In an effort to foster steady growth in the private economy and improve the business environment for private enterprises, China’s Ministry of Justice and National Development and Reform Commission released the Draft Law on Promoting the Private Economy (hereafter referred to as “the Draft”) on October 10, 2024. This document invites public opinion and seeks to provide clearer legal protections and policy support for private enterprises, and the deadline for public opinion is November 8, 2024.
As early as August 1, 2023, the National Development and Reform Commission (NDRC) and other departments issued the Notice on Implementing Several Measures to Promote the Development of the Private Economy. This was a clear signal from China to revitalize the private sector and boost business confidence. Besides, on June 25, 2024, the NDRC, on behalf of the State Council, submitted a Report on the Development of the Private Economy to the Tenth Meeting of the Standing Committee of the 14th National People’s Congress. This report identified six key tasks to further enhance the private economy, including the proposal for enacting the Private Economy Promotion Law, revising the Regulations on Payment of Small and Medium Enterprises’ Receivables to address overdue payments.
Responding to the State Council’s call, the Ministry of Justice and NDRC drafted the Draft. The Draft outlines measures in areas such as market access, financing, government services, and technological innovation to create a fair and transparent environment for private businesses. Below is a detailed analysis and evaluation of the key provisions.
1. Building a Collaborative Development System through Policy Coordination
The Draft’s Article 4 highlights the importance of integrating the private economy into national and local economic planning. It emphasizes the establishment of cross-departmental coordination mechanisms to address critical challenges facing private businesses. Key measures include:
1) Incorporating private economic indicators into government plans: All levels of government are required to include private economy development goals in their annual plans, ensuring that policy implementation is evaluated regularly.2) Setting up response platforms for enterprises: Local governments are encouraged to create online platforms to facilitate real-time interaction between businesses and officials, reducing delays in policy execution.
This top-down planning system aims to break down coordination barriers between government departments and local authorities, ensuring effective implementation. It provides private enterprises with equal opportunities to participate in national strategies and contribute to economic transformation.
2. Reducing Costs and Improving Financing through Tax and Credit Support
Article 20 introduces differentiated regulatory policies to support financing for small and micro-enterprises, including tolerance for non-performing loans. When financial institutions provide loans to small and micro enterprises (SMEs) and private enterprises, they need to adopt a certain tolerance policy for overdue or non-performing loans. Based on market-oriented principles, they need to adjust the management and resolution standards for such loans. Through more flexible credit policies, this approach aims to alleviate the financial pressure these enterprises face due to temporary cash flow issues or economic fluctuations, thereby ensuring their sustainable operations and development.
Besides, Article 22 calls for the creation of a market-based risk-sharing mechanism to encourage financial institutions to increase lending to private businesses.
Specific measures include:
1) Establishing special guarantee funds: Local governments and financial institutions will cooperate to offer loan guarantees, lowering entry barriers and reducing financing costs for small businesses.2) Promoting supply chain finance: By facilitating the use of accounts receivable as collateral, financial institutions can help businesses unlock capital for reinvestment.
Financing challenges have long hindered the growth of private enterprises. The Draft’s differentiated regulatory approach and risk-sharing mechanisms aim to reduce financial institutions’ risk concerns, motivating them to develop more tailored financial products and services.
3. Ensuring Fair Competition through Market Access Policies
Article 10 introduces a national negative list system for market access, identifying industries where private enterprises are restricted or prohibited from entering, and the scope outside of this list, private enterprises are free to operate. Additionally, Article 14 mandates that public resource transactions must be conducted openly and transparently, ensuring equal participation opportunities for all economic players, including private enterprises.
The implementation of a negative list system and transparent public resource transactions will expand market opportunities for private enterprises, encouraging their involvement in emerging and future industries.
4. Supporting Technological Innovation to Drive Progress and Industrial Upgrading
Article 29 encourages private enterprises to participate in national research initiatives, while also promoting the sharing of public technology platforms. And article 33 strengthens the protection of intellectual property (IP) for private enterprises. Key initiatives include:1) Enhancing the IP protection system: The Draft emphasizes legal action against trademark, patent, copyright infringements, and the misuse of trade secrets.2) Offering IP dispute resolution and support: Government departments will collaborate to provide businesses with legal assistance, overseas IP dispute resolution guidance, and risk warnings.
By encouraging innovation and reinforcing IP protection, the Draft provides a strong foundation for the private sector’s sustainable development and competitiveness.
5. Protecting the Rights and Interests of Private Enterprises
Article 56 safeguards private enterprises’ property rights and management autonomy, along with the personal rights of their operators, including privacy and reputation protection. Article 68 stipulates that businesses affected by policy changes are entitled to reasonable compensation. Furthermore, Article 65 requires government entities and state-owned enterprises to make timely payments to private businesses, preventing payment delays.
Clear legal protections enhance private enterprises’ confidence in the policy environment, reducing uncertainties that may arise from regulatory changes, and fostering a stable business climate for long-term investment.
6. Promoting Talent Development and Employment Support
Article 48 encourages private enterprises to collaborate with universities and vocational schools to train skilled talent. It also directs human resources departments to establish employment service platforms to provide recruitment and workforce support.
By focusing on talent development and job creation, the Draft helps businesses address labor shortages while promoting a virtuous cycle of economic growth and employment.
7. Enhancing Government-Business Communication and Service Support
Article 44 requires governments to establish communication mechanisms to collect opinions and address concerns from private enterprises. And article 46 emphasizes the need for government departments to efficiently handle business-related matters.
Optimizing public services through effective communication and support mechanisms will foster a more business-friendly environment, encouraging private sector growth.
[Comment]
Before this initiative, regulations related to private economic protection were scattered across various laws, including the Company Law, the Civil Code, and the Criminal Law. Judicial interpretations from the Supreme People’s Court and Supreme People’s Procuratorate also addressed relevant issues. These laws offered general protections -for instance, corporate governance rules under the Company Law, protection of business rights in the Civil Code, and criminal penalties for unlawful conduct under the Criminal Law. However, they lacked targeted provisions specific to the challenges faced by private enterprises, such as local protectionism and selective law enforcement.
Therefore, the Draft proposes special legislative arrangements to clearly resolve these issues in legal form. The key objectives and significance of the Draft include the following: 1) Restoring Market Confidence: The draft law aims to alleviate concerns about market access and policy uncertainty, enhancing the confidence of private businesses post-pandemic.2) Promoting Fair Competition: The law emphasizes the protection of property rights and business interests, preventing unfair practices like selective law enforcement and local favoritism.3) Encouraging Innovation and High-Quality Development: It supports technological innovation and corporate governance reforms, aligning with China’s broader economic development goals.4) Addressing Structural Challenges: The law tackles chronic issues such as overdue payments and business closures, providing a clearer legal framework for policy implementation.5) Fostering Sustainable Economic Growth: With private enterprises contributing over 50% of tax revenue, 60% of GDP, and 80% of employment, the law ensures that these businesses remain integral to China’s economic engine.
The combination of this legislative effort and policy initiatives reflects China’s commitment to revitalizing the private sector, ensuring fair competition, and driving long-term economic stability.
As early as August 1, 2023, the National Development and Reform Commission (NDRC) and other departments issued the Notice on Implementing Several Measures to Promote the Development of the Private Economy. This was a clear signal from China to revitalize the private sector and boost business confidence. Besides, on June 25, 2024, the NDRC, on behalf of the State Council, submitted a Report on the Development of the Private Economy to the Tenth Meeting of the Standing Committee of the 14th National People’s Congress. This report identified six key tasks to further enhance the private economy, including the proposal for enacting the Private Economy Promotion Law, revising the Regulations on Payment of Small and Medium Enterprises’ Receivables to address overdue payments.
Responding to the State Council’s call, the Ministry of Justice and NDRC drafted the Draft. The Draft outlines measures in areas such as market access, financing, government services, and technological innovation to create a fair and transparent environment for private businesses. Below is a detailed analysis and evaluation of the key provisions.
1. Building a Collaborative Development System through Policy Coordination
The Draft’s Article 4 highlights the importance of integrating the private economy into national and local economic planning. It emphasizes the establishment of cross-departmental coordination mechanisms to address critical challenges facing private businesses. Key measures include:
1) Incorporating private economic indicators into government plans: All levels of government are required to include private economy development goals in their annual plans, ensuring that policy implementation is evaluated regularly.2) Setting up response platforms for enterprises: Local governments are encouraged to create online platforms to facilitate real-time interaction between businesses and officials, reducing delays in policy execution.
This top-down planning system aims to break down coordination barriers between government departments and local authorities, ensuring effective implementation. It provides private enterprises with equal opportunities to participate in national strategies and contribute to economic transformation.
2. Reducing Costs and Improving Financing through Tax and Credit Support
Article 20 introduces differentiated regulatory policies to support financing for small and micro-enterprises, including tolerance for non-performing loans. When financial institutions provide loans to small and micro enterprises (SMEs) and private enterprises, they need to adopt a certain tolerance policy for overdue or non-performing loans. Based on market-oriented principles, they need to adjust the management and resolution standards for such loans. Through more flexible credit policies, this approach aims to alleviate the financial pressure these enterprises face due to temporary cash flow issues or economic fluctuations, thereby ensuring their sustainable operations and development.
Besides, Article 22 calls for the creation of a market-based risk-sharing mechanism to encourage financial institutions to increase lending to private businesses.
Specific measures include:
1) Establishing special guarantee funds: Local governments and financial institutions will cooperate to offer loan guarantees, lowering entry barriers and reducing financing costs for small businesses.2) Promoting supply chain finance: By facilitating the use of accounts receivable as collateral, financial institutions can help businesses unlock capital for reinvestment.
Financing challenges have long hindered the growth of private enterprises. The Draft’s differentiated regulatory approach and risk-sharing mechanisms aim to reduce financial institutions’ risk concerns, motivating them to develop more tailored financial products and services.
3. Ensuring Fair Competition through Market Access Policies
Article 10 introduces a national negative list system for market access, identifying industries where private enterprises are restricted or prohibited from entering, and the scope outside of this list, private enterprises are free to operate. Additionally, Article 14 mandates that public resource transactions must be conducted openly and transparently, ensuring equal participation opportunities for all economic players, including private enterprises.
The implementation of a negative list system and transparent public resource transactions will expand market opportunities for private enterprises, encouraging their involvement in emerging and future industries.
4. Supporting Technological Innovation to Drive Progress and Industrial Upgrading
Article 29 encourages private enterprises to participate in national research initiatives, while also promoting the sharing of public technology platforms. And article 33 strengthens the protection of intellectual property (IP) for private enterprises. Key initiatives include:1) Enhancing the IP protection system: The Draft emphasizes legal action against trademark, patent, copyright infringements, and the misuse of trade secrets.2) Offering IP dispute resolution and support: Government departments will collaborate to provide businesses with legal assistance, overseas IP dispute resolution guidance, and risk warnings.
By encouraging innovation and reinforcing IP protection, the Draft provides a strong foundation for the private sector’s sustainable development and competitiveness.
5. Protecting the Rights and Interests of Private Enterprises
Article 56 safeguards private enterprises’ property rights and management autonomy, along with the personal rights of their operators, including privacy and reputation protection. Article 68 stipulates that businesses affected by policy changes are entitled to reasonable compensation. Furthermore, Article 65 requires government entities and state-owned enterprises to make timely payments to private businesses, preventing payment delays.
Clear legal protections enhance private enterprises’ confidence in the policy environment, reducing uncertainties that may arise from regulatory changes, and fostering a stable business climate for long-term investment.
6. Promoting Talent Development and Employment Support
Article 48 encourages private enterprises to collaborate with universities and vocational schools to train skilled talent. It also directs human resources departments to establish employment service platforms to provide recruitment and workforce support.
By focusing on talent development and job creation, the Draft helps businesses address labor shortages while promoting a virtuous cycle of economic growth and employment.
7. Enhancing Government-Business Communication and Service Support
Article 44 requires governments to establish communication mechanisms to collect opinions and address concerns from private enterprises. And article 46 emphasizes the need for government departments to efficiently handle business-related matters.
Optimizing public services through effective communication and support mechanisms will foster a more business-friendly environment, encouraging private sector growth.
[Comment]
Before this initiative, regulations related to private economic protection were scattered across various laws, including the Company Law, the Civil Code, and the Criminal Law. Judicial interpretations from the Supreme People’s Court and Supreme People’s Procuratorate also addressed relevant issues. These laws offered general protections -for instance, corporate governance rules under the Company Law, protection of business rights in the Civil Code, and criminal penalties for unlawful conduct under the Criminal Law. However, they lacked targeted provisions specific to the challenges faced by private enterprises, such as local protectionism and selective law enforcement.
Therefore, the Draft proposes special legislative arrangements to clearly resolve these issues in legal form. The key objectives and significance of the Draft include the following: 1) Restoring Market Confidence: The draft law aims to alleviate concerns about market access and policy uncertainty, enhancing the confidence of private businesses post-pandemic.2) Promoting Fair Competition: The law emphasizes the protection of property rights and business interests, preventing unfair practices like selective law enforcement and local favoritism.3) Encouraging Innovation and High-Quality Development: It supports technological innovation and corporate governance reforms, aligning with China’s broader economic development goals.4) Addressing Structural Challenges: The law tackles chronic issues such as overdue payments and business closures, providing a clearer legal framework for policy implementation.5) Fostering Sustainable Economic Growth: With private enterprises contributing over 50% of tax revenue, 60% of GDP, and 80% of employment, the law ensures that these businesses remain integral to China’s economic engine.
The combination of this legislative effort and policy initiatives reflects China’s commitment to revitalizing the private sector, ensuring fair competition, and driving long-term economic stability.