During the 1930s Britain exercised an informal empire in China, based on trading interests and investment. There were a number of British concessions in the treaty ports, the main ones being Hong Kong, Tientsin and Shanghai. During the 1930s Japan posed a serious threat to British interests in China.
In September 1931 the Japanese invaded the Chinese province of Manchuria and established Manchukuo as a puppet state. Full-scale war broke out after a Japanese attack on the Marco Polo Bridge near Beijing, which only ended in July 1937. The British ambassador to China, Sir Hughe Knatchbull-Hugessen, was subsequently wounded in an air attack close to Shanghai. The Japanese army made rapid progress in Northern China, the Yangtze Valley and along the coast.
Britain had little capacity to defend her interests in the treaty ports. In keeping with the policy of appeasement and in co-operation with the US, the British government attempted to influence the situation through diplomacy. However, when the Japanese demanded collection of maritime customs in the conquered ports, the British were forced to concede.
At the end of 1937 Japanese attacks on British and American warships in the Yangtze raised the possibility of military action. In 1938 Cabinet agreed to provide the Chinese with some financial assistance. A serious situation arose at Tientsin in October 1939 when the Japanese, who controlled the Chinese part of the city and its surroundings, realised that the British were sheltering Chinese soldiers and threatened to seize the British part of the town. A settlement was reached in June 1940.
The Japanese tolerated the presence of European interests in the enclaves for another year, but in December 1941 they invaded Hong Kong and the international concession at Shanghai, effectively ending Britain's informal Chinese empire.