Before Charlie Chan leaves his boat upon arriving in Shanghai for his first visit in years, supposedly a vacation, a man stuffs a note in his pocket warning him not to leave the ship. At the docks, Chan is greeted by Philip Nash, Sir Stanley Woodland’s secretary, and by Diana Woodland, Sir Stanley’s niece. He is surprised by his son Lee, who was sent by his firm to look into the trade situation there.
At a banquet that evening that is being given in Chan’s honor, Sir Stanley opens a box that supposedly contains a special scroll for the detective. Suddenly, Sir Stanley is shot dead by a gun that had been rigged inside of the box. The box, whose intended victim was Charlie Chan, had been in Nash’s possession all day, and when questioned about this, he stated that he had had no reason to check the box’s contents.
Later that night, a man peers into the window of Chan’s hotel room, and, with a silencer on his gun, shoots the figure in Chan’s bed and flees. Lee, thinking that his Pop has been shot, runs into the room. Moments later, Charlie Chan calmly walks into the room. He shows an amazed and relieved Lee how he had placed pillows under the covers to give the appearance of his sleeping form.
The next day, when Chan calls for room service, the switchboard operator telephones Ivan Marloff letting him hear for himself that the detective is still alive. Chan then visits Diana, and after giving his condolences, learns that during the previous evening, someone had broken into her father’s library and had searched through his papers.
Back at the hotel, Chan is met by a man identifying himself as the chauffeur of Colonel Watkins, the chief of police. He hands the detective a note instructing Chan to accompany the chauffeur. After Chan leaves, Lee receives a telephone call from Colonel Watkins who says that he has not sent for Chan. Realizing the ruse, Lee tries to follow his father, but he is subdued by the driver of his taxi and is taken to the same house where Chan is being interrogated by Marloff, who is hidden in darkness. Chan and Lee trick the gang into believing that the police have followed them to the house. Through quick thinking and Lee’s vigorous fisticuffs, the father and son manage to escape.
Later, Chan visits James Andrews, a special agent from Washington, D.C., and they discuss Sir Stanley, who was a secret agent of the British government, and who had been cooperating with the opium committee of the League of Nations as well as with officials of the Chinese government to round up a gang of opium smugglers who operate out of Shanghai. While the two talk, Nash, now Andrews’ secretary, searches through his belongings in another room.
As Chan and Andrews continue their conversation, Chan glances at a mirror and notices a gun pointing through the door. Chan ducks just as the gun is fired and slams the door shut, thus trapping the weapon in the doorjamb. Nash’s thumbprint is found on the gun, and he is arrested.
Before he leaves, Chan secures a supposedly innocuous letter from Sir Stanley to Andrews that had been marked “important.” Heating the letter back at his hotel room, Chan discovers a hidden message that states that Sir Stanley had made an important discovery concerning Ivan Marloff. Chan thinks it odd and suspicious that earlier Andrews did not feel that the letter held any real importance. However, Andrews arrives at Chan’s room and, holding a cigarette lighter under the letter, reads the secret message.
Chan then goes with Andrews to search the house where he and Lee had been held. While there, Chan discovers a ink stamp pad in the fireplace. They then go to police headquarters where Diana arrives to see Nash. While she visits with him, she slips him a gun and they both escape.
Returning to his room, Chan finds that Lee has trailed the taxi driver who had earlier abducted him to a waterfront bar called the Verailles Café. Andrews calls Chan, stating that he has captured a member of the gang and has cracked the case. When Chan arrives at Andrews’ room, he sees Andrews beat a confession out of chauffeur that Marloff is at the Versailles Café. Andrews and Chan leave for the café, where, meanwhile, the fugitive Nash asks Marloff to put him on a boat for America. Calling Nash’s escape from jail a trick that was arranged by Charlie Chan, Marloff hits Nash, knocking him out, and tells his men to drop him overboard once the ship is out at sea.
Upstairs, Chan and Andrews follow the taxi driver into a room where the gang waits, hidden below a trap door. Searching through some boxes, Chan discovers that the wine bottles contain opium. Finding the trap door, Andrews suggests that Chan go below and signal authorities to run the boat to the government dock. Chan, feigning a faulty flashlight, delays his descent until the police, whom Lee has called, arrive and capture the gang after a shootout.
Chan reveals that it was Andrews’ valet who had attempted to shoot Chan earlier and that Nash’s thumbprint was put on the gun with a stamp pad because the gang had felt that he knew too much about Sir Stanley’s investigation. Andrews offers to remove the gang members to the government’s boat, but Chan pulls a gun and accuses him of being the real leader of the gang. Nash had discovered through Sir Stanley’s correspondence that the real Andrews neither smoked nor drank, yet the man posing as Andrews had earlier accepted Chan’s offer of scotch and soda and cigarettes. “You pretend to be G-man,” says the detective, “now turn out to be N.G.-man.”
Lee arrives with a wire photo of Andrews, who was killed three weeks earlier in San Francisco. Chan then sends Nash to comfort Diana. Although he was earlier annoyed that his son was always tying up the telephone talking with a girl, Chan allows his son one phone call to his female friend, to which Lee, imitating his father, says, “Thank you so much.”