Despite the fall of the Bei Song, the majority of scholar-officials refused to identify themselves with the conquerors. The same was generally true at the grassroots level, among numerous roving bands of former volunteer militias, army units that had disintegrated, and bandits who had arisen during the disorder. As time went on, both civilians and soldiers turned toward the pretender to the throne, Gaozong. He was the only son of the former emperor Huizong who had been absent from Kaifeng and thus spared captivity.

As the founder of the Nan Song, Gaozong devoted his long reign (1127–62) to the arduous task of putting the pieces together. He rediscovered the lost arts of his ancestors: recruiting bureaucrats, securing fiscal resources, and extending centralized control. Because he started with no more than a few thousand troops, he had to place a much greater reliance on sophisticated politics, which he often artfully disguised. By praising the old, established ways of his predecessors, he pleased the conservatives who remained opposed to the reform system. In reality, he modified the system he had inherited where it had obviously failed and pragmatically retained the parts that were working. He honored the scholar-officials who had refused to serve under the puppet rulers, but he was also glad to have those who had compromised their integrity in so serving. Although he denounced the notorious favorites who had misled his father, he used the excuse of being broad-minded in picking many of their former subordinates for key positions, especially those experienced in raising tax revenue. A new network of officials called the fiscal superintendent generals was set up in each region, but they reported directly to court. Urban taxes were increased; they were easier to collect than rural revenues, and prosperous cities did not suffer much from the imposition. The high priority placed on fiscal matters, though not publicized as in the previous reform period in order to avoid a bad image, persisted throughout the Nan Song, which was a long era of heavy taxation.

Some officials, anxious to recover the central plains, wished to have the capital located in Nanjing, or farther up the Yangtze in central China. Gaozong discreetly declined such advice because these locations were militarily exposed. Instead, he chose Hang (present-day Hangzhou), renaming it Lin’an (“Temporary Safety”), as it occupied a more defensible location. It was popularly referred to as the place of imperial headquarters (Xingzai), later known to Marco Polo as Quinsai. Economically, it had the advantage of being at the corner of the lower Yangtze delta, the wealthy core of the new empire.

The Nan Song, through continuous development, eventually became wealthier than the Bei Song had been. Though its capital was near the sea—the only such instance among the Chinese empires—and international trade increased, the country was not sea-oriented. Gaozong maintained a defensive posture against periodic Juchen incursions from the north and meanwhile proceeded to restore imperial authority in the hinterland as far west as the strategic Sichuan and in parts of Shaanxi to its immediate north.

No less important was the need for adequate military forces. Neither conscription nor recruitment would suffice. Because his position was militarily weak but financially strong, Gaozong adopted the zhao’an policy, which offered peace to the various roving bands. The government granted them legitimate status as regular troops, and it overlooked their minor abuses in local matters. Thus, the size of imperial forces swelled, and the problem of internal security was largely settled. The court then turned its attention to the control of these armies, which was inseparable from the issue of war or peace with the Juchen.

Gaozong did not want to prolong the war; he valued most the security of his realm. A few minor victories did not convince him that he could hope to recover northern China. Rather, he saw war as a heavy drain on available resources, with the risk of eventual defeat. Nor did he feel comfortable with the leading generals, on whom he would have to rely in case the war went on. He had to get around the critics at court, however, who found the Juchen peace terms humiliating and unacceptable: in addition to an enormous yearly tribute, the Juchen demanded that the Nan Song formally admit, with due ceremonials, its inferior status as a vassal state. The shrewd emperor found an impeccable excuse for accepting the terms by claiming filial piety: he sought the return of his mother from captivity. To this no Confucian could openly object. Significantly, Gaozong refrained from asking the release of former emperor Qinzong, as such a move would have called into question the legitimacy of his succession.

A dramatic crisis occurred in 1141. On the eve of concluding peace negotiations, Gaozong decided to strip the three leading generals of their commands. The generals, summoned to the capital on the pretext of rewarding their merits, were promoted to military commissioners, while their units were reorganized into separate entities directly under imperial control. Two of the generals reconciled themselves to the nominal honors and sizable pensions, but the third, Yue Fei, openly criticized the peace negotiations. He was put to death on a trumped-up charge of high treason. He later became the subject of a great legend, in which he was seen as a symbol of patriotism. At the time, however, his elimination signified full internal and external security for the court.