Although despising Chiang Kai-shek as a "traitor to the nation", on May 5, he telegrammed the Military Council of the Nanking National Government proposing a military alliance, a course of action advocated by Stalin.
In 1937, the Japanese Imperial Army quickly marched into the heart of Chinese territory. On June 6, they captured Kaifeng, the capital of Henan, and threatened to take Zhengzhou, the junction of the Pinghan and Longhai railways.
On the night of July 7, 1937, Chinese and Japanese troops exchanged fire in the vicinity of the Marco Polo (or Lugou) Bridge, a crucial access-route to Beijing. What began as confused, sporadic skirmishing soon escalated into a full-scale battle in which Beijing and its port city of Tianjin fell to Japanese forces (July–August 1937).
On July 29, some 5,000 troops of the 1st and 2nd Corps of the East Hopei Army mutinied, turning against the Japanese garrison. In addition to Japanese military personnel, some 260 civilians living in Tongzhou in accordance with the Boxer Protocol of 1901, were killed in the uprising (predominantly Japanese including the police force and also some ethnic Koreans). The Chinese then set fire to and destroyed much of the city. Only around 60 Japanese civilians survived, who provided both journalists and later historians with firsthand witness accounts. As a result of the violence of the mutiny against Japanese civilians, the Tungchow mutiny, as it came to be called, strongly shook public opinion within Japan.
The Imperial General Headquarters (GHQ) in Tokyo, content with the gains acquired in northern China following the Marco Polo Bridge Incident, initially showed reluctance to escalate the conflict into full-scale war. The KMT, however, determined that the "breaking point" of Japanese aggression had been reached. Chiang Kai-shek quickly mobilized the central government's army and air force, placed them under his direct command, and laid siege to the Japanese area of Shanghai International Settlement, where 30,000 Japanese civilians lived with 30,000 troops on August 12, 1937.
On August 14, Kuomintang planes accidentally bombed the Shanghai International Settlement, which led to more than 3,000 civilian deaths. In the three days from August 14 through 16, 1937, the Imperial Japanese Navy (IJN) sent many sorties of the then-advanced long-ranged G3M medium-heavy land-based bombers and assorted carrier-based aircraft with the expectation of destroying the Chinese Air Force. However, the Imperial Japanese Navy encountered unexpected resistance from the defending Chinese Hawk III and P-26/281 Peashooter fighter squadrons.
In September 1937, the Soviet Union and China signed the Sino-Soviet Non-Aggression Pact and approved Operation Zet, the formation of a secret Soviet volunteer air force, in which Soviet technicians upgraded and ran some of China's transportation systems.
On August 23, Japanese Army reinforcements succeeded in landing in northern Shanghai. The Imperial Japanese Army (IJA) ultimately committed over 200,000 troops, along with numerous naval vessels and aircraft, to capture the city. After more than three months of intense fighting, their casualties far exceeded initial expectations.
Building on the hard-won victory in Shanghai, the IJA captured the KMT capital city of Nanjing (December 1937) and Northern Shanxi (September–November 1937). These campaigns involved approximately 350,000 Japanese soldiers, and considerably more Chinese.
Historians estimate that between December 13, 1937, and late January 1938, Japanese forces killed an estimated 200,000 to 300,000 Chinese (mostly civilians) in the "Nanjing Massacre" (also known as the "Rape of Nanjing"), after its fall but the numbers are uncertain and possibly inflated coupled with the fact that the government of the People's Republic of China has never undertaken a full accounting of the Massacre.
Although Chiang intended to ignore Mao's message and continue the civil war, he was arrested by one of his own generals, Zhang Xueliang, in Xi'an, leading to the Xi'an Incident; Zhang forced Chiang to discuss the issue with the Communists, resulting in the formation of a United Front with concessions on both sides on December 25, 1937.