China passes private sector law, addressing gripes of beleaguered businesses

The Star

04-05-2025

China passed a much-anticipated law to shore up the country's private economy on Wednesday, as Beijing delivers on its oft-repeated promise to protect and promote the non-state sector at a time when the Chinese economy looks to hinge more on domestic dynamism to ensure growth amid a trade war with the United States.
The 78-article Private Economy Promotion Law was passed following its third reading by the Standing Committee of the National People's Congress, China's top legislature. It will come into force on May 20.
As China's first law focused on promoting the private sector, it stipulates measures to promote fair market competition, encourage the involvement of private firms in scientific and technological projects, and safeguard their economic rights and interests, according to state media reports. The full text of the legislation has yet to be published.
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Li Zhaoqian, president of the China Society for the Study of the Private-Sector Economy, wrote in an article published in Communist Party newspaper the People's Daily on Wednesday that the law's success would depend on it being thoroughly implemented.
'There are still difficult issues and choke points such as market access, unpaid debts owed to private enterprises, financing barriers, as well as protecting the rights of entrepreneurs,' Li said. 'To tackle these, we need more vigorous coordination to strengthen implementation supervision [of the law].'
Tang Dajie, a senior researcher with the China Enterprise Institute think tank in Beijing, said a key provision in the law was a measure aimed at preventing local authorities from unfairly targeting private businesses – so-called 'profit-driven' law enforcement.
'In the past two years, the business community has responded strongly to profit-seeking law enforcement and officers going beyond their jurisdiction to collect fines or seize assets,' Tang said. 'The law will restrict the law enforcement power of the public security department and promote strict, standardized, fair and civilized law enforcement.'
China's leaders hope the new law will be a morale booster. There had been expectations that the law would be deliberated over – and possibly passed – during last month's annual legislative session, but it was not.
The passage of the law appeared to have been accelerated since the latest meeting of the Standing Committee of the National People's Congress began on Sunday, with legislators voting after the third reading, Tang noted.
The move comes at a crucial moment for China, as government efforts to boost domestic demand and investment gain increasing urgency with the Chinese economy beginning to feel the impact of sky-high US tariffs.
The drafting and crafting of a law dedicated to the private sector began in 2024, led by the top economic planning agency, the National Development and Reform Commission. A draft was released for public feedback in October.
And the law's second review in February sparked wider discussions on market entry and enforcement issues. That month, President Xi Jinping raised expectations when he assembled the country's most prominent private entrepreneurs to rally the sector and seek its help in stabilising the economy. It was the first such meeting held since 2018.
China's private sector is responsible for more than 60 per cent of the nation's gross domestic product, 70 per cent of its technological innovation, and 80 per cent of urban jobs, according to the National Bureau of Statistics.
But China's unbalanced economic recovery, sluggish consumption, and regulatory uncertainties have sapped investor sentiment for years. The private sector's long-standing complaints, including the curtailment of market access and perceived favouritism towards the state sector, have yet to be fully addressed.
Private investment has contracted for years. But in an encouraging sign, the sector's new investment edged up 0.4 per cent, year on year, in the first quarter.
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