Admiral Harry E. Yarnell transferred his flag to Isabel on 2 January 1937, when Augusta entered Cavite Navy Yard for repairs and alterations that included the fitting of splinter protection around the machine gun positions at the foretop and atop the mainmast. The CinCAF used Isabel as his flagship through March, rejoining Augusta at Manila on 29 March 1937.

Augusta remained in Philippine waters for the next several days, at Manila (29 March to 2 April) and Malampaya (on 3 and 4 April) before she returned to Manila on the 5th. Touching briefly at Port San Pio Quinto on 7 and 8 April, the Asiatic Fleet flagship sailed for Hong Kong on the 8th, arriving at the British Crown Colony the following day. Shifting his flag to Isabel for the trip to Canton, Admiral Yarnell returned to Augusta on 13 April, and the heavy cruiser sailed for Swatow on the 18th. The ship visited that South China port on the 19th, and Amoy the following day, before the CinCAF shifted his flag again to Isabel for a brief trip to Pagoda Anchorage (21 to 22 April), rejoining the heavy cruiser on the 23d.

Augusta stood up the Whangpoo River on 24 April and arrived at Shanghai that day, mooring just upstream from the city proper. She remained at Shanghai until 5 May, when she sailed for Nanking. The flagship remained at that Yangtze port from 6 to 9 May before she got underway on the latter day for Kiukiang further up the Yangtze. Shifting his flag to Isabel, Admiral Yarnell then visited Hankow and Ichang in that ship, transferring thence on 22 May to Panay at Ichang for the voyage up the Yangtze through the gorges and rapids that lay above that port. After visiting Chungking, the CinCAF returned to Ichang in Guam (PR-3), where he rejoined Isabel for the trip to Hankow and Nanking. Admiral Yarnell eventually rejoined Augusta at Shanghai on 2 June 1937.

Clearing Shanghai on 7 June, Augusta sailed for North China and reached Chinwangtao on the 9th, where Admiral Yarnell disembarked with members of his staff to journey to Peking by rail, where the admiral would conduct the yearly CinCAF inspection of the legation guard. The admiral rejoined the cruiser at Chinwangtao on 22 June, and the ship salted soon thereafter for Chefoo (visiting that port on 24 and 25 June) and Tsingtao, arriving there on 26 June for the summer.

Augusta was conducting her usual training from that North China port when events elsewhere in that region took a turn for the worse. Political relations between China and Japan had been strained for some time. The Chinese attitude toward the steady and unrelenting Japanese encroachment into North China in the wake of the 1931 seizure of Manchuria was stiffening. Chiang Kai-shek, China's leader, asserted that China had been pushed too far, and launched feverish efforts to improve his nation's military posture. The Japanese eyed their giant neighbor warily.

On the night of 7 July 1937, in the outskirts of Peking, Japanese and Chinese units exchanged gunfire near the ornate Marco Polo Bridge. The incident quickly escalated into a state of hostilities in North China, with the Japanese taking Peking against little resistance by the end of July. Against this backdrop of ominous developments, Admiral Yarnell considered canceling a goodwill visit to the Soviet port of Vladivostok, but was ordered to proceed.

Keeping a wary eye on developments in China, Admiral Yarnell sailed for Vladivostok in Augusta on 24 July, his flagship accompanied by four destroyers. After passing through the edge of a typhoon en route, Augusta and her consorts reached that Soviet port (the Augusta is in the center of this photo of Vladivostok Harbor) on the 28th, and remained there until 1 August, the first United States naval vessels to visit that port since the closing of the naval radio station there in 1922. As Yarnell later wrote, "The visit of this force evidently has meant a great deal to these people," as both officers and men were lavishly entertained. It has been reported that upon learning of Augusta's port visit Stalin purged many Russian naval officers and sailors believing that through their fraternization (see photo) with the Americans they may have compromised Russian naval secrets or been recruited as intelligence agents.

Departing Vladivostok on 1 August, Augusta and the four destroyers sailed for Chinese waters, the latter returning to their base at Chefoo and Augusta returning to Tsingtao, where Admiral Yarnell continued to receive intelligence on the situation in North China and, as events developed, around Shanghai where increasing Chinese pressure on the comparatively small Japanese Special Naval Landing Force led to a build-up of Japanese naval units in the Whangpoo River leading to that port. The death of a Japanese lieutenant and his driver near a Chinese airfield on 9 August proved to be the spark that set the tinder box alight, as hostilities commenced within days. With considerable American interests in the International Settlement of Shanghai, Admiral Yarnell deemed it best to sail to that port to make it his base of operations. Accordingly, Augusta sailed for Shanghai on the morning of 13 August 1937.

Her passage slowed by a typhoon which caused the ship to reduce her speed to five knots and which produced rolls of as great as 30 degrees, in addition to wiping away the port 26-foot motor whaleboat and its davits, Augusta reached her destination the following day, and stood up the Whangpoo. Enroute to her moorings, she passed many Japanese warships, principally light cruisers and destroyers, who duly rendered the prescribed passing honors to Augusta's embarked admiral.

On 18 August, Augusta unmoored and shifted further upstream and moored off the Shanghai Bund, assisted in the evolution of turning 180 degrees in the stream by tugs. She would remain in that mooring, in a prominent position off the famous "Bund" into January 1938, observing the Sino-Japanese hostilities at close range.

Initially, there was the problem of evacuating Americans from the war zone. American merchantmen called at Shanghai to do so, passengers traveling downstream to waiting steamships on the Dollar Line tender guarded by sailors from Augusta's landing force. The flagship's marine detachment, meanwhile, went ashore to aid the 4th Marines in establishing defensive positions to keep hostilities out of the neutral enclaves.

Meanwhile, on 20 August at Shanghai proper Chinese Air Force planes (which were Northrop 2-E light attack bombers), had endeavored to drop bombs on Japanese positions in their portion of the International Settlement. They fell short and caused extensive damage and heavy loss of life in the neutral portion of the settlement. One plane, having retained its bombs, proceeded down the Whangpoo and dropped two bombs near Augusta, the missiles exploding in the water off the flagship's starboard side (click on the photo at right to view an enlarged photo of the bomb splash) at a time when a number of enlisted men who were beginning to assemble near the well deck for the regular evening movie program (see photo), resulting in one death and several wounded crew members. The crewman who was killed was twenty-one year old Seaman 1st  Class Freddie Falgout of Raceland, Louisiana. A memorial was established in his memory in 2001 in his hometown.

Soon thereafter, painters ascended atop Augusta's three main battery gunhouses and painted large American flags to identify more clearly the ship's nationality, and, thus, her neutral character.

Ten days later, Chinese planes bombed the American Dollar Line SS President Hoover off the mouth of the Whangpoo, with one death and several wounded. American ships ceased calling at Shanghai as a result, and Admiral Yarnell's attempts to get a division of heavy cruisers to carry out the evacuation met resistance from President Franklin D. Roosevelt.

At Shanghai, Augusta's officers and men found themselves with grandstand seats at an Asian war. Her moorings proved a splendid vantage point from which Americans could size up the Japanese Navy, and how well its ships and planes operated, an opportunity not lost on Admiral Yarnell, who sent insightful intelligence reports back to Washington, striving to alert the United States Navy to the character and capabilities of the navy many regarded as the future enemy.

On 12 December 1937, Japanese naval planes sank the gunboat Panay  and three Standard Oil tankers north of Nanking, in the Yangtze River. Soon thereafter, the ship's survivors arrived at Shanghai in Panay's sister ship, Oahu (PR-6), which moored alongside Augusta on the 19th. They spent Christmas with Augusta's crew.

• Roster of USS Panay survivors attached to USS Augusta

 

• For a brief chronology of the US Navy in Chinese waters during this period of time see the Yangtze Patrol & South China Patrol website