Since the outbreak of the war, the Japanese Navy, after a sneak attack on the port of Qingdao, sent the Second Fleet to blockade the sea off Jiaozhou Bay, blocking the entire port. The Japanese tried in vain to replicate their tactics during the Russo-Japanese War, but unfortunately, their attempt to land at Longkou was thwarted due to the bombing of the Sino-German air force.

China declared war on Japan and the Soviet Union after the outbreak of war in Europe, but did not declare war on Britain and France. When the British fleet and the Japanese began to invade Guangzhou, they were forced to declare war on Britain and France, and they were fully involved in this world war. Thanks to the cooperation of the British army, Guangzhou soon fell, but the British and Japanese navy's attempt to invade the Gulf of Tonkin was repelled by the German, Austrian, and Chinese forces.

Because of the new alliance, Germany announced that it would return all the leased territories in China, such as Qingdao and Xiamen, to China, and the Chinese troops entered Qingdao and formed an alliance with the Germans on the Jiaodong Peninsula to resist the Japanese invasion. Before the start of the war, the main force of the German Far East Fleet in Qingdao had more than 60 ships, including five battleships, four cruisers, twelve destroyers, and six submarines. In the Japanese air raids, about 20 warships were sunk or forced to sail to the shallows to "sit on the bottom", after which most of the wrecked ships were salvaged and repaired, and the cruiser "Memel" and two destroyers were abandoned because they were seriously damaged and lost their repair value.

Germany built a total of six airfields on the Jiaozhou Peninsula before the war, which was quite beneficial to the defense of the entire Jiaodong Peninsula, after the German "Volunteer Air Force" and the Chinese 2nd and 12th Aviation Divisions were stationed in Qingdao, plus the original German flight regiment in Qingdao, the total number of Chinese and German fighters in the Shandong area has reached 1,200, and the air supremacy in this area has been completely mastered, which also made the original landing attempt of the Japanese army finally declared a failure.

At this time, there was no large-scale warlord scuffle in China, and the domestic situation was relatively stable, although the local forces were very strong, at least on the surface, the unity and stability of the country were maintained.

In the nearly 20 years after the European War, China's economy generally maintained a relatively rapid development rate, but due to the relatively weak industrial foundation at the beginning, there was a gap of about half compared with Japan in industrial production. Due to less government intervention, China's economy is basically in the primitive stage of capitalist accumulation, with industries related to people's livelihood such as textiles, grain processing, tobacco and alcohol, power generation, coal mining, and building materials developing rapidly, while industries requiring a large amount of capital and technological investment, such as iron and steel, metallurgy, machinery manufacturing, heavy chemicals, and shipbuilding, are relatively lagging behind.

After the war, China received about 7.5 billion marks in aid from Germany and Austria, but one-third of these funds were used by the Beiyang government to maintain the government's balance of payments, about one-third to maintain the equipment and daily expenses of about 500,000 CSKA, and about 2 billion marks for infrastructure construction.

Even the 2 billion marks are mainly invested in the construction of railways, highways, shipping, water conservancy and other infrastructure construction, and only about 300 million marks are really put into industrial and mining production, and only a few large German and Austrian consortia and dozens of industrial and mining enterprises jointly established by several major consortia in China are driving the development of China's heavy industry.

Due to the Chinese people's own wariness of foreign capital, the proportion of foreign capital stipulated in the articles of association of Sino-foreign joint venture industrial and mining enterprises formulated by the Beiyang government shall not exceed 45 percent of the company's total share capital, so the initial investment scale of these industrial and mining enterprises is not large.

Austria-Hungary Israel is the largest foreign company in China, and with the backing of the Naena Imperial Credit Bank, the Israel Consortium owns about 21 joint ventures in China, perhaps out of fear of British influence in South China and the lower reaches of the Yangtze River, or in anticipation of the Sino-Japanese War.

The Krupp consortium and the Farben chemical consortium are the two largest German companies investing in China, the Farben Industrial Group's investment in China is mainly concentrated in several major coal mines and coal chemical enterprises in Shanxi, Zhili and Jiangxi, while the investment of the Krupp consortium is mainly concentrated in the military industry, they cooperate with Wuchang Iron and Steel Plant, Hanyang Arsenal, Fuzhou Naval Arsenal, etc., and jointly establish two steel plants in Xinyu, Jiangxi and Taiyuan, Shanxi.

Another Austro-Hungarian company with a large investment in China was the Pace National Bank, a Hungarian consortium that controls most of Hungary's aluminium production and smelting, and which has partnered with Yan Baichuan's Shanxi consortium to establish China's largest aluminium mining and smelting enterprise, while the Islaia consortium and the North China consortium control aluminium production in Henan, China. Germany's Thyssen consortium has taken control of China's Shandong and steel and aluminum production.

With the help of foreign capital, China's steel production had reached an annual output of about 2 million tons before the war, although it was only 40 percent of Japan's, but due to the low investment in naval development, the equipment of the Chinese army was actually slightly stronger than that of the Japanese army. However, due to the lack of preparation at the beginning of the war, and due to the attack of Soviet Russia, and the strong naval support of Japan, it was only then that led to the fall of part of East China.

As the war progressed, the efficiency of the Chinese government was greatly improved during the war, and the construction and control of governments at all levels in the country were strengthened, and the entire state system gradually transitioned to a wartime economy, and the mobilization ability of the people was also greatly improved.

Up to now, the war has been going on for about two and a half years, and the size of China's army has increased from more than 1.3 million at the beginning of the war to 4.5 million; with the successive commissioning of the three large arsenals in Baotou, Chongqing, and Kunming, which were urgently built before and after the war, and the completion of the expansion of the original arsenals in Hanyang, Linxian, Taiyuan, and Nanning, China's own military production has basically been able to meet the consumption of the current war.

China's advantage over Deao is that China is a big country with resources, although the reserves of some minerals are not abundant, but they can fully meet the consumption of the war, the only drawback is oil production, at present there are only two oil fields, Yanchang and Yumen, the annual crude oil output is only about 350,000 tons, far from meeting the needs of modern warfare.

This has given the German Farben Consortium a good opportunity to make a fortune, the Farben Consortium is at the world's leading level in coal oil technology, and has built more than a dozen large-scale hydrogenation plants in Germany, and now they have carried out large-scale investment in technology transfer in China, and have successively built six large-scale hydrogenation plants, which can produce 1.5 million tons of petroleum products per year using coal technology, which has greatly alleviated the situation of China's lack of oil.

Before the start of the war, the Beiyang government began to systematically expand domestic steel, machinery and military production, expanding the production scale of four iron and steel plants in Wuchang, Xuanhua, Taiyuan and Xinyu, and at the same time building five iron and steel plants in Baotou, Handan, Laiwu, Chongqing, Suzhou and Kunming. So far, the first phase of the new steel plant has just been completed, and the combined output of the five new steel plants is only 500,000 tons. However, with the completion of the second phase of the expansion of the Wuchang and Baotou steel plants, the steel output of these two steel plants alone has reached 1.5 million tons, and China's domestic steel production has also increased to 3.8 million tons, so that the Beiyang government has some capacity to start building more naval shipyards.

Unlike other countries, China began to grow stronger during the war. R1152