In July 1926, the armies of the Northern Expedition arrived in Hunan, and Liu was tasked to set up a provincial government.
On May 21, 1927, after the breakdown of the First United Front between the Kuomintang and the CCP and the start of the Chinese Civil War, Liu participated in the Mari Incident in Changsha.
After the failure of the Nanchang Uprising, he fled to Hong Kong, where his English language skills enabled him to contact the Swire Group in Sai Kung.
Xia framed Liu and 1,500 other communists as being secret members of the Kuomintang's Anti-Bolshevik group.
In 1957, after the founding of the People's Republic of China, Mao Zedong wrote a Reply to Li Shuyi to Liu's widow.