-Does China do better or worse? When does large-scale fighting reach locations like Shanghai and Nanjing?
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I don't know the details about the situation at the time, but my understanding is that the Japanese were primarily interested in establishing control over North China, not escalating to total war. Chiang's offensive against Japanese forces in Shanghai turned what was supposed to be a relatively leisurely IJA march through Hebei and Shandong into the bloody campaign up the Yangtze and the 8 years of war that followed.
A limited kahoku jihen (i.e. a "North China Incident", rather than the historical "China Incident") would definitely be of great value to the Japanese military. They would get the historical source of raw coolie labor they needed to match Manchurian resources, and perhaps without a total war to go with it.
As for Chiang, it's a profound embarrassment, far worse than the loss of Manchuria. KMT troops (as opposed to Zhang Xueliang's warlord rabble) getting trounced in the field would be a devastating blow to overall morale and Chiang's political prestige. As you mention, the Japanese would have an easier time defeating the Chinese on the North China Plain; this means they take fewer casualties and maintain high fighting spirit. Should the battles in North China escalate to their OTL conclusion (as they might, given that otherwise Chiang would be totally humiliated as the leader of China if he made peace again) Japan would be in a better position to take Shanghai and Nanjing, meaning that they would advance faster and further.
I'm not well-versed in terrain and military theories, so either would be my guess. In 1932 the Japanese Navy tried to follow up the 918 incident with an invasion of Shanghai. ITTL an invasion of Guangzhou might be driven by the same mentality.If the Japanese secure North China by early 1938 in mobile campaigns, and if Chiang, for political reasons, refuses to admit any losses and keeps throwing troops against the Chinese, might the Japanese go for a simultaneous set of offensives against Wuhan and Nanjing, or Wuhan and Guangzhou?
Not really. The Soviets would support and supply the Nationalists like OTL but not make an overt move against the Japanese. Stalin would wait for an opportunity, as he always did.If the Japanese were beating the ChiNat in battles in North China for many months with the fights for cities further south significantly delayed, I wonder what the Japanese will do in northern China. Would they want to venture west beyond Shansi province to occupy Yenan and crush the Communists there?
Without the ChiNats being in an early slugfest for Shanghai, the Soviets might feel more worried that they or Outer Mongoolia are the near term target of Japanese plans. Could this make the Soviets inclined to get more involved against Japan?.