During a meeting with provincial and ministerial leaders held last week, President XI Jinping identified key challenges facing China such as “new changes” related to the “international situation” and “transformation of industries”.  The president emphasized the need to “increase the quality and efficiency of the national economic cycle, making domestic demand the main driving force of economic development”.

Various legislative and judicial measures that China has introduced since May 2025 should help private enterprises—important contributors to China’s domestic economy—withstand these challenges.  These measures include those aiming to assist private enterprises in maintaining good credit ratings needed for their successful operation in the Chinese market.

“Counterparties dealing with such enterprises should understand these approaches to better protect their own legal rights and interests.”

In certain cases where private enterprises cannot pay counterparties compensation in accordance with court rulings, the courts are authorized to take flexible approaches to help these enterprises address their financial issues.  Counterparties dealing with such enterprises should understand these approaches to better protect their own legal rights and interests.

Law on Private Economy

In May 2025, China’s Law on the Promotion of the Private Economy became effective.  The law was enacted to, among other goals, “promote the healthy development of the private economy” so as to utilize “the important role” of this economy in China’s “national economic and social development”.

The success of a private enterprise largely depends on its access to financing opportunities.  Such access, in turn, hinges on the enterprise’s good credit rating.  Article 26 of the law, therefore, requires the establishment of solid mechanisms to collect and share private enterprises’ credit information to facilitate these enterprises’ access to financing opportunities.

Private enterprises failing to pay compensation in accordance with court rulings or engaging in other behaviors that compromise their creditworthiness are subject to punitive measures.  However, according to Article 54 of the law, these enterprises are allowed to apply for “credit restoration” after they correct their behavior, eliminate related “negative impacts”, and meet the conditions for such restoration.

Judicial Guidance

Two months after the Law on the Promotion of the Private Economy came into effect, the Supreme People’s Court issued a set of guiding opinions to explain to all Chinese courts how to help ensure the proper implementation of this law.

“These courts were particularly instructed to carefully handle cases in which a private enterprise’s failure to pay compensation in accordance with a court ruling is the result of ‘minor’ problems and the enterprise is striving to correct its behavior.”

These courts were particularly instructed to carefully handle cases in which a private enterprise’s failure to pay compensation in accordance with a court ruling is the result of “minor” problems and the enterprise is striving to correct its behavior.  As long as counterparties seeking to enforce these court rulings agree, the courts are encouraged not to immediately include these private enterprises on a list of entities determined to have lost their trustworthiness.  Instead, courts are encouraged to grant grace periods during which these enterprises can seek to use various methods, including receiving funds from third parties, to pay the compensation, in the hope of producing win-win results for both the private enterprises and their counterparties.

Around the same time when the above-mentioned guiding opinions were issued, the Supreme People’s Court also released a batch of Typical Cases shedding light on flexible approaches adopted by courts to help private enterprises.

One of these cases concerned two companies in Shanghai that failed to pay a company in Jiangxi Province compensation in accordance with a court ruling.  Based on investigations conducted by judges handling this case, the two companies in Shanghai were running a promising high-tech business and actively seeking funding opportunities to support the business and cover their obligations.  As a result, with consent from the company in Jiangxi, the two companies in Shanghai were given more time to raise funds while legal representatives of these two companies were required to provide “enforcement guarantees” and were subject to travel restrictions.  In the end, funds were raised successfully and the two companies in Shanghai paid the compensation.

The Supreme People’s Court has emphasized the significance of this case in the following manner:

With respect to situations where parties subject to enforcement promise to perform their obligations but fail to do so in a timely manner, it is necessary to comprehensively determine whether the reasons for their non-performance stem from “loss of trustworthiness” or “loss of [financial] competence”.  It is inappropriate to simply enforce the law mechanically and merely add these parties to a list identifying them as untrustworthy parties subject to enforcement.

In this case, […] the court […] adopted enforcement measures that had less impact on the operation and development of the parties subject to enforcement, such as requiring enforcement guarantees and restricting overseas travel.  [This approach] led to positive results in handling the case and fully utilized the positive role of the people’s courts in serving the high-quality development of the economy and society.

[emphasis added]

The Supreme People’s Court has commended these flexible approaches, stating that they helped shorten the list identifying all the entities failing to perform their obligations in accordance with court rulings in China in 2024 by 23.4 percent, compared with a similar list in 2023.  The list in 2025 was shortened further by 5.2 percent, compared with the list in 2024.

These results are impressive, but they also suggest that parties seeking to enforce court rulings against private enterprises may face situations where courts will ask them to consent to giving these private enterprises additional time to raise funds.  Fair and transparent mechanisms should be established to ensure that these parties grant their consent without pressure, or the purpose of producing win-win results for them and private enterprises could be defeated.

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• The citation of this article is: Dr. Mei Gechlik, China’s Economy and Private Enterprises’ Creditworthiness, SINOTALKS.COM^®, SINOTALKS^® In Brief, Jan. 28, 2026, https://sinotalks.com/inbrief/economy-private-enterprise-credit.
  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^®. ↩︎

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