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China needs concrete and detailed legislation to protect the private sector

It is widely recognized that private businesses are routinely discriminated against by the State-dominated financial system

By NewsChina Updated May.1

During the annual two sessions in March, meetings of the National People’s Congress and the Chinese People's Political Consultative Conference (CPPCC), a major talking point was the protection and promotion of the Chinese private sector. Both Chinese President Xi Jinping and new Premier Li Qiang highlighted the importance of ensuring a level playing field for private enterprises.  

The importance of the private sector has long been recognized and is dubbed “56789,” an allusion to the private sector’s contribution of 50 percent of the country’s tax revenue, 60 percent of national GDP, 70 percent of technological innovations and 80 percent of urban jobs, with private firms accounting for 90 percent of all enterprises.  

But in the past couple of years, confidence at private enterprises has been seriously eroded. As harsh pandemic-related control measures dealt serious blows to many private enterprises, speculation on the future status of the private sector was rife amid the authorities’ crackdown on irregularities in certain sectors, including the internet sector and the tutoring industry.  

The growth rate of fixed-asset investment in the private sector dropped from 4.7 percent in 2019 to 0.9 percent in 2022. In the meantime, deposits of non-financial private enterprises across all banks increased from 66 trillion yuan (US$9.56 trillion) in 2020 to 74.6 trillion yuan (US$10.8 trillion) in 2022, locking up capital.  

To promote the development of the private sector, the government should focus on boosting the confidence of private entrepreneurs. To achieve this, China needs robust legislation to protect the interests of private enterprises and nurture a law-based business environment. Under China’s current legal system, the lack of specific laws addressing the legal rights of private enterprises hampers the sector. Although the government has launched policy documents, they are too abstract and ambiguous to implement on the ground, and private enterprises continue to face discrimination and invisible barriers.  

It is imperative that China enacts a specific law to protect and promote the development of the private economy, with concrete legislation regarding market access, intellectual property protection and fair competition.  

The government also needs to take serious measures to address the deeply imbedded discrimination private enterprises face in their access to financial services and public procurement. It is widely recognized that private businesses are routinely discriminated against by the State-dominated financial system, which favors State-owned enterprises and causes major hurdles for the private sector.  

As some economists point out, amid the ongoing crackdown on corruption, many government officials resorted to playing it safe by avoiding handing government contracts to private enterprises, which undermined the business environment of the private sector even more. The government should take an active role in guiding public opinion on private enterprises, which are often described as being run by greedy capitalists that prey on the people. These factors have combined to drive down private sector development.  

The government must be aware that without adequate protection of the private sector, China will not be able to find “the Chinese path to modernization,” nor will it achieve the much-desired economic upgrade and high-quality development. Ever since China launched its reform and opening-up policy more than 40 years ago, private enterprises have been on the frontline of China’s economic development. As China faces new challenges, the private sector remains a vital force as the country strives to become a global leader in innovation.