The establishment of the Shanghai People's Commune occurred amid the broader context of the Cultural Revolution, a sociopolitical movement initiated by Mao Zedong to reinforce Communist ideology in China. On May 1, 1967, during a period of turmoil and upheaval, various factions of the Red Guards and revolutionary groups banded together to overthrow traditional city leadership in Shanghai. This coalition was driven by a desire to create a new governance structure that reflected the principles of socialism and Maoist thought, emphasizing the involvement of workers and peasants in decision-making processes.

Immediately after taking control, the commune declared itself a new socio-political system, promoting radical policies that sought to dismantle the previous administrative hierarchies that they deemed as corrupt and disconnected from the masses. Factory workers and students were encouraged to participate actively in governance, leading to an enthusiastic yet chaotic implementation of reforms. The commune was characterized by collective management in industries and attempts to eliminate class distinctions. However, the well-meaning principles soon encountered significant challenges, including leadership rivalries, operational inefficiencies, and the complexities of directly managing a large urban environment.

The Shanghai People's Commune existed for a short time, as it dissolved in early 1968 due to increasing factional struggle and the intervention of the Communist Party. Nevertheless, it provided a focal point for radical politics during the Cultural Revolution and demonstrated both the potential for worker-led governance and the difficulties inherent in rapidly transforming society without centralized authority.