Kandinsky made this work when he was a teacher at the Bauhaus, the innovative and influential modernist art and architecture school in Germany, where he began working in 1922. His work during this period was characterized by precise lines and dense groups of simple geometric shapes arranged without any central focus. In his writings Kandinsky analyzed the geometrical elements and the various ways that their color, placement, and interaction could affect the viewer, both physically and spiritually. He considered the circle to be the most elementary form, possessing a cosmic meaning.
P.S. The historical narrative of Modernism is overwhelmingly Western. The history of the movement is, however, one of constant diffusion between the East and West; between Europe and Japan. Read here more about the Japanese Bauhaus.