Promoting the Sustained, Sound, and High-Quality Development of the Private Sector Under the Rule of Law

The highly anticipated Private Sector Promotion Law of the People’s Republic of China officially came into effect on May 20, 2025. As the nation’s first fundamental law dedicated to private sector development, this law codifies the principles, policies, and effective practices regarding private sector development implemented by the Central Committee of the Communist Party of China (CPC) and the State Council since the launch of reform and opening up in 1978, and particularly since the 18th CPC National Congress in 2012. Its enactment has sent a powerful message that the rule of law will help guarantee the development of the private sector. 

I. A historic milestone in the development of China’s private sector

Starting from relatively small and weak beginnings, China’s private sector has grown considerably in size and strength over the past 40-plus years of reform and opening up. As an important force behind economic and social development, it now plays a vital role in ensuring stable growth, driving innovation, boosting employment, and enhancing public wellbeing. Since 2012, the CPC Central Committee has continued to strengthen the top-level design for this sector. It has reviewed practical experiences, reinforced policy guidance, and issued a series of important documents to provide a long-term and stable institutional framework for developing the private sector. Thanks to these moves, this sector has shown strong momentum and vitality. Private enterprises account for more than 300 of China’s top 500 companies, with the number of Chinese private enterprises in the Fortune Global 500 rising to 34. They also represent over 90% of all national high-tech enterprises, businesses making up the “new quartet” (covering new technologies, industries, and forms and models of business), as well as firms in core digital economy industries. It is clear that the private sector is a crucial force for building China into a great modern socialist country and realizing national rejuvenation.

In a new historic context, we have taken the step of formulating a law focused on the private sector to elevate proven institutional measures into legal norms, sum up best practices, consolidate reform achievements, and tackle related shortcomings and weaknesses. Our aim is to better harness the rule of law as a guarantee in our efforts to consolidate foundations, ensure stable expectations, and create long-term benefits. This move holds profound and far-reaching significance for developing the private sector. After a rigorous process of in-depth research and deliberation, extensive consultation with all sectors, multiple revisions, and the completion of relevant legislative procedures, the Private Sector Promotion Law of the People’s Republic of China has finally come into force.

The Private Sector Promotion Law clearly defines the legal status of the private sector. It marks the first time that China has enshrined in law the commitment to unswervingly consolidate and develop the public sector and unswervingly encourage, support, and guide the development of the non-public sector (known as the two unswerving commitments), as well as a commitment to promote the healthy development of the non-public sector and those working in it. It also represents the first instance where a law explicitly states that “Promoting the sustained, healthy, and high-quality development of the private sector of the economy is a major policy that the state will adhere to in the long term.” 

Upholding the principles of equal treatment, fair competition, equal protection, and shared development, the law institutionalizes the CPC’s requirement to support private enterprises’ use of production factors such as capital, technology, and knowledge in various ways. This includes ensuring fair competition, facilitating investment and financing, promoting technological innovation, ensuring standardized operations, providing services, and protecting rights and interests. It also institutionalizes requirements for promoting equal market access for private enterprises and enhancing fair competition, while codifying the long-standing commitment to non-discriminatory, long-term, and consistent property rights protection. To truly translate the principle of equal treatment between state-owned and private enterprises into law, it also clearly establishes legal liability for all forms of conduct that infringe upon the legitimate rights and interests of private enterprises and entrepreneurs. The Private Sector Promotion Law stands as a robust response to social concerns and market expectations. It marks a major step forward for the private sector, turning political promises and policy support into legal guarantees. This will provide private enterprises with the reassurance to invest with confidence, focus on their operations, and pursue development.

Officials brief the media and answer questions from journalists on the Private Sector Promotion Law during a press conference held by the State Council Information Office, May 8, 2025. The law officially took effect on May 20. PHOTO BY XINHUA REPORTER LI HE

China’s socialist market economy is inherently an economy under the rule of law. As the private sector is a vital component of the socialist market economy, the enactment of the Private Sector Promotion Law marks a major milestone in the continuous improvement of this economic system. In recent years, the private sector has encountered a range of difficulties and challenges. Policy adjustments, on their own, have not been enough to fundamentally resolve these issues. As a result, sound, democratic, and law-based legislation—the use of good laws to promote private sector development—has become integral to our efforts to improve the high-standard socialist market economy in the new era. 

Take, for example, fair competition, which is a core principle of the market economy. From the outset, the Private Sector Promotion Law establishes as its purpose ensuring the fair participation of economic entities of all types in market competition. Indeed, this principle is a common thread running through all provisions of the law. With a focus on eliminating the institutional barriers to fair competition, the law charts the direction and pathways for institutional market innovations across all areas, including market access, production factor allocation, financing support, and regulation and services. Furthermore, it sets out explicit provisions for implementing the negative list system for market access, the fair competition review system, and the development of a unified national market. All this ensures the requisite legal support for building a high-standard socialist market economy.

Another example in regard to building a high-standard socialist market economy is the need to ensure sound macroeconomic governance. The Private Sector Promotion Law stipulates that the State Council and local governments at or above the county level must incorporate private-sector development into national and local plans for economic and social development. They must also set up coordination mechanisms for this purpose and refine relevant policies and measures. The law sets out stipulations on how monetary instruments, macro-credit tools, and policies in investment, industry, technology, employment, and other related fields should promote private sector development. It provides the legal basis for including private-sector development into the broader macroeconomic framework, which comprises national plans, major strategies, and fiscal, monetary, industrial, and investment policies. It also establishes in law a mechanism for promoting private sector development, whereby the National Development and Reform Commission is responsible for overall coordination, while other State Council departments and relevant local government departments at the county level and above fulfill their respective responsibilities. This provides a foundation for incorporating private sector development into the national governance system. 

II. Giving initial shape to an institutional and legal framework for advancing private sector development

Over more than 40 years of reform and opening up, private enterprises have become a vital part of China’s socialist market economy and a driving force for Chinese modernization. The development of the private sector has been underpinned by a rich array of institutional innovations and development practices. 

Over time, the CPC has steadily deepened understanding of the status and role of the private sector and its relationship to the state sector: At its 12th National Congress in 1982, the CPC defined the individual economy as a “necessary and useful complement to the public economy”; at its 15th National Congress in 1997, it declared that non-public firms are an “important component part of China’s socialist market economy”; and at its 16th National Congress in 2002, it put forward the “two unswerving commitments.” Since 2012, President Xi Jinping has set forth a number of major conclusions regarding private enterprises, stating that they are “an integral element of China’s economic system” and that “private enterprises and entrepreneurs are our own people.” He has repeatedly stressed that the non-public sector’s status and functions in the country’s economic and social development have not changed; the principle and policies on unswervingly encouraging, supporting and guiding the development of the non-public sector have not changed; and the principle and policies on providing a sound environment and more opportunities to the sector have not changed. He has also underscored on numerous occasions the need to promote the healthy development of the non-public sector and those working in it. As private enterprises have evolved from a “necessary complement” to an “integral element” of the economy, the policy system and approaches supporting them have also shifted from encouraging their growth to strengthening institutional safeguards. The first milestone in this process was the introduction of a set of 36 guidelines on supporting the development of non-public enterprises in 2005. This was followed by a new set of 36 guidelines in 2010 aimed at encouraging and guiding healthy private investment. In 2019, a 28-point guideline was issued on creating a better development environment for private enterprises. Most notably in 2023, a package of 31 guidelines and supporting measures was issued to drive the development of the private sector. Together, these measures have gradually given shape to a single, coherent policy framework for ensuring equal rights, opportunities, and rules in all key aspects of private sector development, including market access, the use of production factors, technological innovation, fair competition, and the protection of rights and interests.

With the strong leadership and support of the CPC Central Committee, local governments have pursued pilot reforms and institutional innovations aimed at guiding the healthy development of the private sector. In each successive round of market-based reform and institutional innovation, regions across the country have forged a wealth of proven, widely replicable practices. At the outset of reform and opening up, Jinjiang—a coastal area in southeast Fujian Province—was mired in economic stagnation, social underdevelopment, and widespread poverty. To escape this situation, it developed joint-stock partnerships and private enterprises, with a focus on managing several key relationships: between tangible and intangible channels, between the development of small and medium enterprises and large enterprises, between the advancement of high-tech industries and traditional industries, between the processes of industrialization and urbanization, and between the growth of a market economy and a new type of service-oriented government. This saw Jinjiang creating what became known as the “Jinjiang Experience,” a model primarily based on market regulation, export-oriented enterprises, and joint-stock partnerships aimed at promoting the shared development of multiple economic components. During the same period, areas like southern Jiangsu Province, Wenzhou City in Zhejiang Province, and the Pearl River region in Guangdong Province all had their own distinctive experiments. These are a reflection of the explorations and experiments pursued by all localities, either through government guidance or spontaneous initiative, during the early days of reform and opening up. Such areas continuously broke through the constraints of the traditional economic system to optimize market operations, unleash market vitality, and propel private sector development. Since the 1990s, private enterprises have gradually accelerated their efforts to go global. This has given rise to models of international development exemplified by the theory of the “sweet potato economy,” symbolizing Zhejiang’s growth strategy, where local investments spread globally like sweet potato vines to enhance international engagement and strengthen the local economy. In this process, enterprises have pioneered new pathways for the international market, such as group overseas ventures, product exports, and capacity exports. Since 2012, regions across the country have guided and encouraged private enterprises in expanding into strategic emerging industries such as artificial intelligence. This has led to the creation of new models and experiences that combine policy guidance with market-driven approaches, progressive cultivation with targeted support, and platform empowerment with ecosystem development. These efforts have nurtured a new generation of private enterprises, including Hangzhou’s “Six Little Dragons” (DeepSeek, Game Science, Unitree, DeepRobotics, BrainCo, and ManyCore). Such firms are helping to drive forward the new global wave of technological revolution and industrial transformation.

The First Jinjiang Matchmaking Conference on Scientific & Technological Innovations opens at the Jinjiang International Convention and Exhibition Center, Jinjiang City, Fujian Province, April 9, 2024. Over 1,000 technological achievements were showcased at the event. Since the launch of reform and opening up, local governments have pursued pilot reforms and institutional innovations aimed at guiding the healthy development of the private sector. PEOPLE'S DAILY / PHOTO BY WANG WANGWANG

Over more than 40 years of theoretical and practical explorations, China has gradually established a legal framework to support the development of the private sector. The 1982 version of the Constitution of the PRC first recognized the self-employed economy as a complement to the socialist public economy. In 1988, the Constitution was amended to recognize the legal status of the private sector of the economy and designate it as a complement to the public sector. In 1999, the Constitution was revised to recognize the self-employed and private economies as major components of the socialist market economy. In 2004, it was further revised to stipulate that citizens’ lawful private property is inviolable and that the state protects the lawful rights and interests of the private sector of the economy. The Private Sector Promotion Law, promulgated this year, codifies the fundamental principles, policies of the Party and state, and the country’s proven practices regarding private sector development. It marks the inclusion of legislation to support and guarantee private sector development within China’s socialist legal system, thereby providing legal safeguards for improving the socialist market economy. The enactment of the Private Sector Promotion Law signifies that we are using the rule of law to guarantee the continuous improvement of the environment for the private sector and the growth of private sector entities. This will not only help cultivate more high-quality business entities, promote a high-standard market system, and improve the systems underpinning the market economy, such as those for market access, but will also help enhance the government’s governance capabilities and accelerate the development of a high-standard socialist market economy. 

III. Ensuring the private sector sails toward greater success under the rule of law

At present, as changes unseen in a century accelerate across the world, China has arrived at a critical juncture for realizing national rejuvenation. While facing new historic opportunities for development, the private sector is also grappling with certain difficulties and challenges. The promulgation of the Private Sector Promotion Law translates the CPC Central Committee’s strategic policy on the “two unswerving commitments” into an institutional guarantee through the rule of law. This move is sure to provide powerful momentum for the private sector going forward.

Using the binding force of law to truly boost development confidence

For some time now, occasional waves of rhetoric negating and casting doubt on the private sector have been causing confusion among private enterprises and entrepreneurs. By turning the CPC Central Committee’s major policies on supporting the private sector into legally binding norms, the Private Sector Promotion Law fundamentally eliminates institutional and structural obstacles hindering the sector's development. Using this new law as an opportunity, our next step should be to pursue coordinated progress on establishing supporting regulations and systems. We must coordinate the full implementation of various support and guarantee measures, work to enhance the systematic, comprehensive, and coordinated nature of legal norms, and ensure the law is applied in a correct and effective manner.

Effectively addressing development pain points and challenges through the protective power of the law

At present, China’s private sector continues to face problems relating to unequal status and unfair treatment. Obstructions to market access persist, including “glass doors” in the form of hidden entry restrictions and “revolving doors” in the form of convoluted regulatory approval processes. Accessing affordable financing remains a pronounced issue for private enterprises, and the legitimate rights and interests of private businesses and entrepreneurs are sometimes not adequately protected. The Private Sector Promotion Law includes a host of targeted solutions to address difficulties relating to market access, financing, payment collection, the awarding of contracts, and rights protection. For instance, it eliminates a series of market access barriers, improves financing support policies and frameworks, as well as regular mechanisms for preventing and clearing overdue payments. It establishes sound mechanisms for conducting fair competition review of enterprise-related policies and ensuring tolerant, prudent administrative enforcement. These practical and effective legal provisions represent a robust response to market and social expectations and further empower efforts to formulate, refine, and implement related policy measures. They successfully address the pain points and challenges facing the private sector, enabling private enterprises to truly thrive and pursue achievements in a stable, fair, transparent, and predictable legal environment.

Steadily unleashing development potential through the guiding power of the law

In recent years, due to a range of factors including domestic and international conditions and challenges in transformation and upgrading, some of China’s private enterprises have encountered difficulties that include falling revenues and profits. This has created an urgent need to open up new space for growing the private sector through innovations in technology, products, and business models. China’s private enterprises serve as the main drivers of breakthroughs in science and technology and the development of new quality productive forces. But invisible barriers continue to hinder scientific and technological innovation among private firms, and this has, to some extent, dampened their enthusiasm for innovation and limited their development opportunities. The Private Sector Promotion Law stipulates that the state shall encourage and support private economic organizations in playing an active role in promoting scientific and technological innovation, cultivating new quality productive forces, and building a modern industrial system. It also stipulates that support shall be provided for capable private economic organizations to take the lead in major national technological research tasks, and for major national scientific research infrastructure to be opened to private economic organizations. The law also sets forth specific provisions for delivering scientific and technological innovation services, leveraging the empowering role of data, strengthening technology applications and cooperation, encouraging talent development and utilization, reinforcing intellectual property protection, and establishing and improving the modern corporate system with Chinese characteristics. These provisions provide guidance on creating favorable conditions that will enable private enterprises to ramp up technological and institutional innovation, cultivate new quality productive forces, and open up broader space for development. They will undoubtedly help propel the private sector to new heights of development.

Guo Chunli is Vice President and Researcher at Chinese Academy of Macroeconomic Research.

(Originally appeared in Qiushi Journal, Chinese edition, No. 12, 2025)