From policy to legal rights: China's private economy ushers in a new era of growth and prosperity

21 mai 2025 Ge Lin, CGTN economic commentator

New Green Factory of Kangnai Group, Wenzhou, Zhejiang Province./ Tang Hong

On May 20, 2025, a new chapter officially began in the history of China's economic governance. The implementation of the Private Economy Promotion Law of the People's Republic of China marks not just the entry into force of a new law, but the arrival of a long-awaited moment more than four decades in the making. In every sense, it is a case of "the waters finally reaching the sea."

Since the launch of reform and opening-up in the late 1970s, China's private sector has grown from a marginal player to a central pillar of the national economy. What began with a handful of township enterprises and individual merchants has become a vast, dynamic engine of growth—driving entrepreneurship, competition, and innovation across the country.

Today, China's private economy contributes over 50 percent of national tax revenues, 60 percent of GDP, 70 percent of technological innovation, 80 percent of urban employment, and 90 percent of total business entities. With the enactment of the Private Economy Promotion Law, the state has now given formal legal protection to this cornerstone of national economic vitality. This is not a sudden change, but the culmination of a steady journey from fragility to strength, from experimentation to institutionalization.

Transforming fair competition into enforceable rights

At first glance, China's private economy appears remarkably robust—home to world-class entrepreneurs and thriving industrial clusters across the Yangtze River Delta, the Pearl River Delta, and beyond. In Hangzhou, for example, private firms have grown from small startups into globally competitive players in fields such as artificial intelligence, humanoid robotics, and neural interface technologies—making the city a powerful symbol of what the private sector can achieve.

Yet this success remains uneven. In some parts of the country—such as in the northeast—private businesses continue to face subtle barriers. These include unequal access to markets, financing obstacles, and opaque procedures in government procurement and project bidding.

Such barriers are rarely explicit. They often arise from longstanding institutional preferences and perceived risk differentials. Private firms are still seen in some quarters as less stable or more short-lived than their state-owned counterparts. That perception can translate into caution—or even exclusion—on the part of local authorities.

When faced with discrimination, private firms found themselves without the legal tools to defend their rights. What was missing was the legal standing to turn a principle—fair competition—into an enforceable right. To address these imbalances, the state has historically issued a range of supportive policies. These instruments reflected clear intent, but they offered flexibility in implementation.

The Private Economy Promotion Law closes this gap. It elevates fair competition from a policy goal to a legal right—one that private businesses can assert, and regulators must uphold. Tellingly, the law places "Fair Competition" as the second chapter, directly after the General Provisions. Article 11 empowers market regulators to investigate violations of fair competition rules and handle them in accordance with the law. Article 53 goes further, requiring governments at all levels to set up complaint and accountability mechanisms for administrative misconduct, and to act swiftly on violations that infringe upon the lawful rights of private enterprises.

This legal framework offers private firms not just encouragement, but recourse. It creates a path to challenge unfair treatment, seek redress, and hold violators accountable. It marks a deeper shift in China's economic governance: from the age of guidance to the era of enforcement.

Breaking the silence on payment arrears

One of the most persistent pain points for China's private businesses has been the issue of payment arrears—particularly in cases where private firms subcontract work from state-owned enterprises (SOEs). In numerous large-scale infrastructure and industrial projects, SOEs often serve as primary contractors. Private firms, while delivering significant portions of the actual work, typically participate downstream—as subcontractors with limited bargaining power.

In theory, payment is governed by contract law. In reality, many private businesses have long faced delayed or partial payments, often justified by excuses such as internal audits, leadership changes, or pending approvals. Few dared to push back. Suing an SOE could mean losing future opportunities—a risk most private entrepreneurs could not afford to take.

The Private Economy Promotion Law strikes at the heart of this imbalance. In Chapter 7, dedicated to the protection of rights and interests, three consecutive articles are aimed squarely at this problem.

Article 67 prohibits SOEs, government organs, and public institutions from delaying payments to private firms under any pretext, including internal procedures, personnel changes, or audit approvals not stipulated in contract.

Article 68 addresses payment practices in the broader supply chain, requiring large enterprises to pay small and medium-sized private firms on time. Crucially, it also mandates that courts accept, adjudicate, and enforce cases involving arrears to SMEs in a timely manner.

Article 69 obligates local governments to strengthen oversight, clear existing arrears, improve budget execution, and mediate disputes when major differences arise.

The message is reinforced in Article 73, which codifies liability. State bodies and SOEs that delay or refuse payments will be held accountable—including administrative correction, compensation, and disciplinary action against responsible individuals.

This is a structural correction to a longstanding asymmetry. The balance of power begins to level. For many entrepreneurs, this marks the end of an era of silent suffering and the beginning of enforceable accountability.

Expanding access to financial and research resources

The law doesn't stop at protection—it also broadens the resources available to private enterprises, recognizing that access to funding and research infrastructure is crucial for their sustained growth and innovation.

A key breakthrough lies in improving financial accessibility—a focus made explicit in Chapter 3 of the law, which promotes investment and financing mechanisms tailored to the private sector. Notably, Article 21 explicitly requires banks to accept a wider range of collateral types when providing loans to private firms, including accounts receivable, warehouse receipts, equity shares, and intellectual property rights. By facilitating rights-based pledges and mandating support for the valuation of such collateral, the law dismantles longstanding barriers faced by private businesses in securing credit.

On the innovation front, Chapter 4 of the law—comprising seven dedicated articles—underscores China's strategic recognition of the private sector as a vital engine of innovation. A pivotal provision is Article 28. It not only grants private firms access to previously restricted national research facilities, but also supports those with sufficient capacity in leading major state-led technological initiatives. In doing so, the law brings private enterprises into closer alignment with the country's broader innovation strategy.

Together, these provisions symbolize proactive empowerment—offering private enterprises tangible tools and pathways to leverage new resources. It also sends a broader signal—that the private economy is not only to be protected, but also to be fully mobilized as a pillar of national capacity.

Across generations: Institutionalizing China's private sector legacy

After more than four decades of development, China's private economy is entering a phase where generational transition is becoming a reality. Once symbols of personal ambition and reform-era possibility, many early private businesses now carry a deeper mission—to transform entrepreneurial legacy into institutional continuity. That mission is no longer limited to era-bound achievements, but to building enterprises that can endure beyond a single generation.

The enactment of the Private Economy Promotion Law represents a shift toward a rule-of-law ecosystem capable of sustaining private enterprises across generations. It empowers the private economy to continue to grow, and lays a foundation for private businesses to navigate transitions and to become enduring engines of prosperity.