On 24 February 2025, the 14th Session of the Standing Committee of the 14th National People’s Congress of China (“NPC”) reviewed the second draft of the Private Economy Promotion Law (“Second Draft Law”). The Private Economy Promotion Law is China’s first basic law specifically to promote private economy, applicable to entities established in China and controlled by Chinese citizens (“target entities”) and entities controlled by the target entities, including qualified foreign-invested entities. On 21 December 2024, the Draft Private Economy Promotion Law (“First Draft Law”) was submitted to the Standing Committee of the NPC for deliberation for the first time. Two months later, Xin Chunying, Chairman of the Constitution and Law Committee of the NPC, suggested that the law be reviewed and issued as soon as possible as reviewing the Second Draft Law. Therefore, the law is likely to be submitted to the Standing Committee of the NPC for final review and officially take effect in the second half of 2025.
On 10 October 2024, the Ministry of Justice of China and China’s National Development and Reform Commission jointly issued the First Draft Law, which consists of nine chapters, including general principles, fair competition, investment and financing promotion, scientific and technological innovation, standardized operation, service guarantee, rights protection, and legal liability, with a total of 77 articles. During the first review, the Standing Committee of the NPC mainly discussed the overall framework and basic principles of the First Draft Law and focused on its core clauses, such as market access, rights protection, innovation and financing support, and government-enterprise communication mechanisms. The Second Draft Law further refines these core clauses, enhances its operability, and responds to some controversial issues raised by the First Draft Law.
In terms of equal protection and market access, the First Draft Law stipulates that a unified negative list system for market access shall be implemented nationwide, and discriminatory policies against private enterprises shall be explicitly prohibited. The Second Draft Law reiterates the “one list for the whole country” management model to ensure that private enterprises enjoy the same access rights as state-owned enterprises in areas such as infrastructure, technology, and public services; requires governments at all levels not to set up market access barriers based on ownership form, size, etc.; and adds provisions for supervising the implementation of local governments to ensure the implementation of policies. In addition, it further prohibits local governments from restricting enterprises from operating across regions through filing, review, and other means to ensure fair competition.
In terms of standardized law enforcement and rights protection, the First Draft Law proposed prohibiting repeated inspections and multiple law enforcement and required administrative agencies to clarify the legal basis when conducting inspections. The Second Draft Law added further restrictive clauses, explicitly prohibiting interference with the normal operation of enterprises in the name of fines and inspections. Meanwhile, the First Draft Law clarified that the legal property of enterprises (including intellectual property rights) is protected by law and prohibited the occupation or illegal seizure of enterprise assets. The Second Draft Law further strengthened it to prohibit the illegal seizure and detention of enterprise assets and added a relief channel for the protection of enterprise property rights, clarifying to appeal when their property is illegally seized or detained.
In terms of supporting innovation and financing, the First Draft Law encourages private enterprises to participate in major national science and technology projects, allows the use of state-owned scientific research facilities, strengthens intellectual property protection, proposes to promote the reduction of financing costs, and improves the credit loan mechanism. The Second Draft Law refines the specific ways for private enterprises to participate in major national science and technology projects and the conditions and procedures for using state-owned scientific research facilities. In addition, it adds new clauses requiring financial institutions to increase credit support for small and medium-sized enterprises, reduce financing costs, and set specific assessment indicators.
In terms of optimizing the communication mechanism between the government and enterprises, the First Draft Law proposed to establish a regular dialogue mechanism between the government and enterprises to ensure the right of enterprises to participate in policy making. The Second Draft Law added the mandatory requirement of the dialogue and clarified the frequency and form of it to ensure the right of enterprises to participate in policy making. For example, the First Draft Law required that regulations involving corporate rights and interests should seek the opinions of enterprises. The Second Draft Law added clauses requiring that regulations involving corporate rights and interests should seek the opinions of enterprises and make the feedback results public.
When reviewing the First Draft Law, it was pointed out that its provisions on the “disempowerment system” and “shareholder rights protection” were not operational enough. In addition, differences in local implementation and policy fragmentation have also aroused concern. In response to these issues, the Second Draft Law refined the operating procedures of the “disempowerment system” and clarified the specific measures for shareholder rights protection. Meanwhile, it added a supervision mechanism, requiring the establishment of a cross-departmental coordination mechanism to avoid local protectionism.
In conclusion, the comparison between the First Draft Law and Second Draft Law shows that the content of the Private Economy Promotion Law is gradually being refined, and the operability and pertinence of the provisions are significantly enhanced. By the way, it deserves recognition that the Second Draft Law positively responds to disputes and strengthens the implementation and supervision mechanism.
On 10 October 2024, the Ministry of Justice of China and China’s National Development and Reform Commission jointly issued the First Draft Law, which consists of nine chapters, including general principles, fair competition, investment and financing promotion, scientific and technological innovation, standardized operation, service guarantee, rights protection, and legal liability, with a total of 77 articles. During the first review, the Standing Committee of the NPC mainly discussed the overall framework and basic principles of the First Draft Law and focused on its core clauses, such as market access, rights protection, innovation and financing support, and government-enterprise communication mechanisms. The Second Draft Law further refines these core clauses, enhances its operability, and responds to some controversial issues raised by the First Draft Law.
In terms of equal protection and market access, the First Draft Law stipulates that a unified negative list system for market access shall be implemented nationwide, and discriminatory policies against private enterprises shall be explicitly prohibited. The Second Draft Law reiterates the “one list for the whole country” management model to ensure that private enterprises enjoy the same access rights as state-owned enterprises in areas such as infrastructure, technology, and public services; requires governments at all levels not to set up market access barriers based on ownership form, size, etc.; and adds provisions for supervising the implementation of local governments to ensure the implementation of policies. In addition, it further prohibits local governments from restricting enterprises from operating across regions through filing, review, and other means to ensure fair competition.
In terms of standardized law enforcement and rights protection, the First Draft Law proposed prohibiting repeated inspections and multiple law enforcement and required administrative agencies to clarify the legal basis when conducting inspections. The Second Draft Law added further restrictive clauses, explicitly prohibiting interference with the normal operation of enterprises in the name of fines and inspections. Meanwhile, the First Draft Law clarified that the legal property of enterprises (including intellectual property rights) is protected by law and prohibited the occupation or illegal seizure of enterprise assets. The Second Draft Law further strengthened it to prohibit the illegal seizure and detention of enterprise assets and added a relief channel for the protection of enterprise property rights, clarifying to appeal when their property is illegally seized or detained.
In terms of supporting innovation and financing, the First Draft Law encourages private enterprises to participate in major national science and technology projects, allows the use of state-owned scientific research facilities, strengthens intellectual property protection, proposes to promote the reduction of financing costs, and improves the credit loan mechanism. The Second Draft Law refines the specific ways for private enterprises to participate in major national science and technology projects and the conditions and procedures for using state-owned scientific research facilities. In addition, it adds new clauses requiring financial institutions to increase credit support for small and medium-sized enterprises, reduce financing costs, and set specific assessment indicators.
In terms of optimizing the communication mechanism between the government and enterprises, the First Draft Law proposed to establish a regular dialogue mechanism between the government and enterprises to ensure the right of enterprises to participate in policy making. The Second Draft Law added the mandatory requirement of the dialogue and clarified the frequency and form of it to ensure the right of enterprises to participate in policy making. For example, the First Draft Law required that regulations involving corporate rights and interests should seek the opinions of enterprises. The Second Draft Law added clauses requiring that regulations involving corporate rights and interests should seek the opinions of enterprises and make the feedback results public.
When reviewing the First Draft Law, it was pointed out that its provisions on the “disempowerment system” and “shareholder rights protection” were not operational enough. In addition, differences in local implementation and policy fragmentation have also aroused concern. In response to these issues, the Second Draft Law refined the operating procedures of the “disempowerment system” and clarified the specific measures for shareholder rights protection. Meanwhile, it added a supervision mechanism, requiring the establishment of a cross-departmental coordination mechanism to avoid local protectionism.
In conclusion, the comparison between the First Draft Law and Second Draft Law shows that the content of the Private Economy Promotion Law is gradually being refined, and the operability and pertinence of the provisions are significantly enhanced. By the way, it deserves recognition that the Second Draft Law positively responds to disputes and strengthens the implementation and supervision mechanism.