Why China's private sector promotion law is a game-changer

China's national lawmakers on Wednesday adopted the country's first fundamental law dedicated to promoting the private sector, signaling a robust commitment to institutionalizing support for private businesses. The move is poised to reshape market confidence and attract investment in the world's second-largest economy. But what makes this law transformative, and how will it address long-standing challenges?

What Constitutes China's Private Sector?

The private sector is the most dynamic force in China's economy, comprising over 57 million private enterprises and accounting for some 92 percent of all businesses nationwide.

These range from small street vendors to tech giants like Alibaba, Tencent and BYD. Collectively, they contribute more than 60 percent of China's GDP and provide 80 percent of urban jobs.

Unlike state-owned enterprises (SOEs) that often focus on strategic sectors like energy and infrastructure, private companies thrive in competitive markets such as e-commerce, electric vehicles and renewable energy. This adaptability has made them crucial to China's transition toward high-quality growth.

Notably, the private sector is China's innovation engine. Recent data shows that of every 10 high-tech companies in China, nine are privately owned.

The vitality of China's private sector reflects the country's economic transformation since the beginning of its reform and opening-up. From accounting for virtually nothing in 1978 to becoming the country's main growth engine today, private businesses embody China's market dynamism.

However, despite their contributions, private firms have long faced structural disadvantages when compared to SOEs, including financing hurdles and regulatory uncertainty. This new law aims to level the playing field.

"In the new era and on the new journey, the private sector is destined to shoulder greater missions, assume heavier responsibilities, and play an even more significant role," said Yang Heqing, an official of the Legislative Affairs Commission of the National People's Congress Standing Committee.

"This necessitates that we address the prominent challenges hindering the healthy development of the private economy through legislation," he said.

Major Challenges Facing Private Enterprises

While China's private sector has flourished in recent decades, it continues to confront barriers that constrain its potential.

Access to capital remains one of the most persistent challenges, with state-owned banks traditionally favoring lending to government-backed enterprises. This has led many to rely on expensive shadow financing or personal networks for funding.

Market access presents another major hurdle. In industries deemed strategically important, such as energy and infrastructure, private companies often face difficulties even when formal restrictions have been lifted.

The playing field remains uneven in government procurement and project bidding. In terms of the country's regulatory environment, many entrepreneurs complain about arbitrary enforcement at local levels.

Global headwinds have added new layers of complexity. Rising geopolitical tensions have resulted in trade barriers, export controls and supply chain disruptions that compound challenges for private exporters.

How the New Law Addresses Key Issues

The private sector promotion law represents China's most comprehensive effort to institutionalize support for private businesses to date.

At its core, the legislation establishes fair competition as a legal principle, prohibiting discrimination against private enterprises in market access, licensing approval and government procurement.

Financial accessibility receives particular attention in the new law. The legislation mandates that financial institutions should treat private economic organizations equally in areas such as credit granting, credit management, risk control management and service fees.

The improvement will be critical for tech-heavy private firms like Qi An Xin Technology Group, a leading cybersecurity company in China.

"As AI-driven global tech rivalry escalates and cyber threats multiply, progress in cybersecurity innovation is a race against time. Reliable funding isn't just about business survival -- it's a national security imperative. Any lapse could jeopardize critical infrastructure and China's internet sovereignty," said Qi Xiangdong, head of Qi An Xin.

The legislation clarifies the boundaries of acceptable enforcement actions, aiming to prevent the arbitrary implementation that has undermined confidence in recent years.

Recognizing regulatory uncertainty, the law introduces mechanisms to stabilize policy expectations. It requires governments at all levels to conduct thorough assessments before introducing measures that impact private enterprises, and establishes channels for businesses to provide feedback on proposed regulations.

"I am confident that governments will be able to accurately identify the genuine needs of enterprises, while businesses will gain a clearer understanding of policy directions, thereby creating a new ecosystem for the business environment that drives the high-quality development of the private sector," Qi said.

"All in all, the rule of law is the cornerstone of an optimal business environment," he said.

As many observers have noted, the law's success will hinge on its implementation: whether local governments align with central mandates, and whether enforcement mechanisms are both rigorous and impartial.

Liu Min, deputy head of the National Development and Reform Commission's private economy development bureau, noted that the law specifies obligations to be fulfilled by governments at all levels as well as entities such as industry and commerce federations, financial institutions, legal service providers, media organizations, and internet service platforms.

"By mobilizing positive factors and unlocking potential across society, the legislation aims to cultivate a broad-based societal commitment to caring for, supporting and advancing the high-quality development of the private sector," Liu said.

The law also has global implications in that its enforcement would improve China's business environment further, making it more transparent, predictable and resilient to external shocks.

For foreign investors, the message is clear: China is betting on rule-of-law upgrades to secure its position as an indispensable market -- and the world is watching.

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