The Jin conquest of North China in 1127 once again sundered China in two, just as in the Period of Disunion that followed the nomad invasions of the early fourth century. For the next two and a half centuries North China was ruled by foreign conquerors, first the Jurchen and then the Mongols, while the refugee Song court retained control of the southern half of the empire. The military and fiscal dilemmas that had bedeviled the Northern Song leadership persisted unabated throughout the Southern Song. Yet ambitious programs of state-led reform, exemplified by Wang Anshi's New Policies, lost favor after the debacle of 1127. During the Southern Song period, the ascendant Neo-Confucian political philosophy stressed moral rejuvenation and community-based reforms under local leadership rather than state-driven institutional transformation. Nonetheless, the turn toward monetization of taxes and procurement of military provisions through market mechanisms continued and even intensified during the Southern Song. In any event, in the early thirteenth century the state's ability to manage its fiscal affairs abruptly deteriorated. The outbreak of renewed war with the Jin and civil war in Sichuan in 1205–08 utterly bankrupted the central government, forcing it to resort to ruinous fiscal and monetary policies. The Mongol conquest of the Jin in 1234 only heightened frontier tensions. After the Mongol invasions of the Southern Song began in earnest in 1257, the Song leadership again attempted radical reforms, such as an ill-fated program of confiscating lands from great landowners in the Yangzi Delta, with disastrous results. In 1276 the Mongols under the leadership of Qubilai, grandson of the great khan Chinggis, seized the Song capital of Hangzhou, and in 1279 the Mongols deposed the last Song emperor.

The loss of the Central Plain and the relocation of the Southern Song capital to Hangzhou reinforced the preeminence of Jiangnan as both the agricultural and commercial heartland of the Song Empire. Swelled by refugees from the north, Jiangnan's population grew by nearly 50 percent between 1102 and 1223, in contrast to an estimated 9 percent increase for the Southern Song territories as a whole. Market towns and trade networks sprang up in the wake of the rapid advance of rice paddy polders across the plains of the Yangzi Delta, linking rural producers of grain and silk to Hangzhou and other major cities.