Ryan Hass | Director at John L. Thornton China Center | The Brookings Institution website
The People's Republic of China is working on its first law dedicated to the private economy, a move aimed at restoring confidence in a sector considered vital to the nation's economic prosperity. Chinese authorities recognize private enterprises as key contributors to the country's GDP, technological innovation, and urban employment, with expectations for the Private Economy Promotion Law (PEPL) to pass by late 2025. Despite accounting for over 60% of GDP, private companies in China face challenges such as unstable policies, discriminatory enforcement, and access to market and financing.
The new draft, currently open for comment by the National People's Congress Standing Committee, largely restates previous policies and provides little new guidance. It reinforces certain regulatory frameworks and emphasizes the importance of political correctness. Foreign investment, which dropped by 27.1% in 2024, remains a key area of interest for China, though foreign-owned companies are notably excluded from this draft law.
According to the draft, the definition of the private economy in China will use the term "minying" rather than "siying," with a focus on businesses controlled by Chinese citizens. This reflects some ideological shifts in China's policy approach towards private and non-state-owned economies. Despite including a broader range of entities, the draft excludes foreign-controlled foreign-invested enterprises (FIEs) from direct benefits, leaving out some business challenges these entities face.
Feedback from Chinese professionals and organizations has generally been positive but also highlights the draft's lack of new enforcement mechanisms to curb illegal government actions. A recent private enterprise survey pointed to policy inconsistency as a critical issue, with suggestions that stronger measures are needed to ensure the draft effectively reassures investors.
In summary, the draft largely mirrors the CCP’s ongoing strategic and ideological perspectives on the role of private businesses within China's economy. It emphasizes creating an equitable environment but falls short in addressing potential risks posed by future policy changes or discriminatory enforcement practices. The initiative signals a support attempt from the Chinese Government, yet it underscores the complex interplay between economic objectives and political oversight in China.
"Published commentary from Chinese lawyers, business associations, and quasi-official research organizations welcomed the draft."
"Although foreign direct investment fell by 27.1% in 2024, and China is courting foreign as well as domestic investors, the draft notably excludes majority foreign-owned companies and maintains a segregation of the Chinese economy into state, private, and foreign-owned sectors."
"This initiative is further validated by the top-level courtship of domestic investors and intense ongoing regulatory activity to improve the business environment, including reducing market access restrictions on both foreign and domestic private companies and achieving a unified national market."
"Analyses noted, however, the draft’s lack of new and concrete enforcement mechanisms against illegal government behavior and called for a stronger private economy “protection” or “guarantee” law."
