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Although historical anthropology has illustrated the relationship between the margin areas and the state, the role of the authority in between was by and large left unexplored. This paper will discuss this missing link with the case of Qing Outer Mongolia. After Outer Mongolia submitted to the Qing empire in 1691, Mongol-Han segregation was extended by the Qing government to Outer Mongolia. In spite of the segregation policy, some Han Chinese settlers (mostly merchants and farmers), violating the Qing laws, married Mongol women, raised children, and learned the Mongol way of life managed to live peacefully with the Mongols in Mongolia. This paper focuses on these Mongolized Shanxi settlers and their descendants in Outer Mongolia. Drawing on Mongolian and Chinese sources, this paper will delineate their background and life in Mongolia, demonstrate the changing process of their legal status and culture, and emphasize the critical role of the Great Shabi, the lay disciples of the Jibzundamba Khutugtu, in this process. This paper aims to explore the criteria that those Han Chinese settlers and their offspring needed to meet in order to be accepted and integrated into the borderland society, and the limits of integration due to state policies and laws. In this case, we will see how Han Chinese resorted to the local Mongol authority below the central state and managed to evade the sanction from the state.