Commentary: Why China’s Private Firms Need Civil Remedies, Not Criminal Charges

1. China's recent laws promote the private economy, including the 2025 Private Economy Promotion Law establishing equal status and protection, Amendment XII to the Criminal Law extending three offenses (e.g., bribery) previously limited to state-owned enterprises (SOEs) to private sector personnel, and a judicial interpretation effective May 1 aligning penalties [para. 1].

2. Despite intentions for "equal protection of property rights," SOEs and private firms face unequal market access and resources; equalizing punishments prematurely ignores this disparity, leading to unintended judicial outcomes [para. 2].

3. Inequality drives private-sector malfeasance; the Promotion Law seeks balance via support and compliance, but true parity needs administrative reform, not rushed penalties that punish businesses for systemic flaws [para. 3].

4. Private bribery often compensates for competitive disadvantages against SOEs; a defended tech firm bribed for an energy project to meet HK IPO needs despite superior tech, as SOEs had inherent advantages [para. 4].

5. Post-arrest, the firm faced credit cuts, supplier demands, and near-collapse; a then-maximum five-year sentence resulted in three years suspended, allowing recovery and current leadership status [para. 5].

6. Amendment XII doubles corporate bribery maximum to 10 years, with new rules adding minimums (three+ years); without addressing inequality, this devastates private firms, as in the case where prison would have killed the company [para. 6].

7. SOEs survive executive arrests due to state backing; private firms, founder-centric, lose goodwill and cohesion instantly, making equal penalties counterproductive [para. 7].

8. State corruption abuses public power; private is economic; Germany/Japan differentiate, favoring economic penalties over prison for non-violent offenses to deter via fines exceeding gains and preserve talent [para. 8].

9. SOE managers protect public property; private ownership (family/shareholder) leads to criminalized internal disputes [para. 9].

10. In an aquaculture case, an investor's 70 million yuan ($10.24 million) investment soured post-failed IPO; founder allegedly embezzled for Macao gambling, faked suicide; investor rebuilt firm profitably [para. 10][para. 11].

11. Founder reemerged, sparking war; he weaponized police elsewhere, jailing investor 15 years and destroying company amid governance void [para. 11][para. 12].

12. Lacking governance, such fights weaponize police; Amendment XII criminalizes fiduciary breaches like competing businesses, relative profits, discounted asset sales—better for civil suits/blacklists [para. 12][para. 13].

13. Criminal law requires restraint as society's harshest tool, with economic collateral; use civil/compliance first, not as crutch for poor management [para. 14].

14. Franz von Liszt: “The best social policy is the best criminal policy”; protect private economy systemically, using criminal justice as last resort for flourishing [para. 15]. Author: Zou Jiaming, Beijing Hechang Law Firm [para. 16]. Views not Caixin's [para. 17].

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