The political development of the Chinese Communist Party (CCP) during WWII was impressive, and scholars have argued that its effective peasant mobilization campaign was the key to its success. While the CCP’s domestic adversary, the Kuomintang (KMT), also spent great efforts in peasant mobilization, their outcomes were rather disappointing. Scholars have debated the reasons and mechanisms behind the CCP’s successful mobilization efforts, with most conventional explanations pointing to the CCP’s manipulation of strong anti-Japanese nationalism and a social revolution movement that benefited the peasantry. Nevertheless, this paper has found existing explanations to be false. Instead, I argue that the CCP’s success in peasant mobilization came from their ability to utilize local-level institutions, which established the party’s authority over the local population and allowed it to interact with the peasantry in the most intimate aspects of their daily lives. This paper uses a comparative case study of the CCP’s peasant mobilization effort in the Shaan-Gan-Ning Border Region and the KMT’s parallel efforts in Shaanxi Province to test the argument and demonstrate its causal mechanism. I find that, while the CCP’s creation and utilization of decentralized local-level institutions established the party as a legitimate figurehead of the masses, the KMT’s attempt to strengthen centralized state institutions and use them to enforce control over the masses through a top-down approach failed abysmally. The findings of this paper shed new light on the study of wartime mobilization and wartime institutions, as well as the state formation process of the PRC.