Private sector promotion law charts road map for economic future

China's Private Economy Promotion Law came into effect on Tuesday. It is a watershed moment in the country's economic governance framework. This is the first comprehensive legal framework dedicated to supporting and protecting private economic development, institutionalizing what were previously policy-driven measures into enduring legal guarantees.

The law's significance lies not only in its timing, coming at a crucial juncture of China's economic transformation, but also in its comprehensive approach to addressing long-standing challenges faced by private enterprises.

The legislation establishes the private economy's fundamental status within China's socialist market economy, providing long-term legal certainty to over 57 million private enterprises that constitute 92.3 percent of all registered businesses in the country. The law creates a robust legal ecosystem that addresses multiple dimensions of private sector development, from market access to innovation support and global competitiveness.

In April, while the country's overall industrial output grew by 6.1 percent year-on-year, private enterprises outperformed with 6.7 percent growth. The first quarter of 2025 saw 1.98 million new private enterprises being registered, a 7.1 percent increase year-on-year, with over 40 percent of these new businesses operating in cutting-edge "four new economies" sectors, encompassing new technologies, emerging industries, innovative business models and digital formats.

The imports and exports by private enterprises went up by 6.8 percent, accounting for 56.9 percent of the total, 2.3 percentage points higher than that for the same period last year.

These figures demonstrate how the legal framework is catalyzing private sector dynamism, particularly in high-value, innovation-driven sectors that are crucial for China's economic upgrading.

The law establishes groundbreaking mechanisms to ensure fair competition, mandating equal access to key production factors, including capital, land, technology, talent and data, while prohibiting discrimination in government procurement and licensing. It introduces judicial safeguards against administrative overreach, systematically removing structural barriers to create a more transparent business environment.

The law also opens national research infrastructure to private enterprises and fosters public-private R&D collaboration, significantly lowering private firms' technological advancement costs. This aligns with China's shift to innovation-driven growth, empowering private firms in technological breakthroughs.

Crucially, the legislation tackles financing challenges by requiring financial institutions to accept diverse forms of collateral, such as accounts receivable, warehouse receipts, equity shares and intellectual property, particularly benefiting small and medium-sized enterprises. These reforms create a robust ecosystem for private investment in high-growth sectors.

The new law is more than just a legal document, it embodies China's strategic vision for economic governance in the new development stage. The framework reduces policy uncertainty and creates conditions for private enterprises to make long-term investments and strategic decisions. This is particularly valuable as China navigates complex domestic and international economic landscapes.

The legislation's success will ultimately be measured by its ability to unlock the full potential of China's private sector, fostering innovation, productivity growth and sustainable development. Early indicators suggest the framework is already having a positive impact, but its true significance may only become apparent when the institutional changes strike deeper roots.

This legislative breakthrough comes at a pivotal moment in China's economic development trajectory. By providing a stable legal foundation for private sector growth, the law ensures that private enterprises can continue to serve as engines of job creation, innovation and economic vitality. The law is likely to be remembered as a key institutional innovation that helped shape the country's economic future.