Although the conflict began officially on July 7,1937 relations between Japan and China had been deteriorating since 1931. On September 18, 1931 members of the Japanese army stationed in Manchuria used a manufactured incident in the area of Mukden(Shenyang) as a pretext to attack and conquer southern Manchuria. Nine months later the entire territory had fallen to the Japanese military. As a result popular feeling against Japan rose among the Chinese people. In Shanghai ,the residents boycotted Japanese goods resulting in widespread clashes between the residents and the Japanese military. This conflict became enlarged to the point where three Japanese army divisions as well as 3000 of their marine units were fighting the 19th Chinese army.
The Japanese set up a regime in China that gave the appearance of Chinese control. This was used as a way for the Japanese to justify to its own population that it had not attacked China for no good reason,but that it had defended Japan against an anti-Japan government in China. It also was used to deflect blame away from Japan for any human rights abuses that occurred in China during this period.
After the Japanese occupation, the Japanese armies took possesion of all publicly owned Chinese enterprises such as railways,electrical power plants,waterworks,coal mines,etc...
Japan's economic policy in China deprived Chinese national of equal oppurtunity. Japanese companies were given preferential treatment over Chinese companies.