China looks to level playing field for private sector firms

The Chinese government is to introduce new legislation to address lingering concerns among private firms while creating a fair and predictable business environment.

Its recently released draft proposal outlines how it intends to promote the private sector in an attempt to revive business confidence that have lingered since the global post-Covid economic slowdown.

The private-economy promotion legislation would mark a “systemic approach” to address the sector’s problems and challenges, while helping create a stable, fair, transparent and predictable business environment, the National Development and Reform Commission (NDRC) and the Ministry of Justice said in joint statement.

“The private economy is an important part of the socialist market economy and an important force for China’s modernisation,” said the draft, which is available on the NDRC’s website. Interested parties have until 8 November to share their views and suggestions.

The 77-article draft includes measures to promote fair market competition; enhance the investment and financing environment; encourage their involvement in scientific projects and technological innovation; and safeguard their economic rights and interests.

“We must guide a social environment that respects work, innovation and entrepreneurs,” it said.

The draft proposal also seeks to address the concerns of private entrepreneurs, including protections of private property and personal rights, as well as restrictions on criminal investigations.

It also stipulates the protection of private business assets by requiring law-enforcement agencies to clearly distinguish between economic disputes and economic crimes.

Law enforcement agencies would be instructed to differentiate between an enterprise’s assets and the operator’s personal property when conducting seizures at private firms, and then ensuring the proper safeguarding of any seized assets.

“The draft comes as private firms in the world’s second-largest economy are experiencing a prolonged downturn in business sentiment, largely due to ongoing weak consumer spending, and following China’s strict Covid-19 policies and regulatory crackdowns on private sectors such as the internet and off-campus education,” the South China Morning Post website commented.

“However, private firms play a crucial role in the Chinese economy, contributing to more than half of the national tax revenue and accounting for more than 80% of urban jobs.”

Private investment, an important gauge of confidence, fell 0.2 per cent from a year earlier in the first eight months of this year, National Bureau of Statistics data showed.

Tang Dajie, a senior researcher with the Beijing-based think tank China Enterprise Institute, said the law mandates that private enterprises adhere to business ethics and integrity, a requirement that places undue moral constraints on those businesses.

“The government should include the promotion of the private economy in the assessment indicators for local cadres and increase penalties for violent online speech against private enterprises,” he said.

To provide a better financing environment, the government draft also encourages financial institutions to establish reasonable tolerance thresholds for non-performing loans and to implement a robust due-diligence-exemption mechanism.

Sustained economic recovery

At the same time, China is to launch a batch of policies to promote the sustained economic recovery and development, officials at the National Development and Reform Commission (NDRC), China’s top economic regulator, have said.

“China is confident of maintaining steady and healthy economic growth and achieve the full-year growth target,” Zheng Shanjie, head of the NDRC.

He said the policies attach greater importance to improving the quality of economic growth, supporting the real economy, facilitating the sound development of market entities, and coordinating high-quality development and high-level security.

“The measures will be better used to spur more development potential and better achieve this year's growth target,” said Zheng.

Meanwhile, continued efforts will be made to boost the capital market, according to Zheng. More effective and comprehensive measures will be introduced to vigorously guide the inflow of long-term capital. Blockages preventing the smoother entry of social security funds, as well as insurance and wealth management funds, into the capital market should be removed, he added.