing their tactics from guerrilla warfare to open war, seizing the cities of Kaifeng and Jinan. In January 1949, the Communist army entered Beijing and Tianjin. On October 1, 1949, the Communists were victorious, with Soviet aid, and established the People’s Republic of China, placing Mao Zedong in command. With a population of approximately 500 million inhabitants, they enforced their constitution, which proclaimed communism as a single-party system since 1954. Meanwhile, the Nationalists formed their own government, the Nationalist Republic of China, on the island of Formosa (Taiwan). Mao Zedong, nicknamed the “Great Helmsman,” attempted to rebuild the economy in China, damaged by World War II, following the model of Soviet communism. He fundamentally strengthened the defense industry and collectivized farms, seeking to stimulate production by a plan known as the “Great Leap Forward.” This plan aimed to achieve surplus production, especially grain, to be distributed among urban dwellers, but it failed, forcing Mao Zedong to withdraw from power. He then led a Cultural Revolution to educate youth about participation in the system, aiming to regain the power lost with the failure of the “Great Leap Forward.” This power had passed into the hands of Liu Shaoqi, the head of state, and Deng Xiaoping, general secretary of the Party. Mao directed his attack against them using organized armies of young Red Guards, who attacked those opposed to Mao Zedong’s ideology. He was eventually restored to command of the state. Communist China participated in the Korean War. The country had been divided into two zones, taking the 38th parallel as the boundary. North of that line would be an area controlled by the Soviets, and the South one under U.S. control, creating two independent republics in 1948: the Republic of Korea to the south, relatively independent, from where the United States withdrew its troops a year later, and the Democratic People’s Republic of Korea to the north. Instigated by the Soviet Union, North Korea invaded South Korea on June 25, 1950, prompting U.S. intervention in defense of the invaded territory, with support from the United Nations. China intervened in the conflict, preventing U.S. troops under the command of General MacArthur from continuing their progress on North Korea, which had begun in October 1950. The 38th parallel was to be respected. Since 1965, China turned away from Soviet policy toward the West during the presidency of Richard Nixon in the United States.