He was instrumental in introducing and implementing economic reforms that transformed China into a socialist market economy by participating in the development of the ideological concept of a primary stage of socialism.

[1]: 77  Xue joined the Chinese Communist Party (CCP) at age 23, and studied Marxism and economics while imprisoned by the Nationalist forces[1]: 77  for his activism in the railroad workers movement.

[1]: 77  As part of this research, Xue surveyed his own home town, documenting its significant levels of development and agricultural production during the period of the Jiaqing Emperor "and compared this with the pitiable state of opium addiction and gambling financed by excessive rent extraction in Xue's own time.

[1]: 77  The CCP's economic goal at the time was to drive out the Nationalists' competing currency from areas liberated by the communists.

[1]: 77–78  The communists’ first attempt to do so in Shandong (relying on administrative measures to set exchange rates arbitrarily) failed.

[1]: 78  He also disagreed with those in the party who advocated for backing the CCP's paper money with precious metals because “[d]uring a period of material shortage, food and cotton are more valuable than gold and silver, which cannot full stomachs and protect against the cold.”[1]: 78–79  At Xue's advice, the CCP revived the traditional “salt channel” which in turn allowed it to build up stocks of essential goods and competing currencies.

[1]: 79  Gradually, the CCP came to control the profitable salt trade, and used the revenue to support its military and secure the value of its currency.

[1]: 287 He published his reformist economic thinking in the late 1970s, particularly his influential volume China's Socialist Economy.

[1]: 287  Although an initial proponent of the gradual creation of markets by the state, Xue came to support "package reform.

[5] Xue's suggestions were abandoned at the 6th Plenary Session of the 11th Central Committee held in June 1981 because they failed to solve the problems facing agriculture.

[6] From the 6th Plenary Session onwards, the CCP led by Wan Li began supporting the de-collectivization of agriculture.

[7] He referred to the changes underway in the agricultural system as the creation of a new mode of production and called it the socialist commodity economy.