It might not be very obvious now, but Lijiang used to be part of a kingdom separate from the main dynasty which was ruling what will be known as China. At that time, the Naxi, the dominant ethnic group back then, were in charge of Lijiang and they had their own government. Beijing was so far away that they hardly had interactions with the Ming and Qing dynasty. The Mu family was the ruling family of Lijiang at that time and they essentially ruled like emperors. During the Qing dynasty, the rulers swore allegiance to the Qing and the Mu were rewarded with continued rule of Lijiang.
In addition, the Mu managed to get a new palace. The Mu Palace is naturally where the rulers came to govern and live. It was subsequently ravaged by war but it is now replaced with a replica of the old Mu Palace. The Mu Palace is considered the Forbidden City of the South and it can also be clearly seen from Lion Hill. Now, the Mu Palace is one of the top attractions here at Lijiang Ancient Town.
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