On 19 August 1932, Chiang Kai-shek was at a Kuomintang conference in Nanjing when communist sympathiser Wang Anqing (1907–1932) shot him five times in the chest. Chiang was rushed to the hospital but died within ten minutes, and Wang was killed by Chiang's bodyguards.

Chiang's death was followed by the collapse of the Kuomintang state as warlords scrambled for power. In the end, his secret police chief Dai Li emerged as the most cunning and ruthless of these potentates, getting Li Zongren and Wang Jingwei on his side and defeating the rival Kuomintang faction led by Yan Xishan and Zhang Xueliang.

The assassination also turbocharged the CPC, which seized control of much of rural China and unsuccessfully attempted to capture Nanjing. Dai reacted to this threat by launching a White Terror that was even bloodier than Chiang's, resulting in over one million deaths by 1940.

The rival warlords were beaten by 1934 and the CPX was crushed by 1936, placing all of China proper directly or indirectly under Dai's control. Dai transformed China into a totalitarian fascist dictatorship closely allied with Germany and upholding a policy of Han ethnonationalism.

Economically, his regime implemented Italian-style corporatist policies with the goal of ending the century of humiliation and turning China into an industrial policy. By the time China declared war on Japan in 1941, the Chinese economy had been almost fully rebuilt, but China was still a poor, mostly agrarian country.

As Dai was anti-American, the Chinese invasion of Korea led the United States to support Japan, which took advantage of the war against China to attempt to seize China's resources.