Hoping to regain investor trust, China enacts its first private sector law

China's Private Economy Promotion Law aims to level the playing field for private firms, protect against unfair treatment, and revive business confidence amid US trade tensions

China has approved its first comprehensive law aimed at supporting and protecting the country’s private sector, state media Xinhua reported. This law has been a long-awaited move that aims to revitalise domestic business activity amid ongoing domestic economic challenges in China, as well as its ongoing trade war with the United States.

 

The Private Economy Promotion Law was approved by the Standing Committee of the National People’s Congress (NPC) on Wednesday and will come into force on 20 May 2025.

 

What is China’s new Private Economy Promotion Law?

 

The Private Economy Promotion Law is the first of its kind to specifically focus on the private economy, which plays a central role in China’s growth, innovation, and employment.

 

 

The drafting process began in 2024 under the guidance of the National Development and Reform Commission. A draft version was opened to public feedback last October, and a second reading in February 2025 triggered further debate around issues of enforcement and market access.

 

That same month, President Xi Jinping convened a rare meeting with some of the country’s most influential entrepreneurs, including Alibaba founder Jack Ma. The gathering, the first of its kind since 2018, was seen as an effort to reassure the private sector of its role in China’s future. 

 

Why China’s new private sector law is a big policy shift

 

The passage of the law marks a formal shift in policy as Beijing looks to enshrine long-standing pledges into legislation, especially to ensure private companies are treated on par with state-owned enterprises.

 

This is also China’s first national law specifically dedicated to the private economy. 

 

How China’s private sector law promotes fair competition with state firms

 

With 78 articles in total, the new law sets out to level the playing field between private enterprises and state-owned firms. It introduces provisions to promote fair competition, improve access to investment and financing, and reinforce protections for private businesses against arbitrary fines and intrusive law enforcement.

 

While the full text of the law has not yet been released, officials say it enshrines long-standing policy commitments into a legal framework for the first time.

 

Tang Dajie, a senior researcher with the China Enterprise Institute, told the South China Morning Post that the new legislation is expected to curb the misuse of power by local authorities and bring more standardisation and fairness to how laws are enforced. However, questions remain about how effectively the law will be implemented, as it does not include a specific enforcement mechanism to guarantee these rights. 

 

Why China’s private businesses need legal protection and reforms

 

China’s private businesses currently account for over 60 per cent of national GDP, 70 per cent of technological advancements, and 80 per cent of urban employment, according to data cited by Bloomberg. By the end of March 2025, more than 57 million private enterprises had been registered, making up over 92 per cent of all firms in the country.

 

Despite their contribution, many private firms have voiced concerns in recent years about inconsistent treatment, restricted market access, and aggressive regulatory actions. Business leaders have also complained of overreaching law enforcement practices, such as unjustified asset seizures and excessive penalties.

Challenges and criticisms of China’s private sector legislation

 

Critics, as cited by Bloomberg, have pointed out that while the law is a game changer for the private sector, it lacks an enforcement mechanism to provide legal protections to ensure such rights, raising questions on whether it will make a substantive change.

 

Why US trade war and weak demand drove China’s private sector law

 

The move comes amid mounting economic pressure. With trade tensions with the United States intensifying and domestic consumption lagging, China is increasingly reliant on domestic engines to keep growth on track. With foreign demand uncertain and consumption sluggish at home, policymakers are turning to the private sector to stabilise the economy and drive innovation. 

 

Officials see this law as a way to restore investor confidence and reinvigorate business activity.

 

While investment from private firms has declined in recent years due to regulatory uncertainty and weaker demand, there are signs of a tentative recovery. In the first quarter of 2025, private sector investment recorded a modest year-on-year rise of 0.4 per cent.