Following the outbreak of the Second Sino-Japanese war in July 1937, the coastal cities fell quickly to the Japanese. Beijing and Tianjin were occupied within a month and the invading troops reached Shanghai in August. During the bloody battle of Shanghai, Chinese Nationalist forces mounted a fierce resistance for a few months, but eventually they also were forced to retreat and Nanjing, the national capital, had to be abandoned soon after in December. Despite the rapid initial Japanese advances, the invasion eventually slowed, and it had largely stalled by 1940.

The Nationalist government under Chiang Kai-shek 蔣介石 (1887–1975) remained in charge in most of China's interior (guotong qu 國統區) from Chongqing, the provisional capital from 1937 until 1946. In the region around Yan'an in north-central China, the Communists consolidated their control under Mao Zedong 毛澤東 (1893–1976). These were the ‘liberated areas’ (‘jiefang qu’ 解放區) in Communist parlance. The governments in these different regions advocated different policies regarding art and culture with varying degrees of interference and censorship.

For most writers, these were trying times. As a result of the chaotic national situation, identifying wider trends across wartime Chinese literature is complex. Shanghai lost its position as the pre-eminent centre of publishing as intellectuals relocated or fled inland, joining millions of other refugees. Publishing houses, universities and newspapers were relocated inland. Many writers moved to Hong Kong, still under British control. Some intellectuals chose to remain in Japanese-occupied areas, and many of those who did so, famously Zhou Zuoren 周作人 (1885–1967) who stayed in Beijing, were denounced as traitors or collaborators.

In Shanghai, the International and French concessions remained, respectively, under British and French control, while Japanese forces occupied the surrounding Chinese parts of the city. The International Settlement became known as the ‘Solitary Island’ (‘gudao’??), providing writers and intellectuals with a certain amount of freedom while the surrounding areas were engulfed by war. There was a lively scene for poetry and drama. Despite calls from the Municipal Council to tone down provocative rhetoric, resistance literature (kangzhan wenxue 抗戰文學) continued to be written and published there.