On April 30, China passed the country’s first comprehensive law focusing on promoting the private economy. This marks a significant policy shift to revitalize a sector that is foundational to China’s growth and innovation. The law aims to boost entrepreneurs’ confidence by explicitly defining the legal status of private enterprise and reaffirming that private sector development is a long-term national goal.
Private enterprises in China have long faced discrimination when competing with state-owned enterprises (SOEs). SOEs often enjoy preferential treatment from access to credit to market access, while private firms are excluded from key industries. Several parts of the new law show promise in addressing this imbalance, particularly the provisions on fair competition. For instance, the law states that “industrial policies must not violate competition policies; implicit barriers such as local protectionism and industry monopolies must be regularly reviewed and eliminated.” It also commits that “unified regulatory standards must apply to all economic entities; selective enforcement is strictly prohibited.”
Importantly, the new law also goes hand-in-hand with China’s 2025 Negative List for Market Access, which clarifies the sectors designated as strategic and reserved for SOEs. Outside of those specified areas, private enterprises are, in principle, to be treated equally and allowed to compete on fair terms with SOEs. The 2025 negative list also expanded the scope for private enterprise. If implemented effectively, these provisions could help establish a more level playing field for private businesses in China. The new law builds on this by stating that “all economic entities, including private enterprises, may lawfully enter the market access negative list on an equal footing… restrictions or exclusions targeting private firms in bidding or government procurement are prohibited.”
The new law also addresses a key concern among entrepreneurs regarding extrajudicial arrest and asset seizures by cash-strapped local governments. In recent years, many business owners have been arrested on fabricated or dubious charges, including tax evasion, links to organized crime, corruption, and money laundering, in order to seize their assets. This includes growing public alarm over the practice of “cross-jurisdiction prosecution of entrepreneurs.” This refers to cases where local police cross provincial boundaries to raid private companies, often using dubious legal grounds to seize assets and generate revenue for financially strained local governments.
Provinces like Guangdong, Zhejiang, Jiangsu, and Shanghai are home to a high concentration of entrepreneurs who have been particularly affected. According to one report, since 2023, over 10,000 entrepreneurs in Guangdong were arrested by police from other provinces, often from localities struggling economically.
The phenomenon has been widely labeled as “profit-driven enforcement,” highlighting that this practice is motivated by the need to pursue alternative, and at times questionable or even unlawful, sources of revenue to make up for severe budget shortfalls tied to the collapse of the real estate market. This represents a serious violation of the rule of law, undermines the foundational property rights essential for entrepreneurs to operate, and amounts to a direct assault on the judicial system.
The new law contains four articles aimed at curbing these abuses, sending a strong signal to entrepreneurs that the government is taking steps to address their concerns, especially as these violations have already severely undermined fragile business confidence. Articles 60, 62, 64, and 66 specifically target the misuse of jurisdiction, arbitrary arrests, and cross-regional crackdowns on entrepreneurs. These provisions may represent a critical first step toward addressing these issues, but effective implementation and oversight will be essential.
Another positive aspect of the new Private Enterprise Law, outlined in Articles 66, 67, 68, 69, 70, and 72, is its clear requirement that local governments, state-owned enterprises, and state-affiliated entities must make payments promptly. They are prohibited from withholding payments, altering contracts due to personnel changes or district-level planning adjustments, or unlawfully confiscating or freezing assets. These provisions serve as an important reassurance that government entities must respect contracts and the rule of law, and that private enterprises are to be treated as legal entities with enforceable rights. However, due to severe financial distress, many local governments and affiliated entities have continued to violate contract terms by unilaterally altering agreements or refusing to make payments altogether.
While the law is a step in the right direction, the economy is struggling. Unemployment is still high and people are finding it hard to make ends meet. Although official government figures claim a 5 percent growth rate in 2024, most independent analysts estimate China’s GDP growth was closer to 2 percent. Entrepreneur confidence remains low, and domestic consumption is unlikely to meet expectations anytime soon. For example, the government reportedly pressured JD.com, one of China’s largest e-commerce platforms, into purchasing goods from export-oriented sectors for domestic sale. If such coercive tactics toward private companies continue, investor and business confidence will remain low.
Despite the protections this law would provide to the private sector, the bottom line is clear: private enterprise in China must operate under the leadership of the Communist Party and within its ideological framework.
The law encapsulates this tension in clear terms. Article 2 affirms that efforts to promote the private economy must “adhere to the leadership of the Chinese Communist Party, uphold the people-centered approach, and maintain the socialist system with Chinese characteristics to ensure the correct political direction of private economic development.” Similarly, Article 5 requires that private enterprises and their operators “support the leadership of the Party, uphold the socialist system with Chinese characteristics, and actively participate in building a modern socialist country.”
So while China’s new private enterprise law promotes fair competition and equal treatment, the absence of clear enforcement mechanisms or specified penalties risks rendering it mere rhetoric and symbolic. Worse still, it reinforces the need for ideological alignment and political loyalty. This clearly signals that private enterprise is welcome only as long as it serves the party’s broader political objectives.
The Communist Party through this law acknowledges that it needs the private sector to prosper. The law serves to codify key principles to ensure that the party does not kill the golden goose that has served as its engine of economic prosperity. At the same time, the party wants to keep that goose on a leash, maintaining full authority to control the private sector’s direction and behavior. As always, the true test lies in how the law is implemented and applied, as well as how the courts interpret and enforce it, rather than what the law says on paper.