volution, the Kuomintang (KMT) government officially notified Portugal that it was abrogating the Treaty of Amity and Commerce; the two powers signed a new Sino-Portuguese Friendship and Trade Treaty in place of the abrogated treaty. Making only a few provisions concerning tariff principles and matters relating to business affairs, the new treaty did not alter the sovereignty of Macau and Portuguese government of Macau remained unchanged.
In the Second World War, unlike in the case of Portuguese Timor which was occupied by the Japanese in 1942 along with Dutch Timor, the Japanese respected Portuguese neutrality in Macau, but only up to a point. As such, Macau enjoyed a brief period of economic prosperity as the only neutral port in South China, after the Japanese had occupied Guangzhou (Canton) and Hong Kong. In August 1943, Japanese troops seized the British steamer Sian in Macau and killed about 20 guards. The next month they demanded the installation of Japanese "advisors" under the alternative of military occupation. The result was that a virtual Japanese protectorate was created over Macau.
When it was discovered that neutral Macau was planning to sell aviation fuel to Japan, aircraft from the USS Enterprise bombed and strafed the hangar of the Naval Aviation Centre on 16 January 1945 to destroy the fuel. American air raids on targets in Macau were also made on 25 February and 11 June 1945. Following Portuguese government protest, in 1950 the United States paid US$20,255,952 to the government of Portugal. Japanese domination ended in August 1945 with the Surrender of Japan.
After the establishment of the People's Republic of China in 1949, the Beijing government declared the Sino-Portuguese Treaty of Amity and Commerce invalid as an “unequal treaty” imposed by foreigners on China. However, Beijing was not ready to settle the treaty question, leaving the maintenance of “the status quo” until a more appropriate time