The Xi'an Incident of December 1936, launched by General Zhang Xueliang and Yang Hucheng, and the peaceful settlement of the incident under the help of the CPC played a significant historic role for promoting re-cooperation between KMT and CPC, unity and resistance against Japan.

In 1936, Japanese imperialists continuously expanded its invasion of China, but Chiang Kai-shek adhered to the non-resistance policy and continued the civil war. The North East army led by Zhang Xueliang and the 17th Route Army led by Yang Hucheng were deployed to Shaanxi-Gansu district to attack the Red Army. Because of the influence of the CPC's anti-Japanese national united front policy and the peoples’ anti-Japanese movements, Zhang and Yang came to a truce with the Red Army and demanded Chiang Kai-shek to break ties with the CPC to resist Japan. Chiang not only rejected the demands of Zhang and Yang, but also mustered troops under his direct control on the border between Henan and Shaanxi to press Zhang and Yang to continue attacking the Red Army.

On December 4, Chiang Kai-shek flew to Xi'an to supervise the battle. On December 7, Zhang Xueliang arrived at Huaqingchi, Lingtong to try and reason with Chiang about stopping the civil war and unanimously resisting Japan, but the advice was rejected. Chiang resolutely rejected to change the policy of suppressing the CPC. On December 9, Zhang told the processional students he would reply to their patriotic demands.

On December 12, Zhang and Yang launched the Xi'an Incident and detained Chiang in Huaqingchi, putting more than 10 people including Chen Cheng into prison. They threatened to cancel the Northwest Bandit Suppression General Headquarter and establish the Temporary Military Committee of Northwest Allied Force. Zhang Xueliang and Yang Hucheng respectively served as Chairman and vice Chairman. They published a circular to all of China, proposing to reorganize the Nanjing Govenment, stop the civil war, jointly resist Japan and practice democratic politics.

On December 16, the Nanjing Government ordered a crusade against Zhang and Yang again and appointed He Yingqin as the commander-in-chief. Pro-Japanese Wang Jingwei and He Yingqin attempted to seize the opportunity to make the situation serious in order to take over ruling power from Chiang Kai-shek and make further compromise with Japan.

For the benefits of Chinese people, the CPC Central Committee?sent representatives, including Zhou Enlai and Ye Jianying, to Xi'an to mediate at the invitation of Zhang Xueliang and Yang Hucheng by telegram.

After reaching Xi'an on December 16, Zhou Enlai negotiated with all of the related parties. They worked out an idea where Chiang would be released if he promised to resist Japan. On December 15 and 19, they sent message to the Nanjing Kuomintang Government to urge them to accept Zhang and Yang's opinion for a peaceful settlement.

On December 22, Soong Mei-ling, T.V. Soong and William Henry Donald from Australia, who was Chiang Kai-shek's adviser, flew to Xi'an for negotiations. After the hard work of Zhou Enlai and the efforts of all the Chinese people, on December 24, Chiang Kai-shek was forced to accept the preconditions of the truce and peace negotiation, unity with the CPC, resistance against Japan and the release of political prisoners.

Chiang was released on December 25 and Zhang Xueliang accompanied him to Nanjing. By then, the Xi'an Incident had settled peacefully. After returning to Nanjing, Chiang Kai-shek immediately imprisoned Zhang Xueliang.