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Dr. Hudson on Xi Jinping Thought: The Governance of China, Volume V Substance of Hudson's interview by China Daily
It's my good fortune to be able to share with Gym readers the inner workings of an email interview conducted between a China Daily writer and Dr. Michael Hudson regarding the contents of the recently released fifth volume of Xi Jinping Thought this being about The Governance of China. This process began in late January when China Daily writer Yang Gao contacted Dr. Hudson via email. Dr. Hudson is a Gym subscriber and we converse via email somewhat regularly, and it was after the publication of the Xi speech on China's Financial System that he contacted me about his exchange with China Daily, which he shared with me. Intrigued, I asked if I could publish what he provided to inform a much larger audience, and he agreed. So, with many thanks to Dr. Hudson and to China Daily for recognizing him as a credible voice, what follows are those materials. As a preface, I'll say all the commotion over Xi saying the Yuan should become an international reserve currency is coming from the new book which contains the speech I published a few days ago that was made just over two years ago, which means China's been working on building that financial system since then and isn't just now starting its construction and methodology. Here's how it began:
Dear Professor,
I hope this message finds you well. My name is Yang Gao, and I am a reporter with China Daily, China's largest English-language newspaper with an international readership.
I am currently working on a story that explores how scholars and analysts in North America view the ideas presented in Xi Jinping: The Governance of China, Volume V, with a particular focus on governance capacity and policy continuity.
I would be very grateful if you would be willing to share your views on China's governance approach and resilience. I would be happy to send you a brief list of questions by email, and you are very welcome to respond in writing at your convenience. If you prefer a phone or online interview, I would also be glad to accommodate your schedule.
I understand that you may not have had the opportunity to read the book itself. If helpful, I would be pleased to share a short English-language excerpt or summary of the relevant sections for reference. The questions would be limited in scope and would not require a significant time commitment.
Thank you very much for your time and consideration. I sincerely appreciate it and look forward to the possibility of hearing from you.
Best regards, Yang Gao
Dr. Hudson replied he hadn't read the book nor closely followed China's economy, so he asked for the provision of relevant excerpts. What follows are what he was provided. All formatting is original:
Advancing National Rejuvenation through Chinese Modernization
(Based on Xi Jinping, February 7, 2023)
This text outlines China's framework of "Chinese modernization" as a governance model developed through long-term historical experience rather than short-term policy experimentation. From a governance perspective, the speech emphasizes institutional continuity, strategic planning, and state capacity to manage structural and cyclical challenges—elements often associated with governance resilience.
- Historical Continuity and Path Dependence
The speech situates Chinese modernization within a long historical trajectory, arguing that China's current governance system emerged from repeated failures to transplant Western modernization models during the late Qing and Republican periods. These historical experiences underpin a core argument: modernization paths are not universal, and governance systems must be adapted to national conditions.
From this perspective, resilience derives not from institutional imitation, but from path-dependent learning and cumulative state-building. The Chinese Communist Party (CPC) is presented as the institutional vehicle that consolidated national sovereignty, social stability, and economic coordination—preconditions for long-term development.
- Centralized Strategic Planning and Long-Term Objectives
A central theme relevant to governance resilience is the emphasis on long-term planning over short-term optimization. The text highlights the continuity of national development goals across decades, including industrialization, technological self-reliance, and social development. [Me: finance lives in the SR; industry is LR]
The "two-stage" strategy toward mid-century modernization is framed as a stable strategic anchor, reducing policy volatility and enabling sustained investment in infrastructure, industry, education, and science. This approach contrasts with governance systems driven by electoral cycles, financial market pressures, or rapid policy reversals.
- State Capacity and Economic Coordination
The speech underscores the role of the state in coordinating markets rather than withdrawing from them. China's governance model is described as combining public ownership, market mechanisms, and macro-level coordination to ensure economic stability and social cohesion.
Particular emphasis is placed on preventing excessive polarization, managing capital, and maintaining public control over strategic sectors. From a resilience standpoint, this framework is presented as enabling China to absorb external shocks—financial crises, global downturns, or supply-chain disruptions—without systemic collapse.
- Social Stability and Inclusive Development
Chinese modernization is defined as fundamentally people-centered, with "common prosperity" positioned as a core objective. The speech argues that extreme inequality, common in capital-centered modernization models, undermines long-term stability. [Me: and the main cause of polarization is debt and rent-seeking. Xi said that homes are for living in, not speculative savings vehicles seeking asset-price gains.]
Policies such as poverty alleviation, public service provision, and regulated capital accumulation are framed as institutional mechanisms to prevent social fragmentation. Governance resilience here is linked not only to economic growth, but to social integration and legitimacy.
- Managing Contradictions through Institutional Flexibility
A notable feature of the text is its emphasis on managing contradictions rather than eliminating them. Governance is described as balancing efficiency and equity, innovation and stability, openness and self-reliance.
This dialectical approach allows for policy adjustment without abandoning strategic direction. Reform is portrayed as continuous but bounded—guided by overarching institutional principles rather than ad hoc experimentation.
- Risk Management and Crisis Preparedness
The speech explicitly addresses systemic risks, including economic slowdown, external pressure, and geopolitical uncertainty. Governance resilience is framed as the ability to anticipate risks, maintain strategic confidence, and mobilize institutional resources when crises emerge.
The emphasis on "struggle" is less ideological than structural: it refers to maintaining policy autonomy and institutional coherence under external constraints.
- An Alternative Modernization Paradigm
Finally, the text presents Chinese modernization as an alternative to Western, finance-driven development models. It challenges the assumption that privatization, deregulation, and capital dominance are prerequisites for modernization.
Instead, it proposes a model centered on public coordination, long-term investment, and social stability—one that claims relevance for developing countries seeking to escape cyclical crises, debt dependence, and deindustrialization.
Balancing Key Economic Relationships as a Source of China's Governance Resilience
In a speech delivered at the Central Economic Work Conference in December 2024, President Xi Jinping outlined China's assessment of its economic performance and, more importantly, articulated a framework for managing structural tensions in economic governance. Rather than focusing on short-term stimulus alone, the speech emphasizes institutional coordination, long-term planning, and the role of the state in stabilizing economic cycles—elements that distinguish China's approach from highly financialized Western economies.
The year 2024 is described as a challenging one, marked by rising external pressures and domestic headwinds. Economic growth showed a clear cyclical pattern, with early momentum, mid-year slowdown, and a recovery following policy interventions introduced in late September. These measures helped stabilize property and equity markets, restore confidence, and support broader economic recovery. The emphasis is not on market self-correction, but on timely and decisive policy coordination at the central level.
A central theme of the speech is the assertion that centralized leadership and policy coordination are essential to macroeconomic stability, particularly during periods of uncertainty. Economic governance is presented not as a fragmented process driven by market sentiment, but as a system requiring strategic oversight, institutional capacity, and long-term objectives. This framing reflects a view of the economy as a managed system rather than a purely market-driven one. [Me: all markets are shaped b public policy, especially fiscal and financial policy, and money/debt creation.]
The speech identifies several "key relationships" that must be balanced to ensure sustainable development. Among these, the relationship between an effective market and an active government is particularly notable. Markets are expected to play a decisive role in resource allocation, but within a framework shaped and safeguarded by the state. Government responsibilities include enforcing rules, preventing corruption, ensuring public safety, correcting market failures, and maintaining fair competition. At the same time, the state is cautioned against excessive intervention in micro-level business activity. The underlying principle is that well-regulated governance enhances, rather than suppresses, market efficiency.
Another critical relationship is that between aggregate supply and aggregate demand. Expanding domestic demand—especially household consumption—is framed not as a temporary policy response, but as a long-term strategic priority linked to both economic stability and national security. Supply-side reforms are to be pursued in tandem, with structural adjustment rather than indiscriminate expansion. This dual approach reflects an effort to maintain internal economic circulation while reducing vulnerability to external shocks.
The speech also highlights the importance of balancing new growth drivers with the upgrading of traditional industries. While technological innovation in areas such as semiconductors, artificial intelligence, and green technologies is strongly encouraged, traditional industries are not to be abandoned. Instead, they are to be modernized through digitalization and productivity improvements, ensuring employment stability and income generation. This gradual transition contrasts with models that rely on rapid deindustrialization or speculative capital flows.
A further emphasis is placed on managing incremental growth and existing assets simultaneously. After decades of rapid expansion, China's economic challenge is framed as one of improving efficiency rather than pursuing growth at any cost. Policies aimed at revitalizing underused assets, restructuring debt, and optimizing land and capital allocation are presented as tools to expand development space without fueling financial instability. This reflects an awareness of balance-sheet constraints at both the local government and systemic levels.
Finally, the speech addresses the relationship between economic scale and quality. China's large market size and industrial base are portrayed as structural advantages that can support technological upgrading and productivity gains. At the same time, the leadership acknowledges persistent imbalances in income and development levels, underscoring the need to align quality improvement with reasonable growth in output.
Following a Distinctive Chinese Path of Financial Development
In a speech delivered at a high-level seminar on financial development in January 2024, President Xi Jinping articulated a comprehensive framework for what he described as a "Chinese path of financial development," explicitly distinguishing it from Western financial models. The speech frames finance not as an autonomous profit-maximizing sector, but as a strategic public instrument serving long-term economic development, social stability, and national security.
Since the 18th CPC National Congress, China's leadership has sought to identify the underlying principles governing financial development under socialism with Chinese characteristics. Through institutional, theoretical, and policy innovation, the country has gradually formed a financial governance model defined by several core principles: centralized leadership by the Party, a people-centered orientation, prioritizing finance's service to the real economy, permanent vigilance against systemic risk, market-based and law-based financial innovation, supply-side structural reform in finance, coordinated opening-up and security, and an overall emphasis on stability and gradual progress.
A defining feature of this model is the insistence that finance must serve the real economy rather than dominate it. Financial activity is framed as a means to support productive investment, industrial upgrading, employment, and technological innovation, rather than speculative expansion. Preventing excessive financialization and ensuring alignment between financial capital and real economic needs are treated as fundamental governance objectives.
Another central theme is risk prevention, particularly the avoidance of systemic financial crises. Financial risk control is described as a permanent task, not a temporary response to shocks. Regulatory authorities are instructed to exercise strict, comprehensive supervision across market entry, prudential regulation, and behavioral oversight. Regulation is portrayed as an active and enforceable process, emphasizing accountability, inter-agency coordination, and strong enforcement against corruption and financial crime. Moral hazard is explicitly identified as a threat to financial stability.
The speech also outlines a long-term vision for building China into a "financially strong country." This vision is not limited to financial sector expansion, but rests on a strong real economic foundation. Core elements include a strong currency, a capable central bank, resilient financial institutions, effective regulation, well-developed financial markets, professional financial talent, and secure, autonomous financial infrastructure. Financial strength is thus framed as an extension of national economic and technological capacity, rather than an independent source of power.
On financial opening-up, the approach is explicitly cautious and institutional in nature. China seeks to improve the efficiency and global competitiveness of its financial system through rules-based, predictable opening, while maintaining clear safeguards for financial security. Emphasis is placed on regulatory alignment, negative lists, transparency, and orderly cross-border capital flows, alongside participation in international financial governance reform. Opening is treated as a calibrated process rather than an ideological commitment to unrestricted capital mobility.
Finally, the speech highlights the importance of financial culture and ethics. Financial governance is presented not only as a technical matter, but as a moral and institutional one. Principles such as honesty, prudence, long-term orientation, resistance to speculative excess, and strict legal compliance are emphasized as essential to preventing instability and maintaining public trust.
I was impressed just as I was regarding the financial system speech. IMO, the book represents Xi's refutation of Neoliberalism, and it's possible to see how China and Russia are following similar paths to negate Neoliberalism's ills.
What now follows is Dr. Hudson's reply to the questions submitted
Dear Yang,
Here are my answers to your questions. I hope they are not too long. I've tried to summarize my basic approach.
Michael Hudson
- China emphasizes long-term economic planning and policy continuity, which has allowed stable growth even under external shocks. In contrast, Western economies often focus on short-term financial returns. How do you assess the impact of this short-term orientation on economic resilience and societal well-being?
MH: Finance always has lived in the short run. And in contrast to the traditional industrial capitalism, finance capitalism aims at making capital gains by debt leveraging and "financial engineering," not industrial engineering. It extracts interest from labor by driving it - and its corporate employers - into debt, and by banks organizing monopolies in their role as "the mother of trusts."
U.S. firms in recent years have spent 92% of their cash flow (overall profits) on stock buybacks and dividend payouts aimed at increasing the price of their common stock. That leaves only 8% of their returns to be reinvested in building new factories and employing more labor to expand their production. The effect of financializing Western industry has thus been to cannibalize it to make purely financial gains.
Financial managers aim at the short-term, because that is how their salaries and bonuses are based. Investing in research and development or even building a new electric utility or other long-term projects will benefit future managers, not the present ones. IBM is one example. It was known for spending $10 billion on stock buybacks instead of undertaking R&D. The result is that it missed out on the computer revolution, whose gains it left to other companies.
General Electric and Boeing are other once-great engineering companies that were cannibalized to provide short-tern revenue to increase their stock prices. They became a model of how to manage a business, not what to avoid.
- Xi Jinping's framework prioritizes finance serving the real economy rather than speculative gains. From your perspective, how does this long-term orientation compare to Western financialization in shaping productive investment?
MH: Speculative gains are financial in character. They are deliberately created by using revenue to increase asset prices, not to expand the business. I am reminded of Sun Tzu's The Art of War: "Tactics without strategy is the noise before defeat."
Yet most of what the West reports as GDP consists of financial wealth, along with real estate and monopolies. Their gains are not earned by productively employing labor, but in ways that slow investment in the means of production to make short-term hit-and-run gains.
- China's centralized leadership and strong institutions ensure coordinated economic strategies and crisis management. How does the decentralized, market-driven structure in Western countries affect their ability to respond to financial shocks?
MH: There is no such thing as a "pure market." All markets are shaped by governments, especially by the tax system, and by the vested interests. In Western economies, neoliberal rentier capitalism has deregulated government protection of industry and of wages and living standards, by untaxing financial rent-seeking and shifting the tax burden onto industry and labor.
This causes Western economies to polarize, benefiting the wealthiest Ten Percent (especially the One Percent) at the expense of the Ninety Percent of the economy at large. The result is a class war and a zero-sum economy (actually, a negative-sum economy) instead of a growing and more prosperous economy.
- In China, regulatory continuity and institutional capacity are used to mitigate systemic risks. Could the lack of similar continuity in Western systems explain the recurring financial crises?
MH: Western crises occur as a result of the replacement of the original dynamic of industrial capitalism by that of finance capitalism. In the financial sphere, the exponential dries in an economy's debt - that is, the savings of the creditor class - exceed the ability of economies to pay this debt. The result is a crash when debt defaults occur. That is what is stifling Wester economies today.
In addition to financial rentier income, other forms of economic rent - land rent and monopoly rent, as well as financial privileges - are made by landlords and monopolists "in their sleep," not by active productive activity. The result is that interest and other forms of economic rent leave less and less income available for industrialists to make a profit.
David Ricardo explained this dynamic as it applied to landlords, and the entire spirit of classical political economy in the 19th century sought to tax away land rent or socialize land as a public utility. By the end of the century, Marx explained that finance had replaced landlords as the main rent recipients making income and wealth "in their sleep."
Industrial capitalism seemed to be evolving into socialism because that was more economically efficient in reducing the economy's unnecessary costs, and using income to expand capital investment and employ labor at rising wages because high-wage labor was more productive than low-wage "pauper labor." But from today's financial vantage point, the new class war is being led by the financial interests that have used their wealth to take control of government policy in the West.
That explains the Western antagonism toward China: The problem is not merely that China is more successful. It is that China's success is in being a socialist economy, not a financialized short-term economy polarizing between a predatory rent-extracting class at the top and an increasingly indebted economy at the bottom. The conflict is between different economic systems - and China's success shows that the Western neoliberal finance capitalism is not competitive and hence has become obsolete.
The final product of all this effort was the following article published by China Daily on 30 January 2026, all format original:
Xi's book wins acclaim amid intl turbulence
Latest volume offers alternative growth path, highlights pragmatic governance
By Yang Gao in Toronto, May Zhou in Houston, Helio Rocha in Juiz De Fora and Zhao Jia in Beijing
Amid growing global uncertainty, the fifth volume of Xi Jinping: The Governance of China is attracting international attention as analysts say the book provides a detailed look at China's governance practices, focusing on practical measures rather than slogans or abstract theory.
They said it highlights how China draws on its long-standing civilization to address modern challenges, navigate complex global changes and offer an alternative development path through example rather than coercion.
First published in 2014, Xi Jinping: The Governance of China has grown into a five-volume series, translated into more than 40 languages and reaching readers in over 180 countries and regions. The fifth volume was released in July in both Chinese and English.
Kenneth Hammond, a history professor at New Mexico State University, said one concept that stands out in the fifth volume is governance resilience, which he linked to the dialectical relationship between theory and practice.
"China's ability to creatively draw on those elements within its 5,000-year cultural heritage that can contribute to the modern tasks of socialist construction has been vital to its success," he said, adding this emphasis on review and adjustment has been critical to China's modernization.
The book reveals that China's development path stands in contrast to Western approaches to modernization, he said. "The idea of 'socialism with Chinese characteristics' directly implies that other countries, other peoples, will have their own paths toward the future."
Unlike "the recent era of Western hegemony", he said China does not seek to impose its model on other countries, but offers its vision of a future of shared prosperity and a new multicentric world order.
Ben Norton, a United States political analyst and founder of the media outlet Geopolitical Economy Report, said the book reflects an approach to governance built around long-term planning, state capacity and pragmatic problem-solving.
He highlighted China's ability to maintain policy continuity across decades. "China's socialist market economy system has brilliantly managed to create a balance between public ownership and market forces."
This approach, he added, has helped China avoid the pitfalls of speculative finance and rent-seeking that dominate Western economies.
"China's model has shown that a government can serve the needs of the people, significantly raise living standards for the working class, and keep the commanding heights of the economy publicly owned, while also encouraging entrepreneurs to engage in productive commercial activity," he said.
As Western economies grapple with recurring financial instability and rising inequality, Michael Hudson, a distinguished research professor of economics at the University of Missouri, said China offers a fundamentally different approach to economic governance.
The principles outlined in the fifth volume reflect a system that prioritizes productive investment and social stability over short-term financial gains, he said.
"Finance always has lived in the short run," he said. In contrast, he added, China's governance framework repeatedly stresses that finance should serve the real economy rather than speculative interests.
Jon Taylor, chair of the Department of Political Science and Geography at the University of Texas at San Antonio, said that even a preliminary look at the fifth volume highlights issues central to China's current development agenda.
"What's fascinating about it is it's touching upon some topics that are really important thematically for China right now," Taylor said.
He stressed the idea of new quality productive forces, highlighting their role in fostering advancements in high-tech and smart technologies.
"This has led to alarm bells in the West, particularly in the US," he said. "All of a sudden, people are screaming and yelling that China's going to take over the world. China's not going to take over the world."
Integrated view
Melissa Cambuhy, an economics professor and president of the iBRICS+ think tank in Brazil, said the book mirrors an unstable world where risks are interconnected.
"I emphasize the integrated view of development and security," Cambuhy said. "Health, climate, technology and finance require cooperation instead of conflicting and exclusionary blocs.
"The distinctive feature is treating domestic sustainability as a precondition for external credibility," she said. "China links internal goals of decarbonization, clean reindustrialization and common prosperity to an international offer of green infrastructure, accessible financing and technology transfer."
Through this approach, she said the vision of building a community with a shared future for humanity "stops being rhetoric and becomes a framework for cooperation grounded in common development".
Tiago Camarinha Lopes, a professor of political economy at the Federal University of Goias in Brazil and a visiting researcher at Northeast Normal University in China, said President Xi, in the book, presents new elements, outlining mechanisms to create and maintain a multilateral global order.
Moving away from confrontation-driven frameworks could help reduce ideological tension, he said. "It is necessary to abandon divisive dichotomies such as 'democracy versus authoritarianism' and 'liberalism versus autocracy'."
Quite a lot for one paragraph of comment which shows just how much remains on the cutting room floor. From the content provided, it appears this is the most important volume to-date of Xi Jinping Thought as it attacks Neoliberalism and provides policy prescriptions for China's present and future. I'm tempted to suggest the final product represents the work of a collective because no man is an island and much of what China does stems from collective thought, discussion and effort. A lot of new economic thinking is emerging from China as its political-economy is unique so the old measures and policy norms don't apply, which IMO is very healthy. As usual, I must point to Warwick Powell's newest essay dealing with Systemic Exchange Value and GDP as new ways are sought to better measure economic performance. The bankruptcy of the Rules Based Order and its system of politics and economics is now well outed ironically at the seat of those who fancied being its managers. China's correct to emphasize that all nations must develop their own development pathways because one-size doesn't fit all, although there are general guidelines to follow: Public ownership of credit creation so the economy remains people-centered being two fundamentals to avoid the Western Trap. Xi is also wise enough to know contradictions will arise and mistakes will be made, so they must be anticipated and looked for. Thus, the continual process/policy of modernization while adhering to long term goals. Doesn't that sound like a rational socially responsible business plan?