Is it true that China's private sector is retreating?
How will Chinese private businesses seize opportunities in the country's current business environment
Is China's private sector retreating while its state-owned sector advancing?
Certainly not. It’s a rumor widespread by some media who misread China's economic policies.
During China’s annual “two sessions” this year, topics about the private economy trended online. This year’s government work report pledged concrete steps to boost private businesses, legally protecting entrepreneurs’ rights.
Lin Yifu, dean of the Institute of New Structural Economics at Peking University, recently told Nanfang Metropolis Daily that these commitments are key to restoring private sector confidence and debunking the narrative that “the state-owned sector advances and the private sector retreats”.
How should private businesses seize opportunities as the government improves their operating environment? Lin provided insights by observing and assessing the current state of China's private sector, as well as domestic and global economic circumstances.
China's private economy has sparked heated debates since early 2025. A landmark symposium on private businesses was held in February -- the first in seven years -- followed by the submission of a draft Private Economy Promotion Law to the NPC Standing Committee. These moves align with the government work report's pledge to legally safeguard private enterprises' rights and interests.
The private sector has long been an important player in China's economy. So why is it dominating policy discussions this year? Lin attributes this to countering current pessimism, notably the false narrative as "the state sector-owned advances and the private sector retreats," a claim he calls both factually wrong and socially harmful.
Lin observed that since the 2008 global financial crisis, the world economy remains sluggish, with growth rates notably slowing. Developed economies, for instance, saw average growth plunge from 3 to 3.5 percent pre-crisis to just 1.5 percent today. This slowdown has dragged global trade growth even lower than GDP expansion rates. As the world's top trading nation and exporter, China has felt this acutely as its export growth has plummeted under these pressures.
State-owned sector's expansion is beneficial to private business growth
Lin found that private enterprises still dominate China's exports, contributing over 97 percent of total export products. However, as global export growth stagnated after the 2008 financial crisis, the private sector has faced persistent challenges, dampening entrepreneurs' investment confidence.
Meanwhile, China chose to prioritize state-led infrastructure projects like highways and high-speed rail to stimulate the economy, typically managed by state-owned enterprises. This approach has inadvertently increased the state-owned sector's share of GDP over time.
“In fact, state-owned sector's expansion fuels private business growth,” he noted.
“Over 90 percent of raw materials and equipment for these projects are sourced from private suppliers. Meanwhile, completed infrastructure projects boost the resident income and consumer spending, ultimately creating a stronger ecosystem for private investment,” he added.
The state-owned sector's growing GDP share and the private sector's relative decline was sensationalized by some media as “China prioritizing SOEs over private businesses,” which Lin said misread Beijing's economic strategy. The country's proactive counter-cyclical measures, he stressed, are designed to stabilize macroeconomic conditions, thereby fueling private sector vitality.
“Had the government and SOEs not intervened during downturns, private enterprises would face even greater difficulties,” Lin said. “This is a perception must be clarified.”
Opportunities for the private sector to seize
In September 2023, the bureau for private economy development under the National Development and Reform Commission was established, as a specialized agency to promote the development and growth of the private economy.
The establishment of the institution provides private enterprises with a “reliable supporter”. In the past, private enterprises had to interact with multiple government departments. Now, with a dedicated department focused on the private economy, issues faced by private enterprises can be analyzed and understood swiftly and concentratedly, thereby creating a better environment for the development of the private sector.
While the government is creating a favorable environment for the private sector, how should private enterprises themselves seek development?
Lin noted that instead of getting stuck in rat race competition, the private sector should continuously improve quality, set reasonable prices, and focus on innovation and expertise, which adds competitiveness for them in the market.
Taking China's new energy vehicle (NEV) industry as an example, he noted that global perception of Chinese-brand NEVs still as a “cheap prices, mass production” stereotype, which is inevitable in the early stage of some industries’ development.
It's noteworthy that China’s manufacturing has evolved from labor-intensive to capital-intensive, and now tech-driven industries, Lin stressed. In fields like NEVs and AI, China has shifted from playing catch-up to setting the pace in some fields.
China’s top leaders held a landmark symposium on private enterprises on Feb. 17, gathering tech pioneers and industry heavyweights. It showed the country’s support for the private sector is steadfast.
Private enterprises are at the forefront of China's economic transformation. Chinese leaders see these firms as engines of innovation powering China’s high-quality development. Data tells the story: a whopping 2.72 million new private enterprises sprang up in cutting-edge fields during 2024’s first three quarters -- 40 percent of all new businesses. This boom cements private economy’s role as a cornerstone of national progress.
The momentum is spreading. AI trailblazers like DeepSeek and global blockbuster Ne Zha 2 highlight tech breakthroughs and influence of the Chinese culture. With consumer and business confidence rebounding, global analysts are boosting China's growth forecasts.
“I'm confident that China’s private enterprises will see major growth opportunities this year,” Lin said.
Compiled by Bruce L