The July 7 Incident, also known as the Marco Polo Bridge Incident, marks the start of the Second Sino-Japanese War.
The Marco Polo Bridge is an eleven-arch granite bridge located near Beijing. It was an important strategic location because it was the only link between Beijing and southern regions of China. On the eastern end of the bridge is a walled town, Wanping.
The Boxer Protocol of 1901 permitted foreign nations to station guards along the railroads near Beijing. As a result, the Japanese had between 7000-15,000 troops stationed in the area in 1937.
On July 7, 1937, the Japanese army was conducting nighttime military exercises in the area. They reported that one of their soldiers were missing and requested to enter Wanping to conduct a search. The Chinese denied permission. Shots were fired (it is still not entirely clear who fired the shots).
Later, Japanese infantry tried to forcefully enter Wanping. The Chinese repelled their attacks. Both sides called for reinforcements. In the wee hours on July 8, the Japanese overtook the bridge with tanks and infantry. The Chinese tried to defend the bridge with just 100 men. On July 9, Chinese reinforcements arrived and drove the Japanese off the bridge. The two sides negotiated a ceasefire. They reached an agreement on July 11, in which the Chinese agreed to apologize for the incident and the Japanese agreed to withdraw its troops from the immediate area.
Although the ceasefire was in place, the tensions between the two sides continued to escalate. Both sides sent additional troops into the area. On July 20, the Japanese shelled Wanping. By July 27, the Chinese troops were forced to retreat. The Japanese were able to move in to surround Beijing and Tianjian. Full-scale war broke out on August 9 with the Battle of Shanghai.
This incident was mentioned in the synopsis for Lord of Shanghai, but I'm not sure which episode it actually appears in the drama.