Some six decades ago, China emerged from a century of semi-colonial feudal economy dominated by foreign interests into the beginning of a sovereign modern socialist society based on agrarian revolutionary ideology, which continues to inform Chinese politics today. The path of escape from semi-colonialism was through anti-imperialism by political revolution against a decrepit dynasty. The political struggle for national revival was complex and protracted, spanning almost a century of violence that included a post-revolution civil war that has yet to end after the establishment of the People's Republic.
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While the factors behind the defeat of the Kuomintang by the CCP have since been controversially debated among conservative Western historians, to most Chinese observers the key factor behind the failure of KMT was clearly its self-inflicted inability to cultivate and keep the support of the Chinese peasantry. It is the unavoidable fate that awaits any political party in China should it make the same mistake, be it imperial, monarchist, fascist, capitalist or communist. In Chinese political culture, support from the peasantry is known commonly as the Mandate of Heaven (Tian-ming). Chinese communism has strong and distinctive historical and indigenous roots that 19th-century Marxism and 20th-century Leninism re-energized.
At the top of the list of obvious reasons why the KMT fell was pervasive official corruption, which was related to inflation. Prices rose throughout KMT rule at more than 30% a year but the salary of government officials, already suffering from traditional institutional defect of below-market pay for the bureaucracy, were not indexed, so bureaucrats could not survive financially without corrupt sources of extra income. Yet the real and fatal corruption was the super-greed at the highest levels of government, which set unsavory standards for the entire public sector. Perpetrators could feel safe from persecution as long as they did not steal more than their superiors. It was an open secret that after the Nationalist Treasury ran dry from official corruption and war, the three top political families, the Chiangs, the Songs and the Kungs, related through marriages, were the exclusive beneficiaries of massive US financial aid to China from 1942-49.
Hyperinflation in the last days of KMT rule, which was caused in no small way by high-level corruption in large-scale monetary fraud, robbed the KMT of all popular support. On August 19, 1948, with US aid, a new gold-backed yuan was issued at an exchange rate of 4 yuan to a US dollar. By mid-May 1949, the yuan fell to 23.3 million to a dollar. Less than five months later, on October 1, 1949, when the People's Republic was proclaimed by the CCP, the KMT had already fled to Taiwan. The fact that the KMT fell from power with the free fall of its currency explains why China is hypersensitive about the danger of hyperinflation associated with a free-floating and freely convertible yuan.
Another reason for the demise of the KMT was that, chiefly because of its elitist outlook, the party suffered from a preference for a small number of top cadres from the time of its founding. The shortage of committed cadres was further exacerbated by the war with Japan, in which more than 100,000 young officers became casualties, two-thirds of the new graduates of the Central Military Academy, plus 19,000 of the 24,000 young civilian cadres trained for mass-mobilization and development tasks.
Even before the war, the KMT had put low priority on social reform and, in particular, the redistribution of land. The KMT relied on the conservative absentee-landlord class living in luxury in cities for support in its halfhearted resistance against Japanese aggression. After the war, US anti-communist influence prevented the KMT from introducing critically needed social reform. KMT policies, hijacked by the national bourgeoisie and conservative landlords, neglected the interior countryside and its peasant population in favor of coastal cities artificially buoyant with foreign capital, giving a false impression of a growing economy while the nation was actually falling into socio-economic chaos.
Finally, the KMT, as a political amalgam of diverse special-interest groups and privileged social classes, exclusive of the peasant masses, the only class that really counts in Chinese politics, became paralyzed by internecine factional conflicts that prevented the natural emergence of any politics of self-preservation.
