When, in 1931, the Japanese occupied Manchuria, Nanjing was helpless becuase Manchuria was only loosely associated with Nanjing, and its governor, Zhang Xueliang, had tried to remain independent of it. Thus, Manchuria was lost almost without a blow. On the other hand, the fighting with Japan that broke out soon afterwards in Shanghai brought credit to the young Nanjing army, though owing to its numerical inferiority it was unsuccessful. China protested to the League of Nations against its loss of Manchuria. The League sent a commission (the Lytton Commission), led by Victor Lytton, which condemned Japan's action, but nothing further happened, and China indignantly broke away from her association with the Western powers (1932-1933). In view of the tense European situation (the beginning of the Hitler era in Germany, and the Italian plans of expansion), the Western powers did not want to fight Japan on China's behalf, and without that nothing more could be done. They pursued, indeed, a policy of playing off Japan against China, in order to keep those two powers occupied with each other, and so to divert Japan from Indo-China and the Pacific.

China had thus to be prepared for being involved one day in a great war with Japan. Chiang Kai-shek wanted to postpone war as long as possible. He wanted time to establish his power more thoroughly within the country, and to strengthen his army. In regard to external relations, the great powers would have to decide their attitude sooner or later. America could not be expected to take up a clear attitude: she was for peace and commerce, and she made greater profits out of her relations with Japan than with China; she sent supplies to both (until 1941). On the other hand, Britain and France were more and more turning away from Japan, and Russo-Japanese relations were at all times tense. Japan tried to emerge from her isolation by joining the "axis powers", Germany and Italy (1936); but it was still doubtful whether the Western powers would proceed with Russia, and therefore against Japan, or with the Axis, and therefore in alliance with Japan.

Japan for her part considered that if she was to raise the standard of living of her large population and to remain a world power, she must bring into being her "Greater East Asia", so as to have the needed raw material sources and export markets in the event of a collision with the Western powers; in addition to this, she needed a security girdle as extensive as possible in case of a conflict with Russia. In any case, "Greater East Asia" must be secured before the European conflict should break out. Lin Sen became chairman of the Nationalist government.