Full-Scale War Resumes Between the Communist Party of China and the Kuomintang

With the breakdown of talks, an all out war resumed.

This stage is referred to in Communist media and historiography as the "War of Liberation" (simplified Chinese: 解放战争; pinyin: Jiěfàng Zhànzhēng). The United States assisted the KMT with hundreds of millions of dollars worth of new surplus military supplies and generous loans of hundreds of millions of dollars worth of military equipment.They airlifted many KMT troops from central China to the Northeast (once called Manchuria). President Truman was very clear about what he described as "using the Japanese to hold off the Communists". In his memoirs he writes "It was perfectly clear to us that if we told the Japanese to lay down their arms immediately and march to the seaboard, the entire country would be taken over by the Communists. We therefore had to take the unusual step of using the enemy as a garrison until we could airlift Chinese National troops to South China and send Marines to guard the seaports". Over 50,000 Marines were sent to guard strategic sites.

General Marshall himself stated that he knew of no evidence that the CPC were being supplied by the Soviet Union. The CPC did benefit indirectly from the elimination of the Japanese Kwantung Army but the Soviets did not provide direct support to the CPC during this period as they expected either a power-sharing arrangement or a KMT victory. The CPC were able to capture a number of weapons abandoned by the Japanese and KMT including some tanks but it was not until large numbers of well trained KMT troops joined the communist force that the CPC were finally able to master the hardware.[39] Anti-Japanese Koreans also played an important role, with 30-40,000 Korean troops participating in the war on the Communist side. Koreans are also credited with repairing Manchurian railroads and bridges which were used by Mao.

In March 1947 the KMT seized the CPC capital of Yenan. By late 1948 the CPC eventually captured the northern cities of Shenyang and Changchun. The economy between the years 1946-1949 witnessed the growth of enterprises offering welfare services to sustain workers standard of living during the hyperinflation crisis that afflicted the KMT. The KMT position was bleak. Chiang Kai Shek attempted to eliminate the CPC in the North by using troops belonging to northern warlords who had sided with Chiang during the Civil War and then switched sides to join the Japanese during the invasion. This strategy backfired; the peasants remembered the CPC as the enemies of the Japanese and Chiang's usage of troops who had assisted the hated invaders further eroded any base of popular support which Chiang might have hoped for. Although the KMT had an advantage in their numbers and weapons, and benefited from considerable international support, their low morale hindered their ability to fight. Furthermore, though they administered a larger and more populous territory, their corruption effectively stifled any civilian support.

The CPC were ultimately able to seize the Northeast after struggling through numerous set-backs while trying to take the cities, with the decisive Liaoshen Campaign. The capture of large KMT formations provided them with the tanks, heavy artillery, and other combined-arms assets needed to prosecute offensive operations south of the Great Wall. By April 1948 the city of Luoyang fell, cutting the KMT army off from Xi'an. Following a fierce battle, the CPC captured Jinan and Shandong province on September 28, 1948. The Huaihai Campaign of late 1948 and early 1949 secured east-central China for the CPC.The outcome of these encounters were decisive for the military outcome of the civil war. The Beiping-Tianjin Campaign resulted in the Communist conquest of northern China lasting 64 days from November 21, 1948 to January 31, 1949. The People's Liberation Army suffered heavy casualties from securing Zhangjiakou, Tianjin along with its port and garrison at Dagu, and Beiping. The CPC brought 890,000 troops from the Northeast to oppose some 600,000 KMT troops. There were 40,000 CPC casualties at Zhangjiakou alone. They in turned killed, wounded or captured some 520,000 KMT during the campaign.

On April 21, Communist forces crossed the Yangtze River, capturing Nanjing, capital of the KMT's Republic of China. In most cases, the surrounding countryside and small towns had come under Communist influence long before the cities. By late 1949, the People's Liberation Army was pursuing remnants of KMT forces southwards in southern China.

During World War II it was envisioned that in a two-front war Europe would have to come first, and this judgment that Germany must be defeated before Japan stood as the most important single strategic concept of the war. But it was only after the start of war in Europe did the President accept a war strategy which not only assumed a two-front conflict but also made the European conflict a higher priority than the fight with Japan. This debate during the early 1940s pitted commanders such as MacArthur and Marshall against each other, and these feuds were not forgotten after the end of the war. Long-time rivals, in many ways Marshall and MacArthur represented different viewpoints: moderate conservative versus committed right-winger, Europe-first versus concentration on Asia, and limited war versus total war. Indeed, formulation of policy towards the Soviet Union in what eventually became the Cold War followed the same pattern, ultimately with the same Europe-first conclusion.