From November 1936, Sugiyama was appointed Chief of Staff of the IJN 3rd Fleet, and was thus in a senior command position of Japanese naval forces in China during the early stages of the Second Sino-Japanese War. He was appointed to make a formal apology to the United States over the USS "Panay" incident in 1937. Sugiyama rose to vice admiral on November 15, 1940. On July 5, 1941, Sugiyama was appointed Commander-in-chief of the IJN 3rd Fleet.