The demarcation line at which the Allies divided former French Indochina into two military operational zones on 2 August 1945. This decision was taken as part of the Potsdam Conference (July–August 1945). The French were not present. Given that no one knew the Japanese would capitulate two weeks later, the Allied powers created these two military operational zones as the war effort fully focused on Asia.
Following the Japanese surrender, President Harry Truman approved Order number 1 allowing the British and the Chinese to disarm Japanese troops in Indochina. As a result, Republic of China troops were authorized to disarm Japanese forces and to maintain order in northern Indochina above the 16th parallel for the China Theater, while British troops would do the same below that line on behalf of the South East Asia Command.
On 28 August, British General Douglas Gracey became chief of the Army Control Commission and commander of Allied Forces for the occupation of French Indochina below the 16th parallel. His main tasks were to maintain law and order, disarm the Japanese, and to locate and repatriate Allied prisoners of war. Starting in Saigon on 23 September, the British began facilitating the return of the French to the lower half of Indochina, including all of Cambodia, the southern tip of Laos and the lower part of Vietnam (covering all of colonial Cochinchina and southern Annam).
Because the Chinese occupation forces under the command of General Lu Han refused to overthrow the Democratic Republic of Vietnam (DRV) or to let the French do it, the Republic of China effectively delayed the return of the French and allowed the DRV to operate free of the French above the 16th parallel while at war with them below that line. This began to change following the signing of the Franco-Chinese accord of 28 February and the 6 March Accords of 1946, allowing the French to relieve the Chinese of their occupation duties by stationing some 15,000 troops above the 16th parallel. It was only when the bulk of the Chinese troops began pulling out of northern Indochina between June and September 1946 that the French intensified their efforts to restore their rule to upper Indochina.
Following the outbreak of full-scale war on 19 December 1946, the political significance of the 16th parallel largely disappeared. However, the international division of Vietnam was not yet a thing of the past: During the Geneva Conference of 1954, it was agreed that Vietnam would be divided provisionally at the 17th parallel.