He tried to revive Liang, and for several years appeared to be successful in doing so, as he, with his capital at Jiangling, ruled over a state that included most of modern Hubei, Hunan, Guangxi, and northern Vietnam.
In 617, several military officers at Baling Commandery (巴陵, roughly modern Yueyang) considered rising against Sui rule.
At the same time, the agrarian rebel leader Shen Liusheng (沈柳生) was attacking Luochuan, and Xiao initially could not repel him.
Xiao, in shock, offered to resign, which led Shen to, in fear, beg for forgiveness.
Around the new year 618, Xiao Xian sent his general Su Hu'er (蘇胡兒) to attack another rebel leader, Lin Shihong the Emperor of Chu, who had earlier taken over most of modern Jiangxi and Guangdong.
Meanwhile, the Sui officials in the modern Guangxi and northern Vietnam regions, upon hearing that Emperor Yang had been killed in a coup led by the general Yuwen Huaji in spring 618, largely surrendered to Xiao.
Historical records indicate that Xiao's territory went as far east as Jiujiang, as far west as the Three Gorges, as far south as Jiaozhi (交趾, modern Hanoi, Vietnam), and as far north as the Han River, with more than 400,000 regular soldiers under his disposal.
In 619, Xiao made a push to expand his territory to the modern Chongqing and Sichuan region, then held by the Tang dynasty.
Xiao feared them, and therefore declared that his empire was peaceful and that the military should be cut back, in order to reduce the influences of the generals.
In spring 621, Emperor Gaozu made Li Xiaogong the commandant at Kui Prefecture (夔州, modern eastern Chongqing) and had him build a large fleet and train sailors to prepare for the attack against Liang.
Soon thereafter, the Tang general Guo Xingfang (郭行方) attacked Liang's Ruo Prefecture (鄀州, in modern Xiangfan, Hubei) and captured it as well.
With Yangtze River's water high and treacherous at that time, Xiao did not expect an attack from Tang, and he was caught by surprise.
Li Xiaogong defeated the Liang general Wen Shihong (文士弘) and approached Jiangling.
With Jiangling surrounded and Xiao's contact with the outside cut off, he, under suggestion by his official Cen Wenben, decided to surrender.
Xiao, not submitting to Emperor Gaozu's rebuke, responded: Sui lost its deer,[3] and the heroes sought after it.