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China Initiates Legislation to Bolster Private Sector Confidence

ByDayne Lee

Feb 24, 2024

In a significant policy move, China has embarked on the drafting of a new law aimed at fostering the growth and development of the private-sector economy. This initiative represents the nation’s latest strategy to rejuvenate confidence within the private business sector, a crucial component of the Asian giant’s economic framework. The proposed legislation comes as a response to the recent challenges faced by private companies, including heightened regulatory scrutiny across various industries.

Key Objectives of the New Legislation

The forthcoming law is designed to address the “core concerns” of private enterprises by focusing on several pivotal areas:

  • Protection of Property Rights: Ensuring that the legal rights of private companies to own and utilize property are safeguarded.
  • Guaranteeing Entrepreneurial Interests: Providing a legal framework that secures the interests and investments of entrepreneurs.
  • Management of Missed Payments: Implementing measures to address and mitigate the issue of missed payments, especially affecting small- and medium-sized enterprises (SMEs).

State broadcaster CCTV highlighted that the legislation aims to promote a stable and consistent policy environment, encouraging innovation among businesses and ensuring equal treatment between state-owned enterprises (SOEs) and private companies.

Accelerating the Legislative Process

Authorities have committed to expediting the legislative journey of this crucial law, drawing upon the collaborative efforts of the nation’s top economic planning body, the Justice Ministry, and the legislative affairs commission of the national Parliament. This accelerated process underscores the government’s recognition of the private sector’s pivotal role in China’s economic landscape, contributing to over 60% of the country’s GDP and providing more than 80% of urban employment.

The Significance of Legal Protections

Sean Stein, the chair of the American Chamber of Commerce in China, emphasized the potential of this legal initiative to enhance economic growth and bolster confidence among private businesses. However, he noted that the anticipated positive impact on spending and investment hinges on the actual implementation of the reforms, rather than preliminary discussions or announcements.

Table: Impact of Proposed Legislation on Private Sector Confidence

Aspect of LegislationExpected Impact on Private Sector Confidence
Protection of Property RightsEnhances security and encourages investment
Guaranteeing Entrepreneurial InterestsBoosts entrepreneurial activities and risk-taking
Management of Missed Payments for SMEsImproves liquidity and operational stability
Equal Treatment of SOEs and Private CompaniesFosters a fair competitive environment

Previous Measures and Their Limitations

Despite the introduction of a 31-point plan by China’s ruling Communist Party in July and the establishment of a new department by the National Development and Reform Commission (NDRC) in September aimed at addressing the private sector’s challenges, confidence among private businesses has remained subdued. These measures, while well-intentioned, have yet to significantly reverse the trend of declining confidence within the sector.

A committee under the national Parliament highlighted the private-sector law as a critical legislative priority among 22 identified items. Further emphasizing the urgency, the NDRC announced plans to hasten the law’s development, supported by preliminary research and discussions on the legislative framework.

The Role of Law in China’s Economic Strategy

Lester Ross, a Beijing-based partner at law firm WilmerHale, shed light on the broader significance of the law within China’s governance model. Under President Xi Jinping’s leadership, there’s a growing acknowledgment of the need for legal mechanisms to guide compliance with the governing party’s policies, especially in a country of China’s size and complexity. The introduction of this law is seen as a step towards asserting the principle of equal treatment, despite ongoing challenges in implementation.

China’s initiative to draft a law dedicated to the promotion of the private-sector economy signifies a strategic move to address the uncertainties and challenges facing private businesses. By focusing on key areas such as property rights, entrepreneurial interests, and the management of missed payments, the government aims to create a more conducive environment for the private sector’s growth. As the legislative process accelerates, the success of this endeavor will ultimately depend on the effective implementation of the law, potentially marking a turning point in restoring confidence among private sector entrepreneurs and investors.

Featured image credit: Asia-Pacific Images Studio via iStocks

Dayne Lee

With a foundation in financial day trading, I transitioned to my current role as an editor, where I prioritize accuracy and reader engagement in our content. I excel in collaborating with writers to ensure top-quality news coverage. This shift from finance to journalism has been both challenging and rewarding, driving my commitment to editorial excellence.