He was instrumental in defeating Chiang's rival warlords in the Central Plains War and expanding KMT military power throughout the 1930s by defeating Chinese Communist forces in Henan Province. Chiang Kai-shek rewarded him by appointing him governor of Hennan Province and naming a county after him. When the Second Sino-Japanese War broke out, Liu was named deputy commander of the first war zone and commander-in-chief of the 2nd Army Group. By this time, he seemed to have gradually lost his military prowess, and the Imperial Japanese Army easily overwhelmed his forces and broke through the Chinese defensive lines despite being greatly outnumbered. Liu was forced to abandon much of Hebei province in North China and this defeat contributed to the 1938 Yellow River flood, after which he was relieved from his posts by Chiang. When the nationalist government retreated to Chongking, Chiang again named him as commander of the city's air defense. When the Japanese air force started the bombing of Chongking, Liu's leadership was too ineffective to stop Japanese terror raids and raise civilian morale. He was dismissed once again in 1942.