Long ago there lived a frightful demon called Nián 年 (“year”), with a single large horn, heavy green scales, a huge mouth, and very sharp teeth. And, being a frightful demon, of course it did evil things wherever it went. Because it was so dangerous, the demon was locked by the heavenly gods into a remote mountain prison — some people say in the sea. It was permitted to leave only once every twelve months so that it would not starve.
Unfortunately Demon Nián’s yearly release was very difficult for humans, for every year it would come down from its prison to the villages very hungry indeed and would look for food and for villagers to eat. Frightened villagers would put out some of their livestock in hope of satisfying its appetite while they themselves hid inside their houses or fled into the mountains to hide.
But one year an odd old beggar happened to be visiting the village on the day when the monster was due to be released. Everyone fled in a panic, leaving the old beggar in the village to be devoured by the monster. The old beggar took refuge inside a house.
There chanced to be a piece of red paper fluttering from the door of a house, and it attracted the attention of Demon Nián, but as it charged the door, it happened to be hit by lightning, which hurt quite a bit, so that the demon’s dreadful scream was almost as loud as the peal of thunder. Slowly recovering, the monster more cautiously circulated through the village, avoiding anything red, for it was now afraid.
When the Demon Nián showed fear, it gave the old beggar an idea. He found some red cloth and wound himself up in it, then emerged into the lane, lighting and throwing the largest firecrackers he could find. The monster saw a red figure coming toward him carrying a bright lantern and making sounds like thunder, and turned and fled in terror.
Once they discovered that Demon Nián was afraid of the color red, and bright lanterns, and loud, thunderous noises, the villagers knew how to protect themselves. So each year, when Nián was released, people would light up their houses, and would paste red paper on their doors and wear red clothes, and would set off firecrackers and beat gongs and drums.
No one got much sleep, but the cowardly monster never troubled them again. And so, on the morning of each New Year, they could rejoice and congratulate each other on avoiding disaster, and wish each other great happiness for the year that was so well begun.
This is the origin of the use of lanterns and fireworks and the color red at Chinese New Year.