In 1949, the CCP took charge of a country reeling from decades of war and political chaos. Unemployment and inflation were rampant. Agricultural production, the mainstay of the economy, had fallen well below pre–World War II levels. Between 1936 and 1949, the grain and cotton harvests fell by 22 percent and 48 percent, respectively. Industry was hit even harder. Total industrial production fell by 50 percent, and heavy industry by 70 percent, over the same period. Years of conflict had also left the main railroads severely damaged. Making matters worse, Mao estimated that more than 400,000 “bandits” still roamed the country as late as mid-1950. With so much in disarray, China's share of the world economy had fallen to 4.5 percent by midcentury, down from nearly 9 percent in 1913.

Faced with these daunting problems, Mao and his colleagues had no illusions that China was a power on a par with the United States or the Soviet Union. On the contrary, CCP leaders understood that China lagged behind, and they believed that their new regime needed outside help in order to modernize. Accordingly, in the winter of 1949–1950, Mao made an extended visit to Moscow to negotiate a new relationship. In discussions with Stalin, he suggested that the two sides conclude a treaty that addressed “political, economic, cultural, and military cooperation,” adding that “of most importance will be the question of economic cooperation.” The two sides eventually concluded a treaty of “Friendship, Alliance and Mutual Assistance” in February 1950. At the same time, the Soviet Union offered China a five-year loan of $300 million.