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Victory in northern China

In 1251, Kublai's eldest brother Möngke became Khan of the Mongol Empire, and Khwarizmian Mahmud Yalavach and Kublai were sent to China proper. Kublai received the viceroyalty over northern China and moved his ordo to central Inner Mongolia. During his years as viceroy, Kublai managed his territory well, boosted the agricultural output of Henan, and increased social welfare spending after receiving Xi'an. These acts received great acclaim from ethnic Han warlords and were essential to the founding of the Yuan dynasty. In 1252, Kublai criticized Mahmud Yalavach, who was never highly valued by his ethnic Han associates, over his cavalier execution of suspects during a judicial review, and Zhao Bi attacked him for his presumptuous attitude toward the throne. Möngke dismissed Mahmud Yalavach, which met with resistance from Han Confucian-trained officials.

In 1253, Kublai was ordered to attack Yunnan and he tried to ask the Dali Kingdom to submit. The ruling Gao family resisted and killed Mongol envoys. The Mongols divided their forces into three. One wing rode eastward into the Sichuan basin. The second column under Subutai's son Uryankhadai took a difficult route into the mountains of western Sichuan. Kublai went south over the grasslands and met up with the first column. While Uryankhadai travelled along the lakeside from the north, Kublai took the capital city of Dali and spared the residents despite the slaying of his ambassadors. The Dali emperor Duan Xingzhi (段興智) himself defected to the Mongols, who used his troops to conquer the rest of Yunnan. Duan Xingzhi, the last king of Dali, was appointed by Möngke Khan as the first tusi or local ruler; Duan accepted the stationing of a pacification commissioner there. After Kublai's departure, unrest broke out among certain factions. In 1255 and 1256, Duan Xingzhi was presented at court, where he offered Möngke Khan maps of Yunnan and counsels about the vanquishing of the tribes who had not yet surrendered. Duan then led a considerable army to serve as guides and vanguards for the Mongol army. By the end of 1256, Uryankhadai had completely pacified Yunnan.

Kublai was attracted by the abilities of Tibetan monks as healers. In 1253 he made Drogön Chögyal Phagpa of the Sakya school, a member of his entourage. Phagpa bestowed on Kublai and his wife, Chabi (Chabui), an empowerment (initiation ritual). Kublai appointed Lian Xixian (1231–1280) the head of his pacification commission in 1254. Some officials, who were jealous of Kublai's success, said that he was getting above himself and dreaming of having his own empire by competing with Möngke's capital Karakorum. Möngke Khan sent two tax inspectors, Alamdar (Ariq Böke's close friend and governor in North China) and Liu Taiping, to audit Kublai's officials in 1257. They found fault, listed 142 breaches of regulations, accused Han officials and executed some of them, and Kublai's new pacification commission was abolished. Kublai sent a two-man embassy with his wives and then appealed in person to Möngke, who publicly forgave his younger brother and reconciled with him.

The Daoists had obtained their wealth and status by seizing Buddhist temples. Möngke repeatedly demanded that the Daoists cease their denigration of Buddhism and ordered Kublai to end the clerical strife between the Daoists and Buddhists in his territory. Kublai called a conference of Daoist and Buddhist leaders in early 1258. At the conference, the Daoist claim was officially refuted, and Kublai forcibly converted 237 Daoist temples to Buddhism and destroyed all copies of the Daoist texts. Kublai Khan and the Yuan dynasty clearly favored Buddhism, while his counterparts in the Chagatai Khanate, the Golden Horde, and the Ilkhanate later converted to Islam at various times in history – Berke of the Golden Horde being the only Muslim during Kublai's era (his successor did not convert to Islam).

In 1258, Möngke put Kublai in command of the Eastern Army and summoned him to assist with an attack on Sichuan. As he was suffering from gout, Kublai was allowed to stay home, but he moved to assist Möngke anyway. Before Kublai arrived in 1259, word reached him that Möngke had died. Kublai decided to keep the death of his brother secret and continued the attack on Wuhan, near the Yangtze. While Kublai's force besieged Wuchang, Uryankhadai joined him. The Song minister Jia Sidao secretly approached Kublai to propose terms. He offered an annual tribute of 200,000 taels of silver and 200,000 bolts of silk, in exchange for Mongol agreement to the Yangtze as the frontier between the states. Kublai declined at first but later reached a peace agreement with Sidao.