The Second Sino-Japanese War had not been quickly resolved as had been promised by the Japanese military, and Prime Minister Konoe authorized the establishment of a central agency to coordinate all government activities and economic initiatives on the Chinese mainland, aside from the issue of formal diplomatic relations, which remained the preserve of the Ministry of Foreign Affairs. It was intended that the Kōain would sponsor industrial and commercial development, creating jobs and infrastructure, and thus boosting support for Japanese-rule in the occupied territories.
The Kōain established branch offices throughout Japanese-occupied China; however, its activities were quickly usurped by the Imperial Japanese Army, which hoped to limit all civilian involvement in China and which appointed General Yanagawa Heisuke to oversee its operations.
According to Chinese historian Zhifen Ju, the Kōain implemented a system of forced labor. She argues that until 1942, at least five million Chinese civilians from northern China and Manchukuo were enslaved for work in mines and war industries.
Also, per Japanese journalist Reiji Yoshida, the Kōain was directly involved in providing funds to opium dealers in China for the benefit of puppet governments of Nanjing, Manchukuo and Mengjiang. This document corroborates evidence analyzed earlier by the International Military Tribunal for the Far East which stated:
"Japan, having signed and ratified the opium conventions, was bound not to engage in drug traffic, but she found in the alleged but false independence of Manchukuo a convenient opportunity to carry on a worldwide drug traffic and cast the guilt upon that puppet state (...) In 1937, it was pointed out in the League of Nations that 90% of all illicit white drugs in the world were of Japanese origin....
The Kōain was absorbed into the Ministry of Greater East Asia in November 1942.