Legislative Support for China’s Private Sector Economy: A Catalyst for Modernization
Effective May 20, 2025, this landmark law shifts China’s private sector support from “policy pledges” to “legal guarantees.”
China’s path to modernization hinges on a vibrant market economy, where the private sector plays a pivotal role. Recent legislative efforts, such as the Private Sector Promotion Law (hereinafter as the Law), aim to solidify fair competition, protect property rights, and foster sustainable growth. This article explores the law’s significance, necessity, and principles, key to understanding China’s evolving business landscape.
Why Legislation Matters for Private Sector Growth
Since China’s reform and opening-up, the private economy has become a cornerstone of its mixed-ownership model, contributing to over 60% of GDP and 80% of urban employment, said President XI at the Private Enterprise Symposium.
Policy vs. Legal Frameworks
- Policies lay the groundwork for driving measures (e.g., the 2016 Opinions on Protecting Property Rights and 2023 Guidelines to Promote Private Economy) but lack binding force.
- Legislation ensures stability: By codifying rights (e.g., property protection, market access), the Law transforms policies into enforceable rules, boosting investor confidence.
The Necessity for this Law
Four Key Rationales:
- Protecting Fundamental Rights:
Safeguards entrepreneurs’ property rights and autonomy against arbitrary enforcement.
- Ensuring Equality:
Levels the playing field for private, state-owned, and foreign enterprises in market access and resource allocation.
- Strengthening the Rule of Law:
Reinforces that China’s market economy is, at its core, a “legal economy.”
- Advancing Modernization Goals:
Aligns with China’s vision for a high-quality, innovation-driven economy.
Dual Role: Protection & Promotion
A. Basic Law for Private Entities
Consolidates scattered regulations into a unified framework, enhancing transparency.
Mandates government compliance, curbing overreach via “inclusive and prudent“ enforcement.
B. Equal Opportunity Guarantor
Merges with “promotion“ (e.g., tax incentives) with “protection“ (e.g., anti-discrimination).
Core Principles of the Law
| Principle | Key Measures |
| Equal Protection | Grants private firms “national treatment” in resource allocation. |
| Fair Competition | Bans market-entry barriers; strengthens antitrust enforcement. |
| Development Focus | Encourages innovation via stable policies (e.g., no retroactive penalties). |
Conclusion: A Milestone for China’s Market Economy
The Constitution of China establishes the basic system of joint development of the public and non-public sectors of the economy. In view of the challenges faced by the private economy and the inadequacy of decentralized legislation, it is urgent and necessary to enact the Private Economy Promotion Law.
Historical experience shows that policy promotion lays the foundation for legislation, while the rule of law is the key to stabilizing development expectations. The Act legalizes policy initiatives, is a concrete implementation of the spirit of the Constitution, and responds to society’s expectations for rule-of-law safeguards. The conditions for legislation are ripe, combining constitutionality, legality, and feasibility.
As the basic law, promotion law, and equal protection law in the private economy, the law will harmonize policy, legislation, law enforcement, and the judiciary, and build a complete rule of law system that will provide long-term impetus for the high-quality development of the market economy.
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