Two weeks ago, the Chinese leadership released a document to reaffirm the value of private enterprises and to urge the implementation of actions that will help address a wide range of problems facing these enterprises.  Will this lead to a new wave of entrepreneurship mirroring the success of earlier waves that gave rise to well-known companies such as Tencent?

Value of Private Enterprises Reaffirmed

In the document, which is titled the Opinions of the Central Committee of the Communist Party of China and the State Council on Promoting the Development and Growth of the Private Economy (“Private Economy Opinions”), the Chinese leadership announces its intention to, inter alia, “optimize the environment for the development of the private economy” and “protect the property rights of private enterprises and the rights and interests of entrepreneurs in accordance with law” to accomplish various identified goals.  One of the goals is to “enable economies of all forms of ownership” to “fairly participate in market competition” and “be equally protected by law”.

“The document’s strong support for private enterprises reaffirms the value of these enterprises, whose status became entrenched in 2004 […]”

The document’s strong support for private enterprises reaffirms the value of these enterprises, whose status became entrenched in 2004, when the Chinese Constitution was amended.  After the 2004 amendment, the Chinese Constitution formally recognizes that “the State protects the lawful rights and interests of […] the private economy” and that “the lawful private property of citizens is inviolable”.  Such constitutional recognition was subsequently elaborated on in China’s Property Rights Law, which took effect in 2007 and whose content became part of the country’s Civil Code in 2021.

Problems Addressed

The significance of the Private Economy Opinions largely lies in the identification of many problems facing private enterprises and provision of related solutions, some of which are, however, expressed in broad terms.  Two major problems identified are local protectionism and government agencies’ improper and dishonest actions.

• Local protectionism

In the Private Economy Opinions, the Chinese leadership specifies the need to “fully implement a system of fair competition policies” by, among other measures, “tidying up and abolishing policies that impede [the operation of] a unified market and fair competition, including local protection, market segmentation, designated transactions, etc. [emphasis added]”.

In addition, the Private Economy Opinions has a paragraph specifying the “protection of the property rights of private enterprises and the rights and interests of entrepreneurs in accordance with law”.  One measure is to prevent “the use of administrative or criminal means to intervene in economic disputes, as well as local protectionism in law enforcement and justice [emphasis added]”.

• Government agencies’ improper and dishonest actions

With respect to government agencies’ improper and dishonest actions, the expressions used in the Private Economy Opinions are quite specific.  For example, in order to increase “governments’ creditworthiness”, a “record and punishment system for government dishonesty” is to be established so that information about government agencies’ “breach of contracts, default on accounts, and refusal to perform judicial judgments” will be saved on a “national credit information sharing platform”.

Further, government agencies are specifically prohibited from “refusing or delaying payments to small and medium-sized enterprises” on various grounds, including “internal personnel changes” and “implementation of internal payment procedures”.

A New Wave of Entrepreneurship?

“[…] the Private Economy Opinions goes further to state that ‘close-but-clean relationships’ shall be established between governments and private enterprises […]”

Apart from identifying problems affecting private enterprises and providing related solutions, the Private Economy Opinions goes further to state that “close-but-clean relationships” shall be established between governments and private enterprises so that governments can “solve problems and do practical things for private enterprises and private entrepreneurs” while abiding by law and upholding integrity standards.

In order to encourage private enterprises to be innovative and have more flexibility to develop, the Private Economy Opinions emphasizes the creation of a public opinion environment that “encourages innovation and tolerates failures” and requests that this approach be used in law enforcement: administrative penalties shall not be imposed on first-time violations of law, with minor harmful consequences and timely corrections.

All of the above-mentioned measures, if implemented effectively, will likely create a favorable environment to facilitate the development and growth of private enterprises. Yet, will more entrepreneurship emerge?  The answer largely depends on the availability of funds, rather than the implementation of these measures, to allow owners of small, medium, and micro enterprises to launch their businesses and survive during the first few years.  Sources of these funds are usually family members or angel investors.  Since these sources in China also face financial challenges, what will be the Chinese leadership’s solution?  The Private Economy Opinions provides no details other than general content such as “qualified private small, medium, and micro enterprises will be supported in raising funds on the bond market”.  Hopefully, more concrete details will be released in the near future.

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^† The citation of this article is: Dr. Mei Gechlik, China’s Latest Support for Private Enterprises: Will a New Wave of Entrepreneurship Emerge?, SINOTALKS.COM^®, In Brief No. 34, July 26, 2023, https://sinotalks.com/inbrief/202307-english-private-enterprise-entrepreneurship-china.

The original, English version of this article was edited by Nathan Harpainter.  The information and views set out in this article are the responsibility of the author and do not necessarily reflect the work or views of SINOTALKS^®.