Ensuring high-quality development of the private sector through high-standard rule of law

Editor's note: Ma Xiaobai is director and researcher at the Research Office of Multinational Enterprises, Research Institute of Enterprises, Development Research Center of the State Council, and Chen Gong, is a PhD fellow at the Education and Training Center for Officials and Entrepreneurs, State-owned Assets Supervision and Administration Commission of the State Council. The article reflects the author's opinions and not necessarily the views of CGTN. It has been translated from Chinese and edited for brevity and clarity.

A draft law on China's private sector promotion was released to solicit public opinions last week, marking a significant milestone in the construction of a law-based business environment in China. The private sector is a driving force for Chinese modernization and serves as a vital foundation for high-quality development. 

In China, the private economy is characterized by the "five-six-seven-eight-nine" features, that is, contributing over 50 percent of tax revenue, more than 60 percent of GDP, over 70 percent of achievements in technological innovation, more than 80 percent of urban employment, and over 90 percent of all enterprises. In terms of the number of business entities, the number of private enterprises has surged from over 10 million in 2012 to more than 55 million in May 2024, further underlining the private sector's pivotal role in advancing Chinese modernization. 

The Chinese government has consistently prioritized the development of the private sector, upholding China's basic economic system and repeatedly reaffirming their commitment to the "two unwavering principles" – unwaveringly consolidating and developing the public sector and unwaveringly encouraging, supporting, and guiding the development of the private sector. The release of the draft for public comment is a key move to implement the essential principles of the third plenary session of the 20th Central Committee of the Communist Party of China, aimed at boosting the confidence, motivation, and innovation within the private sector.

The draft law accurately defines the legal status of the private sector, laying a solid legal foundation for its high-quality development, with several highlights that deserve attention. 

First, it ensures private enterprises' fair participation in the market competition. Addressing the discriminatory policies that many private enterprises face in market activities, particularly the issues they encounter when obtaining access for essential production factors like land, energy, and data, the draft introduces a dedicated chapter on fair competition. This chapter emphasized that all types of economic entities, including private enterprises, can have equal access to areas apart from those on the negative list for market access. Additionally, it stressed that governments at all levels and relevant departments must implement a system of fair competition reviews and that all policy measures must undergo fair competition reviews before being introduced, thus regulating policy introduction while ensuring that private enterprises can compete fairly in the market. 

Second, the draft promotes investment and financing activities within the private sector. The challenges of difficult and costly financing confronting private enterprises have hindered the high-quality development of the private sector. The draft includes a specific chapter on investment and financing promotion to support private enterprises' participation in major national strategies and projects, establish and improve mechanisms for sharing financing risks in a market-oriented way, optimize the investment and financing environment for the private sector, and reduce institutional transaction costs. 

Third, it supports the participation of the private sector in technological innovation, where it remains a major force in China. Private enterprises contribute over 50 percent of R&D investment and personnel, more than 70 percent of the achievements in technological innovation, over 80 percent of specialized and sophisticated "little giant" firms that produce new and unique products, and more than 90 percent of high-tech enterprises. They are the driving force for future industrial development. The draft contains a chapter on technological innovation to support private enterprises to take an active part in developing new quality productive forces, encourage them to tackle high-level problems in science and technology faced by China, and assist capable ones in leading major technological research projects. 

Fourth, the draft protects the legal rights of the private sector. In practice, some private enterprises are troubled by issues such as delayed payments. In response, the draft includes a chapter on rights protection, highlighting that it is prohibited to adopt administrative or criminal means to unlawfully interfere in economic disputes; payments must be guaranteed, and procedures must be set up for resolving delayed payments through consultation and mediation. 

The rule of law fosters the best business environment. The draft law is a key step in China's efforts to create a rule-based business environment. By clarifying the legal status of the private sector through legislation and institutions, and codifying institutional measures that have been proven effective in practice, we can give play to the rule of law in solidifying foundations, stabilizing expectations, and bringing long-term benefits, effectively strengthening the legal guarantees for the development of the private sector, and significantly boosting the confidence of private enterprises and entrepreneurs in their development prospects. 

Subsequent efforts to promote the development of the private sector should be aligned with broader macroeconomic policies to remove various market access barriers, continuously enhance policy stability, transparency, and consistency, standardize investment promotion policies, and promptly address issues like delayed payments to enterprises. There is room to further refine and improve the draft, and this public consultation reflects the principles of scientific, democratic, and law-based legislation. We encourage all private sector participants to actively engage in national strategies, voice their reasonable opinions, and help ensure the successful implementation of this new law.