After the Jingkang Incident in 1127, Emperor Gaozong's father, eldest brother and most of his close relatives were taken prisoner by the Jurchen-led Jin Empire.

In July 1162, Emperor Gaozong officially designated Zhao Shen as his crown prince and heir apparent.

During the reign of Emperor Xiaozong, the Chinese increased the number of trade missions that would dock at ports throughout the Indian Ocean, where Arab and Hindu influence was once predominant.

In 1166, the lesser lord of agricultural supervision, Mo Chi remonstrated to the emperor, criticizing him for dismissing councilors and other officials only having served for a few months.

In 1163 chief councilors were appointed to positions of Commissioners of military affairs, and in 1167 they were also granted financial authority with the titles of controller of national finance (Zhi Guoyongshi).

Xiaozong began to directly issue palace orders (nei-pi) and imperial decrees (yu-pi) without prior consultation with councilors to enhance his power in other areas.

[2]: 722–723 According to Dieter Kuhn, Emperor Xiaozong "is said to have spent ten sleepless years after issuing huizi" and was the main driving power behind attempts to stabilize the monetary system.

In 1166 the Emperor bought back two million silver ounces worth of circulating huizi and had them burned, as well as decreeing that paper notes could be accepted for payment of taxes and fees.

In 1178 Huang Chouruo stated in a report to the throne: “If [huizi] are few, they are expensive, if there are many, they are cheap.” In 1186 there were around 20 million strings of cash in issue.

[3]: 240  He closely supervised the court and central government to make sure power remained balance among high officials and tried in earnest to live up to Confucian standards of moral behavior.

Xiaozong was stricken with grief and retreated from governing, insisting on mourning Gaozong and stating that he would only rule for two more years.

Xiaozong is also said to have been suffering from mental illness in the last two years of his reign, which encouraged him to follow the example of his stepfather Gaozong and retire.