1. The Japanese went on carving out more and more areas in China and exploited them. They set up a puppet regime in Manchuria called Manchukuo. The Communists, then led by Mao Zedong were also getting organized. Rural Soviets numbering a dozen had sprung up in various parts of China by 1930.

2. The Communists generally created sociopolitical consciousness among the peasantry, initiated much needed land reforms, and generated a new atmosphere in this agrasian society.
There were armed clashes between the landed gentry and the peasants inspired by Maoist ideology. Mao had deviated from the Soviet Communist Party line (Lilisan).

3. Mao gradually consolidated his position and realized that in a less industrialized society like that of China, the peasantry alone can play a revolutionary role. He moved into the interior regions of China and set up his authority known as the 'Jiangxi Soviet'.
There were series of armed clashes between Chiang's army and Mao's men in 1934. The Communists could not stand the attack and then Mao with 1,50,000 followers had to beat a hasty retreat to the Yenan province.
It is estimated that only 30,000 of them ultimately survived and reached their destination. This retreat came to be known in the Communist folklore as the 'Long March'.

4. Chaing, then faced a rebellion from his troops, who wanted him to patch up with the Communists and put up an united challenge to the rampaging Japanese army. In fact, Chiang was even help a prisoner (December 1936) by his men. Chiang realized the urgency of the problem and confronted the Japanese but the Chinese were crushed by December 1937.
The Japanese captured the Kuomintang capital, Nanjing, after dealing ruthlessly with the Chinese-both their military and civilians. Chiang moved his capital to Chongqing. Mao had emerged as the undisputed leader of the Communists. Chiang secured the American support after 1941 while Communists consolidated themselves.

5. The Communist Party, on the other hand, was a party of workers and peasants. In the areas under Communist Party’s control, the estates of landlords had been expropriated and the land distributed among the peasants.
Because of the policies pursued by the Communist Party, it gradually had won over millions of Chinese people to its side. The Communist Party had also organized a huge army called the People's Liberation Army. After the defeat of Japan and the driving out of the Japanese forces from China the Civil War again broke out. The Government of the United State gave massive aid to Chiang kai Shek, but by 1949 his armies were completely routed.
With the remnants of his troops, Chaing kai-Shek went to Taiwan (Formosa), an island which had been occupied by Japan after she had defeated China in 1895. On Ist October, 1949, the People's Republic of China was proclaimed and the Communist Party of China under the leadership of Mao Zedong came to power.