For much of history, Yunnan has been occupied by independent states. The first recorded state was Dian, which was a centralized state recognized by Chinese officials and which succeeded the tribal federation of the nomadic Kunmingese, who were known for their twin ponytails (Ma and Li, 1999, pp.166-7). At this time, no Han Chinese lived in Yunnan and the population was composed of a variety of Tibeto-Burman and Tai speaking peoples. It seems most likely that the former dominated the northern part of the province's territory and the latter the warmer southern parts. Over a period of centuries, the Tais migrated southwards to establish the kingdoms of Langxang, Lanna, Sukothai and Ahom in the Assam state of India (Schliesinger, 2001, p.39). Today, millions of people in Yunnan still speak dialects of Tai which are quite recognizable to Thai speaking people.

Dian was replaced by Nanchao ('Southern Prince') in the C8th CE and, in alliance with the then warlike and powerful Tibetans, Nanchao conquered wide swathes of Chinese and Vietnamese territory and was accounted a powerful neighbour with a strongly militaristic society and culturally advanced people. Poems by Nanchao leaders were included in Tang Dynasty Compilations of the Greatest Poetry. However, by the beginning of the C11th CE, Nanchao had become peaceable and inward looking, assisted by a series of intensely religious Buddhist kings who ruled from Dali. All of this changed as a result of the Mongol invasion of China, which was completed by Kublai Khan and resulted in the launching of an invasion of southern states, including Nanchao, which saw that state's obliteration in 1259 by Chinese Yuan Dynasty troops under Mongol commanders and powered by the feared Mongol horsemen. This caused the intensification of Tai migration southwards and the founding of the first independent Tai states in mainland Southeast Asia.

The Yuan invasion brought Yunnan more firmly into the Chinese economic system. Previously, Yunnanese rulers might be involved in the tributary system which required states to send goods in tribute to the Chinese imperial court and in return gain recognition and the right to trade at imperially sanctioned trade ports. Yunnan acted as a land bridge between both mainland Southeast Asia and India and lands further west which acted as an alternative to the maritime routes which were beholden to the monsoon winds and often dangerous, not least because of the prevalence of the pirates of the South China Sea. Now, the Mongols installed the Muslim Hui people in Yunnan to act as a ruling and administrative class. Resented by all Yunnanese, the Hui owed their survival to the threat of Yuan military intervention and this was intended to guarantee their loyalty. The Huis introduced the Yunnanese to Chinese institutions such as taxation and the imperial bureaucracy. The trading networks established by Yunnanese over the centuries therefore became in many cases cross-border ventures with one partner in China proper and others in non-Chinese states. Such trade would be subject to official approval and customs duties but, given the large amount of territory concerned, the difficult terrain covering most of it and the generally low density of population, it seems clear that a significant proportion of trade continued to be conducted unofficially and without bothering the authorities. An additional issue concerns the access to the enormous land empire of the Mongols, to which Yunnan was now directly connected. The Mongol Empire permitted traders to travel its roads, provided a more or less stable and equal legal system for trading and encouraged the exchange of ideas and goods. This was the period of Marco Polo and, although enormous difficulties still remained in moving from east to west or vice versa, the presence of stable if feared rulers did make it a little easier.

Resentment against the Huis and against external domination surfaced in the form of numerous rebellions over the years, with the most serious perhaps being the Panthay Revolt of the mid-C19th which resulted in the systematic butchering of many thousands of Huis and the introduction of an independent state which survived for more than a decade before imperial control could be installed once more (Atwill, 2003). During this period, the Imperial Court was increasingly concerned with dealing with the colonial western powers and having to resist the imposition of the opium trade and the signing of the Unequal Treaties. Britain had conquered Lower Burma and was exploring ways of using Upper Burma as a conduit to the China market, although this was a comparatively minor issue. Yunnan remained Chinese but something of a backwater. It had minerals and other natural resources but these were only lightly-exploited and much of the land was unsuitable for the kind of agriculture that Han Chinese farmers understood. Migration to Yunnan by Han Chinese was slow and other ethnic groups remained in the majority.

In the twentieth century, Yunnan offered its own heroes to the Communist Revolution and the nature of its resistance to external control differed little from resistance to earlier rulers. When Communist cadres spread the news of victory in the Civil War to the tribespeople living on the Burmese border, they were surprised to be used as human sacrifices used to fertilise the soil. Meanwhile, thousands of Chiang Kai-Shek's Kuomintang troops crossed the border into Northern Thailand, where they were permitted to stay in return for occasional military assistance to the Thai government. These movements of people intensified the strength and depth of cross-border trade networks involving Yunnan as the frontier of China. The presence of the KMT sympathizers now lent an additional motivation for maintaining the secrecy of these trade deals.

The decades following the Communist victory saw Yunnan largely cut off from mainland Southeast Asia, because of the closing of borders. Some border trade did continue, as indeed did some illegal trade but this was suppressed to some extent by the central government. Maoism stressed internal resources as a means of economic development and this meant few contacts with the rest of the world were necessary. One episode which did see external contact and which was related to Yunnan was the Sino-Vietnamese War of 1979, which led to the deaths of tens of thousands of people (Zhang, 2005). This brief but destructive war increased tensions between China and her neighbours, which were particularly high in those neighbours which felt themselves to be threatened internally by domestic Communist sympathizers, such as Thailand.

Somewhat paradoxically, 1979 was the same year in which Deng Xiaoping instituted the Open Door Policy which led to the emergence of a quasi-capitalist economic system coming into force alongside the monolithic Communist political system. Central planning remains important in the economic world and the open economy was first permitted in several Special Economic Zones (SEZs) concentrated on the southern coastal areas. The SEZ policy has been enormously successful and has led to the creation of a massive manufacturing base which has drawn in huge foreign and domestic investment as well as creating new classes of economically empowered elites.

In addition to the SEZ creation, the Open Door Policy also allowed for various forms of fiscal reform and investment policy, together with the changes made to the eastern provinces (Aksornsri, 2006). The very success of the policy led to further problems of growing income inequality and the creation of major slum areas surrounding areas where jobs have been created. Consequently, attempts were made to balance this growth by launching first the "Go West" policy and, more recently, the Northwest emphasis policy. It was the "Go West" policy which helped to stimulate development in Yunnan and elsewhere, as well as providing further incentives for Han Chinese to migrate to the province.