Dadao government ( Shanghai 1937 – 40 ) The Great Way Municipal Government of Shanghai was a short - lived puppet state proclaimed in Pudong on December 5 , 1937 to administer Japanese - occupied Shanghai in the early stages of the Second Sino - Japanese War . Background . Following the Battle of Shanghai of 1937 , the cabinet of Japanese Prime Minister Fumimaro Konoe was pushing for a quick and diplomatic settlement to the war in China , and not an expensive and long - term occupation . Furthermore , the Japanese Imperial General Headquarters was not keen to permit a repeat of the political experimentation undertaken by the Kwangtung Army in the establishment of Manchukuo , and pressured the Japanese Central China Area Army to establish a collaborationist local government to handle the details of local administration for the Shanghai metropolitan area . In November 1937 , a number of well - known residents were approached to take over provisional civilian administration of the city . Eventually , the Japanese were able to secure the assistance of Fu Xiaoan , the wealthy director of the Chinese Bank of Commerce and head of the Shanghai General Chamber of Commerce . Fu was a personal and political enemy of Nationalist general Chiang Kai - shek , and had been imprisoned by the Kuomintang in 1927 for refusing to lend Chiang money . After his release from prison , he fled to Japanese - held Manchuria , and lived several years under Japanese protection , nursing his hatred for Chiang . However , Fu was unwilling to head the new government himself , and recommended Su Xiwen , a professor of religious philosophy and political science at the Chizhi University in Jiangwan . Su was a graduate of Waseda University in Tokyo and was known for his conservative political views . Su was also known for his views on Buddhist - Daoist syncretism , which influenced the name of the new administration : the Great Way ( “ Dadao ” ) Municipal Government of Shanghai , and its flag ( the yin - yang symbol of Daoism on a yellow background — the colors yellow , gold , and saffron are often associated with Buddhism ) . History . The new government quickly made efforts to restore the city ' s public services and established a police force under the command of Zhang Songlin , former commander of the Jiangsu provincial police , to maintain public order . Funding was provided by a tax levied on all imports and exports through the Japanese front lines into and out of Shanghai , and Su was assisted by a number of experts provided by the South Manchurian Railroad Company . Su promised to purge the city of both communist and Kuomingtang elements . However , neither Su nor his Great Way Government were regarded seriously by Japanese political agents , who looked with dismay and contempt at the assortment of criminals , religious cultists , and narcotics dealers who gravitated to leading positions in the new administration . The promised public works failed to materialize as Su ’ s cronies siphoned off funds , and the propaganda value of the new administration quickly deteriorated . In December 1937 , the Japanese brought in a tough northern Chinese collaborator named Wang Zihui to oversee operations as a temporary measure . After Liang Hongzhi established the Reformed Government of the Republic of China in Nanjing in March 1938 , the Japanese Central China Area Army organized a number of public rallies and ceremonies in support . In less than a month , the Reformed Government asserted its authority over the Great Way Government by establishing a Supervisory Yamen to take over the functions of the Shanghai municipal administration . Su Xiwen formally recognized the Reform Government and adopting its flag on May 3 , 1938 . Under the Reformed Government , Su Xiwen continued as head of the Supervisory Yamen until he was replaced by Fu Xiaoan as mayor on October 16 , 1938 .