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.