Kublai Khan’s ascendancy in 1260 marked a definite change in Mongol government practice. Kublai moved the seat of Mongol government from Karakorum in Mongolia to Shangdu (“Upper Capital”), near present-day Dolun in Inner Mongolia. In 1267 the official capital was transferred to Zhongdu, where Kublai ordered the construction of a new walled city, replete with grand palaces and official quarters, that was renamed Dadu (“Great Capital”) before its completion. Under its Turkicized name, Cambaluc (Khan-baliq, “The Khan’s Town”), the capital became known throughout Asia and even Europe. But, true to nomad traditions, the Mongol court continued to move between these two residences—Shangdu in summer and Dadu in winter. With the establishment of Dadu as the seat of the central bureaucracy, Mongolia and Karakorum no longer remained the center of the Mongol empire. Mongolia began to fall back to the status of a northern borderland, where a nomadic way of life continued and where Mongol grandees, dissatisfied with the growing Sinicization of the court, repeatedly engaged in rebellions.

Kublai, who even prior to 1260 had surrounded himself with Chinese advisers such as the eminent Buddho-Daoist Liu Bingzhong and several former Jin scholar-officials, was still the nominal overlord of the other Mongol dominions (ulus) in Asia. By then, however, his Chinese entourage had persuaded him to accept the role of a traditional Chinese emperor. A decisive step was taken in 1271 when the Chinese dominion was given a Chinese dynastic name—Da Yuan, the “Great Origin.” Before this the Chinese name for the Mongol state was Da Chao (“Great Dynasty”), introduced about 1217. It was a translation of the Mongol name Yeke Mongghol Ulus (“Great Mongol Nation”) adopted by Genghis Khan about 1206. The new name, however, was a departure from Chinese traditions. All earlier Chinese dynasties were named for ancient feudal states or geographic terms; even the Khitan and the Juchen had followed this tradition by naming their states Liao (for the Liao River in Manchuria) and Jin (“Gold,” for a river in Manchuria that had a Juchen name with that meaning). Yuan was the first nongeographic name of a Chinese dynasty since Wang Mang established the Xin dynasty (9–25 ce).

During the 1260s the central bureaucracy and the local administration of the Chinese empire were remodeled on Chinese lines, with certain alterations introduced by the Jin state. The Central Secretariat remained the most important civilian authority, with specialized agencies such as the traditional six ministries of finance, war, officials, rites, punishments, and public works. The Shumiyuan (Military Council) was another institution inherited from previous dynasties. A Yushitai (Censorate) was originally created for remonstrations against the emperor and criticism of policies, but increasingly it became an instrument of the court itself and a tool to eliminate other members of the bureaucracy. In the main the territorial divisions followed Chinese models, but the degree of local independence was much smaller than it had been under the Song; the provincial administrations were actually branches of the Central Secretariat. The structures of the various provincial administrations throughout China were smaller replicas of the Central Secretariat. According to Chinese sources, in 1260–61 the lower echelons in the Central Secretariat were mostly Chinese; the high offices, however, even if they had traditional Chinese names, were reserved for non-Chinese. Surprisingly, Kublai Khan had few Mongols in high administrative positions; apparently suspicious of some of his tribal leaders, he preferred absolute foreigners. The military sphere was affected least by the attempts to achieve a synthesis between Chinese and native ways of life; there the Mongol aristocracy remained supreme.

Too many antagonistic social and ethnic groups existed within the Yuan government to secure a stable rule. The traditional Chinese value system had largely disappeared, and no political ethics had replaced it. While personalized loyalty focused on the ruler, the companionship of nökör relations was not enough to amalgamate the heterogeneous ruling group into a stable body. This unbalanced system of government could function only under a strong ruler; under a weak or incompetent emperor, disintegration was certain, and a decline in efficiency resulted.

The former scholar-officials of China remained to a great extent outside the governmental and administrative structure; only minor positions were open to them. The Mongols never made full use of the administrative potential of the scholar-officials, fearing their competence and abilities. The ruling foreign minority in China was more an elite of the colonialist type than a part of the Chinese social system.

The unwillingness of the Mongols to assimilate with the Chinese is shown by their attempts to cement the inequalities of their rule. After the Song empire had been conquered, the population of China was divided into four classes. The first class was the Mongols themselves, a tiny but privileged minority. Next came the semuren (“persons with special status”), confederates of the Mongols such as Turks or Middle Eastern Muslims. The third group was called the hanren (a term that generally means Chinese but that was used to designate the inhabitants of only northern China); this class included the Chinese and other ethnic groups living in the former Jin state, as well as Xi Xia, Juchen, Khitan, Koreans, Bohai, and Tangut, who could be employed in some functions and who also formed military units under Mongol leadership. The last group was the nanren, or manzi, pejorative terms in Chinese, meaning “southern barbarian,” which designated the former subjects of Song China (about three-fourths of the Chinese empire). The lowest stratum in Yuan China was occupied by enslaved people, whose numbers were quite considerable. Enslavement was hereditary, and only under certain conditions could an enslaved person be freed.

More than four-fifths of the taxpayers came from the nanren group, which was generally barred from holding higher office (only rarely would one of them rise to some prominence). The Mongols and the semuren were tax-exempt and enjoyed the protection of the law to a higher degree than did the hanren and nanren.

The formal distinction between various ethnic groups and the corresponding graded status was not a Mongol invention but a social differentiation inherited from the Jin state. In the same way, many institutions were taken over from the Jin. Law in Yuan China was based partly on the legislation of the Jin and partly on traditional Chinese law; Mongol legal practices and institutions also played a great role, particularly in penal law. The Yuan legal code has been preserved in the dynastic history, Yuanshi, as well as other sources. In addition, many rules, ordinances, and decisions of individual cases are collected in compilations such as Yuandianzhang, which throw much light not only on the legal system but also on social conditions in general.

Mongol and Chinese dualism is also reflected in the problem of administrative documents and languages. Few of the ruling Mongols, even in the later years of the Yuan, knew Chinese, and the number who mastered the Chinese script was still smaller. On the other hand, only a few Chinese bothered to learn the language of their conquerors. Administration and jurisdiction therefore had to rely largely on interpreters and translators. Mongol was the primary language; most decisions, ordinances, and decrees were originally drafted in Mongol, and a Chinese interlinear version was added. This Chinese version was in the colloquial language instead of the formal documentary style, and it followed the Mongol word order so that it must have seemed foreign to the native literati. Many of these Chinese versions have survived in collections such as Yuandianzhang.