Abaoji proclaims himself emperor of the Khitans

The Khitans lived east of the Greater Khingan range along the Xar Moron river, and from the 750s their khans came from the Yaonian clan. Abaoji of the Yila tribe became its chieftain in 901 and commander of all Khitan forces in 903; in 905 he led 70,000 horsemen into Shanxi and swore brotherhood with Li Keyong, the rival of Zhu Wen. On 27 February 907, backed by seven tribal chiefs, he replaced the last Yaonian khan; the History of Liao already calls that ceremony an accession to the imperial throne, but it is usually seen as his election as khagan. When in 910 he ignored calls to hand the office to another member of the clan, his brothers rose against him in 912 and 913 and plotted again in 917 and 918.

In the second lunar month of 916 officials led by Yelü Helu, chief of the Yila, petitioned Abaoji to take an imperial title; after the third petition he agreed. On 17 March the ministers and the subject peoples raised an altar east of Longhua — the walled town south of the Xar Moron that he had founded in 902 — and conferred on him the title of Great Sage and Great Bright Heavenly Emperor, and on his wife Shulü Ping that of Earthly Empress; an amnesty was declared and the first Khitan era name, Shence, proclaimed. A golden bell found when the altar was dug gave the place its name, Golden Bell Hill. On 6 April Abaoji named his eldest son, Yelü Bei, heir apparent — a break with the Khitan custom of electing their leaders.

The new monarchy borrowed Chinese forms while keeping its steppe base. In 918 Abaoji had a walled capital built — the future Supreme Capital, Shangjing — and decreed temples to Confucius, the Buddha and the Taoist deities; in 920 the Khitan large script, modelled on Chinese characters, was created, and later his brother Yelü Diela devised a more phonetic small script. Nomads were ruled by steppe custom, while settled Chinese and, after 926, Balhae subjects were governed by a separate civil administration on Chinese lines. The state called itself the Great Khitan; the dynastic name Great Liao was adopted under Abaoji’s son Taizong in 938 or 947.