Ensuring High-Quality, Rule-Based Development in the Private Sector
Last week, a draft law aimed at promoting China's private sector was released for public feedback, representing a major step forward in establishing a law-based business environment in the country.
TroibNews 
Editor’s note: Ma Xiaobai serves as the director and researcher at the Research Office of Multinational Enterprises, Research Institute of Enterprises, Development Research Center of the State Council, while Chen Gong is a PhD fellow at the Education and Training Center for Officials and Entrepreneurs under the State-owned Assets Supervision and Administration Commission of the State Council. This article represents the authors' views and not necessarily those of CN. It has been translated from Chinese and edited for conciseness and clarity.
Last week, a draft law aimed at promoting China's private sector was released for public opinion, representing a significant step forward in establishing a law-based business environment. The private sector is essential for Chinese modernization and constitutes a crucial foundation for high-quality development.
The private economy in China exhibits significant features, often summarized by the "five-six-seven-eight-nine" metrics, including over 50% of tax revenue, more than 60% of GDP, over 70% of technological innovation achievements, more than 80% of urban employment, and over 90% of all enterprises. The private sector's growth is evident, with the number of private enterprises rising from over 10 million in 2012 to more than 55 million by May 2024, highlighting its vital role in pushing forward Chinese modernization.
The Chinese government has consistently emphasized the growth of the private sector, reinforcing the nation's economic foundations and reiterating its commitment to the "two unwavering principles": steadfastly strengthening the public sector and actively supporting the private sector's development. The release of this draft for public feedback aligns with key aims from the third plenary session of the 20th Central Committee of the Communist Party of China, which seeks to elevate confidence, motivation, and innovation within the private economy.
The draft law clearly establishes the legal status of the private sector, providing a robust legal framework for its quality development, with several noteworthy aspects.
First, it guarantees fair market competition for private enterprises. It addresses the discriminatory practices many face, especially in accessing critical production resources such as land and energy. A dedicated chapter on fair competition highlights that all economic entities, including private firms, should have equal access to market areas not on the negative list. Furthermore, it mandates that government entities implement fair competition reviews for all new policies to ensure that private enterprises can compete effectively.
Second, the draft encourages investment and financing within the private sector. The existing barriers of costly and challenging financing hinder the growth of private enterprises. The draft includes a dedicated section on investment promotion, aiming to facilitate private sector involvement in major national initiatives, enhance risk-sharing mechanisms for financing, optimize the investment climate, and lower transaction costs.
Third, it enhances the private sector's role in technological innovation, where it plays a substantial part in China's progress. Private enterprises contribute over 50% of R&D investment, more than 70% of technological innovation outcomes, and are responsible for over 80% of specialized firms that produce unique products. The draft supports these enterprises in developing new productive forces, addressing key scientific and technological challenges, and leading major R&D projects.
Fourth, it safeguards the legal rights of private enterprises, addressing issues like delayed payments. A specific chapter on rights protection prohibits unlawful interference in economic disputes and ensures that payment processes are established to manage and resolve issues related to delays.
Establishing a rule-based business environment is vital. This draft law represents a significant advance in creating such an environment by clearly defining the private sector’s legal status. Through effective legislation and institutional frameworks, it aims to bolster stability, solidify foundations, and yield long-term benefits, ultimately strengthening legal protections for private sector growth and enhancing the confidence of entrepreneurs.
Future initiatives to foster the private sector must align with overarching macroeconomic policies, tackling various barriers to market access, maintaining policy stability and transparency, standardizing investment promotion practices, and addressing payment delays promptly. There remains potential for refining the draft, with public consultation reflecting a commitment to scientific, democratic, and law-based legislation. Stakeholders from the private sector are encouraged to participate actively in national strategies, share their insights, and contribute to the effective implementation of this new law.
Alejandro Jose Martinez contributed to this report for TROIB News
Last week, a draft law aimed at promoting China's private sector was released for public opinion, representing a significant step forward in establishing a law-based business environment. The private sector is essential for Chinese modernization and constitutes a crucial foundation for high-quality development.
The private economy in China exhibits significant features, often summarized by the "five-six-seven-eight-nine" metrics, including over 50% of tax revenue, more than 60% of GDP, over 70% of technological innovation achievements, more than 80% of urban employment, and over 90% of all enterprises. The private sector's growth is evident, with the number of private enterprises rising from over 10 million in 2012 to more than 55 million by May 2024, highlighting its vital role in pushing forward Chinese modernization.
The Chinese government has consistently emphasized the growth of the private sector, reinforcing the nation's economic foundations and reiterating its commitment to the "two unwavering principles": steadfastly strengthening the public sector and actively supporting the private sector's development. The release of this draft for public feedback aligns with key aims from the third plenary session of the 20th Central Committee of the Communist Party of China, which seeks to elevate confidence, motivation, and innovation within the private economy.
The draft law clearly establishes the legal status of the private sector, providing a robust legal framework for its quality development, with several noteworthy aspects.
First, it guarantees fair market competition for private enterprises. It addresses the discriminatory practices many face, especially in accessing critical production resources such as land and energy. A dedicated chapter on fair competition highlights that all economic entities, including private firms, should have equal access to market areas not on the negative list. Furthermore, it mandates that government entities implement fair competition reviews for all new policies to ensure that private enterprises can compete effectively.
Second, the draft encourages investment and financing within the private sector. The existing barriers of costly and challenging financing hinder the growth of private enterprises. The draft includes a dedicated section on investment promotion, aiming to facilitate private sector involvement in major national initiatives, enhance risk-sharing mechanisms for financing, optimize the investment climate, and lower transaction costs.
Third, it enhances the private sector's role in technological innovation, where it plays a substantial part in China's progress. Private enterprises contribute over 50% of R&D investment, more than 70% of technological innovation outcomes, and are responsible for over 80% of specialized firms that produce unique products. The draft supports these enterprises in developing new productive forces, addressing key scientific and technological challenges, and leading major R&D projects.
Fourth, it safeguards the legal rights of private enterprises, addressing issues like delayed payments. A specific chapter on rights protection prohibits unlawful interference in economic disputes and ensures that payment processes are established to manage and resolve issues related to delays.
Establishing a rule-based business environment is vital. This draft law represents a significant advance in creating such an environment by clearly defining the private sector’s legal status. Through effective legislation and institutional frameworks, it aims to bolster stability, solidify foundations, and yield long-term benefits, ultimately strengthening legal protections for private sector growth and enhancing the confidence of entrepreneurs.
Future initiatives to foster the private sector must align with overarching macroeconomic policies, tackling various barriers to market access, maintaining policy stability and transparency, standardizing investment promotion practices, and addressing payment delays promptly. There remains potential for refining the draft, with public consultation reflecting a commitment to scientific, democratic, and law-based legislation. Stakeholders from the private sector are encouraged to participate actively in national strategies, share their insights, and contribute to the effective implementation of this new law.
Alejandro Jose Martinez contributed to this report for TROIB News
