News

Starting from 20 May 2025, China's first basic law dedicated to the development of the private economy, the Law on the Promotion of the Private Economy, came into force. This news is like a heavy bomb, instantly triggering huge attention from all walks of life. Against the backdrop of the current global economic landscape undergoing a profound restructuring, the rise of unilateralism and protectionism, and the unprecedented challenges to the rules of international trade and economic cooperation, the introduction of this law marks a new stage in the development of the private economy into the rule of law. It is not only a legal confirmation of the basic policy of ‘two unwavering’, but also an important measure for China to build up institutional competitive advantages in the complex international environment.

First, the development of private economy ushered in the legal ‘umbrella’.

At the beginning of the reform and opening up, small shops and workshops began to appear sporadically on the streets, and the state's attitude towards the private economy has gradually changed from the initial tacit approval of ‘take a look and give it a try’ to ‘allow the existence of’. With the development of the market economy, the status of the private economy has been continuously upgraded, and it has been recognised as an ‘important component’ of the socialist market economy. The importance of the private economy has been further highlighted by the introduction of the policy of ‘two unswerving’, which clearly emphasises the unswerving consolidation and development of the public sector economy, and the unswerving encouragement, support and guidance for the development of the non-public sector economy.

However, for a long time, the development of private economy mainly relies on policy documents to promote. Just like weather forecasts, although we can roughly know the direction of the weather, it changes whenever we say so. For example, in order to attract investment in a certain place, the introduction of a series of preferential policies, private enterprises are full of hope to invest in capital to build factories, recruiting, the result is not long, policy adjustments, preferential no longer, the cost of enterprises increased significantly. This policy uncertainty, like a hanging over the heads of private entrepreneurs ‘dangerous sword’, so that they do not dare to long-term investment, innovation. Many private entrepreneurs said that because of the fear of policy changes, some need long-term investment in research and development projects can only be put on hold.

The introduction of the Private Economy Promotion Law has brought about three key changes. Firstly, it has changed from an easily changeable policy to a stable law. Previously, policy documents may be adjusted in one or two years, while the law has a higher stability and authority, once established, will not be easily changed, to give private enterprises to eat the ‘long-lasting pill’. Secondly, it has changed from only stating the general principles to clearly stipulating the rights and obligations of everyone. In the past, policies were mostly directional guidance, and it was not clear what to do and what protection could be obtained; now the law sets out in detail the rights of private enterprises in terms of market access, financing, innovation, etc., as well as the corresponding duties of government departments. Finally, from relying mainly on administrative means of management to relying on legal protection. In the past, when enterprises encountered problems, they were more likely to look for coordination with government departments; now that there is a legal basis, enterprises can safeguard their rights and interests through legal channels. As jurists say, ‘The life of the law lies in its implementation, and the prerequisite for implementation is the certainty and authority of the law itself.’ This law has laid a solid foundation for the development of the private economy.

Second, create a fair ‘playing field’ for private enterprises

In optimising the business environment, this law focuses on three key aspects, namely market access, financing support and innovation incentives, and is committed to creating a level playing field for private enterprises.

(i) Dismantling the ‘invisible threshold’ for market access

In the past, private enterprises often encountered ‘glass doors’ and ‘revolving doors’ when they wanted to enter infrastructure and public services. The so-called ‘glass door’, is to look at the threshold is not high, it seems to be able to enter, but really want to go in will be bumped head to head. For example, in some cities in the bidding of sewage treatment projects, private enterprises obviously have the technical and financial strength, but because of a variety of hidden restrictions, even the bidding qualification can not get. The ‘revolving door’ is more people helpless, the enterprise is hard to enter a field, a change in policy, and was ‘turned’ out. There has been a private energy companies, invested in the construction of a small wind power plant, not long after the operation, the local ‘unified planning’ as the reason, requiring enterprises to transfer equity, resulting in the enterprise blood money.

The Law on the Promotion of Private Economy establishes a unified legal review mechanism that explicitly prohibits these unreasonable restrictions. The law stipulates that no unit or individual may set up or disguise barriers to market access by way of filing, registration, enrolment, catalogue, annual inspection, supervision, accreditation, certification, validation, or any other form, other than those provided for in laws and administrative regulations. In the past, the efficiency loss caused by these invisible thresholds was about 0.5 - 1% of GDP, which means hundreds of billions of dollars of economic value were wasted every year. Once this law is implemented, the cost of doing business will be able to come down significantly, and more private enterprises will be able to participate in the construction of major national projects.

(ii) Solving the big problem of ‘lack of money’ for private enterprises

Capital is the ‘blood’ of enterprise development, but for a long time, private enterprises have been facing the ‘lack of blood’ dilemma. Traditionally, private enterprise financing is highly dependent on real estate mortgages, but science and technology-based enterprises often do not have much property land. For example, a focus on research and development of new semiconductor materials, private enterprises, with a number of core patented technologies, but because there is not enough collateral, it is difficult to get a loan from the bank. Even if you can get a loan, the cost is very high. According to the survey, the difference in financing costs resulted in private enterprises paying an average of 1.5 - 2 percentage points more in interest than similar state-owned enterprises. This means that if the annual interest rate on a loan from a state-owned enterprise is 5 per cent, a private enterprise may have to pay 6.5 - 7 per cent, which greatly increases the burden on the enterprise.

The Law on the Promotion of Private Economy makes an innovative breakthrough in the financing guarantee system. The law explicitly includes intellectual property rights and accounts receivable in the scope of guarantee. Still taking that semiconductor enterprise as an example, it can now use its patented technology as a pledge to apply for a loan. At the same time, the law also regulates the standards of financing services, requiring financial institutions not to set unreasonable loan conditions or abuse their dominant market position to attach unreasonable trading conditions. In addition, the State will promote the establishment of a multi-level financing guarantee system and encourage governmental financing guarantee institutions to provide financing credit enhancement services for private enterprises, so as to effectively alleviate the financing difficulties of private enterprises.

(iii) Encouraging private enterprises to engage in bold innovation

Innovation is the ‘engine’ of enterprise development, but innovation requires a large amount of capital and time investment, the risk is also very high. In the past, private enterprises often faced problems such as infringement of intellectual property rights and unclear distribution of innovation benefits in the process of innovation. For example, a private software company invested a lot of manpower and resources to develop a new type of office software, and shortly after it was introduced to the market, pirated software appeared, and the enterprise not only lost its market share, but also lost its initial investment.

The Private Economy Promotion Law has built an all-round innovation protection system. In terms of intellectual property protection, it has increased the penalties for infringement and raised the compensation standard for infringement, so that infringers dare not infringe easily. In terms of science and technology financial services, financial institutions are encouraged to develop financial products suitable for the innovation characteristics of private enterprises, such as science and technology credit and science and technology insurance. In terms of innovation revenue distribution, it is clearly stipulated that enterprises can incentivise scientific researchers through equity, options, dividends and other means. The law also supports private enterprises to build various types of innovation platforms and to carry out industry-university-research co-operation with universities and scientific research institutions. Research shows that for every 1 percentage point increase in the rule of law environment, the intensity of R&D investment by enterprises increases by 0.3 percentage points on average. This law will provide a solid institutional guarantee for private enterprises to carry out long-term R&D investment.

Participate in international competition with legal weapons

Nowadays, the international economic and trade environment is treacherous, and the U.S. implements the strategy of ‘small yard and high wall’, deliberately restricting the export of high-end technologies and artificially creating the risk of supply chain rupture. For example, in the field of chips, the U.S. implements technology blockade on Chinese enterprises, restricts chip exports, and hinders the development of China's semiconductor industry. The EU has strengthened the review of industrial subsidies, constructed new trade barriers, and launched anti-dumping investigations on Chinese photovoltaic products, steel products, etc., in an attempt to protect the local industry.

Against this backdrop, China has introduced the Private Economy Promotion Law to enhance the certainty and transparency of its economic system through the path of the rule of law, forming a unique institutional competitive advantage. This advantage is reflected in two important aspects. On the one hand, a stable legal environment can give foreign investors ‘peace of mind’ and make them more willing to invest in China. Data from relevant United Nations conferences show that institutional quality is second only to market size as a key factor in cross-border investment decisions. Just as people are more likely to go to a well-managed and reputable shopping mall, foreign companies are more likely to invest in countries with sound laws and stable policies. The implementation of the Law on the Promotion of Private Economy demonstrates to the world China's determination to further open up and protect the legitimate rights and interests of all kinds of market entities, which will attract more international capital influx.

On the other hand, sound domestic laws will enable Chinese companies to have more say in setting international rules. The core of global governance is rule-based governance, and participation in rule-making requires a sound foundation of the rule of law at home. When China's private economy flourishes under a perfect legal system and accumulates rich practical experience and advanced technology, Chinese enterprises will be able to have more confidence in the international arena, make a stronger Chinese voice in international economic and trade rule-making, and change the situation of passive acceptance of rules in the past.

IV. Making the law truly ‘live’

The law can only work if it is put into place. In order for the Private Economy Promotion Law to achieve the desired effect, it is also necessary to continue to make efforts in the convergence of systems, judicial safeguards, and changes in attitudes.

(I) Cleaning up unreasonable old regulations

At present, there are a lot of regulations and policies that are inconsistent with the spirit of the Private Economy Promotion Law. Some local governments treat state-owned enterprises (SOEs) and private enterprises differently when attracting investments, and give more preferences to SOEs; some industrial support policies set too high a threshold for private enterprises to enjoy. Next, the need to systematically sort out the existing regulations and policies, the establishment of a long-term mechanism to clean up, and timely abolition or revision of documents that do not comply with the provisions of the law. In particular, it is necessary to clean up the discriminatory provisions of local governments in investment promotion and industrial support, and establish a unified and fair system of rules to ensure that all enterprises can compete fairly on the same starting line.

(ii) Smooth private enterprise rights channels

In actual operation, private enterprises will inevitably encounter disputes and infringement problems. However, in the past, due to the rights protection channels are not smooth, complex procedures and other reasons, many enterprises choose to ‘swallow the anger’. To change this situation, we should improve the relevant supporting measures and explore the establishment of a special commercial dispute resolution mechanism. For example, you can set up a mediation centre for private economic disputes, invite legal experts and industry representatives to participate in mediation, and quickly resolve disputes; establish a green channel for private enterprises to protect their rights, simplify litigation procedures, and improve judicial efficiency and professionalism. At the same time, strengthen the legal propaganda, so that private enterprises understand their rights and methods, dare to protect their legitimate rights and interests.

(C) change the concept of the rule of law to serve enterprises

For a long time, some local governments are accustomed to using ‘policy concessions’ to attract enterprises, this approach can be effective in the short term, but lack of stability and sustainability. After the implementation of the Law on the Promotion of Private Economy, local governments should shift from the ‘policy preferential’ thinking to the ‘rule of law service’ concept. This means that the government should pay more attention to creating a fair and transparent environment under the rule of law, strictly according to the law, and reduce undue interference in the business activities of enterprises. For example, in the enterprise approval process, in accordance with the provisions of the law to simplify the process, shorten the time; in the regulatory process, to be fair and impartial, not to engage in differential treatment. Truly take the law as the basic basis for governance, so that private enterprises can develop with peace of mind in a stable and predictable environment under the rule of law.

The global economy is now in a critical period of rule reformulation, and competition among countries has changed from comparing the size of the economy to comparing the quality of the system. The introduction of the Law on the Promotion of Private Economy not only provides legal insurance for China's private economy, but also offers Chinese ideas for global economic governance.

In the long run, this institutional advantage will become a powerful driving force for China's sustained economic development, allowing China's economy to move forward steadily in the complex and volatile international environment.

Special Announcement:

This article was originally written by the lawyers of JIA LAWYER law firm, which only represents the author's own views and shall not be regarded as a formal legal opinion or advice issued by JIA LAWYER law firm or its lawyers. If you need to reproduce or quote any content of this article, please indicate the source.