In order to demonstrate the restoration of confidence in private enterprises, the Chinese Communist Party (CCP) official yesterday (October 10) released the “Draft Solicitation Opinions on Promoting the Development of Private Economy Law,” which not only claims to strengthen the protection of private enterprise rights and support their participation in major technological breakthrough missions, but also requires private enterprises to support the CCP. Experts point out that the CCP is only exploiting private enterprises for political purposes, and even the legislative ideology is fundamentally flawed.
The “Promotion of Private Economy Law” draft, jointly announced by the Ministry of Justice and the National Development and Reform Commission, consists of 9 chapters and 77 articles. It mentions the “strengthening of rights protection,” addressing issues such as long-standing problems of cross-regional law enforcement, restrictions on personal freedom, and measures to prevent the unlawful intervention in economic disputes through administrative and criminal means. It also supports private enterprises to participate in national technology innovation programs.
Earlier this year, following the conclusion of the 20th Third Plenary Session of the CCP, official documents emphasized not only the continued strengthening and development of state-owned enterprises but also the formulation of laws promoting private enterprise, among other things.
Professor Xie Tian from the Moore School of Business at the University of South Carolina expressed to media outlets that the CCP has not changed its stance. While acknowledging the significant contributions of private enterprises to the Chinese economy, the CCP does not trust them and will not give up the dominant position of state-owned enterprises.
Chinese-American economist Li Hengqing told the media that Xi Jinping is now forced to support private enterprises due to the economic downturn, as private companies play a crucial role in the country’s GDP, technological innovation, tax revenue, and employment.
“In the past few decades, over 70% of technological innovation results have come from private enterprises, with only around 30% from state-owned enterprises. Science and technology rely on private enterprises.”
The content of the draft law encourages private economic organizations to play a role in developing “new quality productivity,” support their participation in national technology innovation projects, and allow capable private economic organizations to lead major technological missions and access national significant research infrastructure.
Chinese affairs expert Wang He stated that the global economy is undergoing a new technological and industrial revolution, led by private enterprises like Tesla in the U.S. The CCP wants to leverage private enterprises as a strategic tool to ride on this trend.
“Neither the U.S. nor Japan has a ‘Promotion of Private Economy Law,’ as in market economies, everyone is equal market participants. However, the CCP aims to boost state-owned enterprises while treating private enterprises as secondary. This new law is a political move to push private business owners to invest more and revitalize the manufacturing industry, turning private enterprises into political tools.”
Professor Xie pointed out that in areas such as electric vehicles and nuclear power products, state-owned enterprises have traditionally dominated, but now the CCP wants private companies to lead, albeit acknowledging the failures of state-owned enterprises. The push for private enterprises to engage in new productivity research is due to the government’s inability to make breakthroughs in basic research or a lack of funds – hence involving private enterprises. However, basic scientific research should not be the responsibility of entrepreneurs.
Xie explained that the CCP also has the National Science Foundation, and now it wants private enterprises to share the cost of basic research, which is unfair to private enterprises. Even if private enterprises are willing to invest, valuable research should be market-driven. However, the CCP wants government control and private participation, leading to significant waste, as seen in the chip industry.
Moreover, the encouragement for private enterprises to participate in major research may be related to the China-U.S. technology war, where companies like SMIC face U.S. sanctions. However, if private enterprises invest in chip development, there must be CCP control behind the scenes, and Western sanctions will likely persist.
The draft law of the “Promotion of Private Economy” emphasizes in the first chapter “General Requirements” that private economic organizations and operators should support CCP leadership and operate under the “political guidance of party organizations” among other constraints on private economic organizations.
Xie mentioned that aside from party infiltration, the CCP now also requires a 1% investment and a seat on the board of directors in private enterprises to ensure control. They fear the growth of private capital, as it could become anti-CCP. Once capital grows, it seeks freedom.
The economic policies of the authorities have been criticized for veering left, including anti-monopoly measures, targeting education and training industries, and the trend of “the state advances, the private retreats.” As the economy continues to weaken in recent years, numerous private enterprises have closed down. Due to increasing pressure on local finances, local governments have begun investigating corporate taxes, with several Chinese listed companies revealing tax investigations spanning 30 years.
Instances of entrepreneurs being arbitrarily detained by authorities are on the rise. Private business owners are feeling vulnerable, either lying low or looking for opportunities abroad.
According to 21st Century Business Herald, if companies currently under detention, and those not yet “released” are counted, based on Wind data, by October 10, over 30 listed companies have been affected this year. Over the past three years, there have been a total of 31 listed companies whose executives have been detained. Most of the detained executives are leaders of private enterprises.
Li Hengqing mentioned that in conversations with his friends who are still in China, none of them are willing to transition to state-owned enterprises or seek opportunities for cooperation with the government due to high risks and costs associated.
The Promotion of Private Economy Law is touted as China’s first fundamental law specifically related to the development of the private economy. Officials emphasize the need to “treat and protect the private economy equally” to “stabilize market expectations and boost development confidence.”
Li Hengqing suggested that if authorities could treat the private economy and state-owned economy equally as per the constitution and limit the CCP’s power, it would boost economic confidence. However, this is unlikely to happen. “Now, a law can boost everyone’s confidence – that is, all Communist Party officials completely withdrawing from the economy, which would revive the Chinese economy.”
A video of an earlier speech by Chinese economist Xiang Songzuo recently resurfaced online. He stated that the prevailing mindset among private entrepreneurs is that “our necessity is a sad choice, and our obliteration is a noble ideal.”
Wang He mentioned that the CCP’s Promotion of Private Economy Law has severe problems in its legislative ideology. He believes private enterprises should have at least two conditions for negotiation with the CCP:
“Firstly, according to the CCP’s Marxist theory of surplus value, capitalists are exploiters who will eventually be eliminated. If you want us to develop, you must change this theory. The CCP cannot do this. Secondly, the numerous policies benefiting us are subject to change. What we need now is not policies but systemic change. You need to amend the constitution to treat us and state-owned enterprises equally as one family, competing in the market based on merit. The CCP cannot achieve this.”
Wang He argued that the entire legislative ideology of the CCP deviates from these two core demands of the private economy, obscuring the dire situation of private enterprises in China. Therefore, this legislation is unlikely to address substantial issues and is essentially worthless.