Commentary: China’s New Law for Private Business Needs Judicial Teeth

The Private Economy Promotion Law, enacted in China on May 20, 2024, targets the specific needs and rights of private entrepreneurs, aiming to provide legal protection for their daily operations. Unlike more established laws with well-defined standards, the enforcement of this law faces unique challenges due to its novelty and the inherent discretion within administrative cases involving government-business relations, which can be particularly sensitive. Judicial interpretations are considered necessary at this stage to translate the legal framework into effective protection for lawful and compliant activities of private enterprises, ensuring that ambiguities in enforcement do not undermine the law’s intent [para. 1].

All newly-minted laws, including the Private Economy Promotion Law, undergo a critical adaptation period where their real-world impact depends on how textual statutes are interpreted and enforced at the local level. Discrepancies across regions may arise, as seen in other regulations, highlighting the need for balanced and consistent enforcement so that the law works effectively to support private business, especially regarding sensitive government-business interactions [para. 2]. The core dilemma is establishing what constitutes the “legitimate rights and interests” of private companies. Overly zealous enforcement—such as criminalizing previously allowed tax breaks or punishing minor infractions harshly—creates policy uncertainty and dampens entrepreneurial confidence, which is counterproductive to the law’s objectives [para. 3][para. 4].

Recent years have seen an increased governmental focus on the private sector, signaled by events such as the July 2024 Third Plenum of the 20th Central Committee and the release of drafts for public comment prior to the law’s implementation. Policies have aimed at improving property rights, legal protections, and market access for private enterprises. Ongoing high-level communications, including those from General Secretary Xi Jinping, have stressed the positive outlook and strategic importance of private enterprises. This political backing reflects the contemporary imperatives China faces: complex international conditions, a new technology and industrial revolution, and rising public expectations [para. 5][para. 6][para. 7].

For private entrepreneurs, the law’s most vital contribution is seen in its promise to protect personal freedom and property security. Harsh punishments for trivial offenses, or “profit-driven enforcement,” have been identified as contrary to the spirit of the law. Proportionality in penalties is key to fostering a healthy business environment. As the statute becomes better implemented, it is expected to strengthen entrepreneurial confidence, building a more robust private sector needed for China’s economic vitality [para. 8][para. 9][para. 10][para. 11].

However, despite improvements, private entrepreneurs still express concerns reflected in weak investment and consumer demand, highlighting the ongoing challenge of restoring confidence. Policy changes, like the new promotion law, have helped stabilize sentiment but require deeper implementation for lasting effect [para. 12][para. 13].

On the relationship between state-owned enterprises (SOEs) and private firms, the law calls for more equitable market access, resource allocation, and financing, promoting the principle of “entry unless prohibited.” If realized, this would reduce historical exclusions of private firms from major projects and allow a healthier competitive landscape [para. 14][para. 15].

Finally, regional disparities in economic development and local government finances pose challenges for the implementation of the law. Local governments under fiscal strain may be tempted to target private enterprises for revenue, undermining the law’s objectives. Central oversight and exemplary enforcement against improper local actions are recommended, with the aim of creating a more balanced, fair business environment across China [para. 16][para. 17][para. 18][para. 19].