To proceed with its attempt to conquer whole China, Japan provoked July 7th Incident. On the evening of July 7th, 1937, Japanese troops stationed in the Lugouqiao area in suburbs of Beiping held a military exercise. Claiming to have heard gun-shots in the nearby town of Wanping, and that one of their soldier was missing, Japanese wanted to enter the town of Wanping to search the area. Chinese army stopped them. They then launched an attack on Wanping and bombarded Lugouqiao. Striking back, the 100-men-strong Chinese unit stationed in the Lugouqiao area fought bravely and repulsed the enemy, but only four soldiers survived the battle. July 7th Incident is also called Lugouqiao Incident.

After July 7th Incident, the CPC issued an open telegram, saying that "Beiping and Tianjin are in emergency! North China is in emergency! Chinese Nation is in emergency!" and calling upon "the whole nation to fight against Japanese aggressors, which is the only way out". People from all walks of life, all the patriotic parties and groups, and overseas Chinese assembled, and demanded that government mount an all-out resistance. Aid associations were organized in many big cities to collect money for the war effort and to support Chinese armies in North China, who were fighting Japan actively.

Under these serious circumstances, facing passionate people from all over the country, Chiang Kai-shek expressed decision to prepare for the fighting. Upon negotiation, the CPC and the KMT agreed to reorganized the main force of the Communist-led Red Army into Eighth Route of National Revolutionary Army, and to dispatch it to North China front to fight Japanese. The guerrillas in eight provinces of the South were reorganized into New Fourth Army. In September, the declaration of the KMT-CPC cooperation was publicizedm, and the united national front to resist Japan was officially formed.