This chapter covers the period 1936 to 1949. It begins with a survey of how disastrous Japan’s invasion of China was for the GMD, which had to retreat from its capital on Nanjing into China’s interior and establish a wartime capital in the provincial city of Chongqing. In contrast, having escaped Chiang’s clutches and established a new base in Yan’an, the CCP under Mao’s leadership was able to regroup and exploit the wartime situation to set up bases behind Japanese lines and increase its prestige among the Chinese people as a whole, in part by posing as a moderate reformist movement built on an alliance of several classes. This chapter concludes with a survey of the civil war of 1946 to 1949 and the CCP victory in that struggle that brought about the founding of the People’s Republic of China in October 1949.