Abstract Twenty years of reform and open-up can be divided into three stages. The starting stage begins in 1978 and ends in 1984. It has three drive wheels, that is, the so-called“liberation of thoughts, rural reform, and open-up to the outside world”. The period between 1984 and 1991 composes the second stage. During this stage the reform gradually goes to the depth of reform of the system. There are three sources of action for this stage referred to as “reform of the system, rural enterprises, cultural construction and political reform”. The third stage is from 1992 to the present. It is during this period of time that we finally arrive at the crucial stage of systemic transition and innovation of the system with the characteristics of three waves at the turn of the century: “socialist market economy, completed open-up, economic acceleration”. Likewise, with these as the main basis of practice, Deng Xiaoping theory has experienced three stages of development, namely, foundation of the core ideas, formation of the general framework, and maturity of the scientific theoretical system. The originality of Deng Xiaoping theory lies in its analysis of the nature of socialism. It is under the guidance of Deng Xiaoping theory that we have realized three transitions. In terms of the goal of the system, “class struggle as the key link”is channeled into “construction of modern economy as the central task”; in terms of mechanics of operation, the traditional planned economy has evolved into socialist market economy; and in terms of foreign relations, the enclosed or semienclosed condition is turned into completion of independent open-up.