The prosperity of the refugee-driven economy of 1937–1938 began to wane by the fall of 1939, when it became clear that the Japanese were going to keep the Yangzi River closed to commercial and passenger traffic and thus cut Shanghai off from much of its hinterland:

During 1940 the Shanghai stock market went out of control. Speculators quoted “war baby” shares at outlandishly high values, and the exchange “dashed up and down with every rumor.”

In May 1940 hoarders purchased huge stocks of cotton at $1,000 per bale and stored them in warehouses, holding up both the domestic market and foreign trading companies waiting to ship cotton goods to Europe via French Indochina. By the end of the month they had run the price up to $2,000. On June 25, France signed an armistice with Germany and Italy, and Japan promptly pressured the Vichy authorities at Haiphong to close the port to vessels from China.