Cover Story: China Writes First Legal Rulebook to Strengthen Its Vital Private Sector

China is advancing its first Private Economy Promotion Law to revitalize its critical private sector amid economic challenges [para. 1]. This law, which has undergone rapid development since drafting began in 2023, aims to enforce fair competition and legal protections for private businesses while addressing systemic obstacles such as inconsistent policies and unequal resource access [para. 2][para. 3]. The legislation, expected to pass its final legislative review in April 2025, underscores Beijing’s urgent effort to stabilize a sector contributing over 60% of the country’s GDP and 80% of urban employment [para. 2][para. 4].

The impetus for the law, officially initiated following the Central Economic Work Conference in late 2022, stems from a national push for legal equality between private and state-owned enterprises [para. 5]. Experts emphasize the law’s potential to stabilize employment, boost consumption, and foster a unified market. It includes 78 articles across nine chapters covering fair competition, financing, innovation, and equal opportunities for private firms, aligning previously scattered protections into a unified legal framework [para. 6][para. 7].

Equal treatment for private businesses underpins the draft law, addressing systemic disparities in market access. The law institutionalizes the "negative list" approach, granting companies unrestricted access to industries not listed as prohibited, with the number of restricted sectors reduced from 151 to 117 since 2018 [para. 8][para. 9]. To combat operational inequalities, the law mandates equal access for private firms to key resources, such as capital, data, and land, as well as to government funding and projects [para. 11].

A significant focus of the law is resolving long-standing entrepreneur concerns about arbitrary enforcement and inadequate property rights protection, often more disruptive than funding or market access issues [para. 14]. Incidents of excessive financial penalties, fund freezing, and wrongful property seizures—highlighted through studies in Guangdong and Zhejiang—have eroded business confidence [para. 15][para. 16]. The law aims to address these issues by banning criminal charges for non-criminal acts, preventing administrative interference in business disputes, and requiring asset seizures to adhere to strict protocols [para. 17][para. 18].

Another key feature includes imposing personal accountability on officials who violate enforcement rules, with provisions to rectify wrongful business-related convictions, creating checks against abuse of power [para. 18][para. 19]. This mechanism is crucial for rebuilding trust among businesses and ensuring the rule of law prevails [para. 19].

The legislation also includes measures to promote private sector growth, such as reducing financing bottlenecks, encouraging innovation, and strengthening government services [para. 20]. Banks will be encouraged to provide tailored financial products with expanded asset categories, including intellectual property, accepted as collateral to improve access to loans for small- and medium-sized enterprises (SMEs) [para. 20][para. 21]. The law further encourages private sector involvement in national R&D projects and fosters collaboration between academia, industry, and businesses, though experts call for detailed implementation mechanisms, such as tax incentives, to maximize impact [para. 22].

Additionally, the draft establishes improved government communication channels, administrative oversight, and a credit repair system to help businesses recover from failures and restore their operations [para. 23]. Experts stress the importance of concrete metrics to ensure the law’s ambitions materialize into tangible benefits [para. 24].

Overall, China’s Private Economy Promotion Law represents a landmark effort to create a stable and fair environment for private enterprises, addressing systemic issues while promoting sustainable growth. However, its ultimate success hinges on the consistent and transparent implementation of its provisions [para. 23][para. 24].