China's private companies are growth engines, their importance is now enshrined in law

The first law in China dedicated to the nation's private sector came into effect this week, benefiting 57 million registered private companies that include technology and carmaking giants like Alibaba, Huawei, Tencent, Xiaomi and BYD.

The law is a recognition of the pivotal role that private enterprise plays in the Chinese economy: Private companies account for about 92 percent of all Chinese mainland business, contribute about 60 percent to gross domestic product, deliver 70 percent of the nation's technological innovation, supply 80 percent of urban jobs and serve as a magnet for foreign investment and partnerships.

The legislation was unveiled after President Xi Jinping earlier this year pledged to encourage, support and guide the development of the non-public sector. A new bureau dedicated to private businesses has been established in the National Development and Reform Commission.

"The law is timely and of great significance," said Yang Heqing, head of the economic law department of the Legislative Affairs Commission of the National People's Congress Standing Committee.

"It is unprecedented in that it stipulates it a major, long-term policy of China to promote the sustained, quality development of the private economy," Yang said.

In the past, private companies have had to cope with the legacy of the state-owned companies that dominated the Chinese economy. Unequal access to markets and financing often hindered their growth and made private investors reluctant to invest.

In the first quarter, investment in the private sector edged up 0.4 percent from a year earlier, trailing behind a 6.5 percent gain in the state-owned sector. The new law aims to rectify inequalities, making clear that the private sector will enjoy equal access.

"The best business environment is rule of law," said Liu Shangxi, deputy director of the China Society of Macroeconomics. "In the new law, the word 'equality' is mentioned 26 times, stressing the country's determination to ensure fair market access and financing support for private companies."

The Beijing Stock Exchange 50 Index, which tracks smaller-cap tech firms, jumped 1.2 percent when the law officially came into effect on Tuesday.

Private companies, like AI developer DeepSeek and Unitree Robotics, have been pioneers in advanced technologies that China is trying to nurture as engines of growth.

"Introduction of the law comes as China's private economy has grown to a level that requires a solid, rule-based infrastructure to facilitate further progress," Liu said.

The law stipulates that government departments should implement policies that encourage financial institutions to provide tailored services for smaller, innovative companies. It allows warehouse receipts, accounts receivable, intellectual property rights and equities to be used as loan collateral for startup companies that may not be showing profits yet.

At the same time, the law also bans abuse of administrative powers that may thwart the growth of private companies from undertaking innovative research and development.

Li Shuguang, a professor withChina University of Political Science and Law, said such explicit and straightforward expressions of support exhibit a policy attitude that will "stabilize expectations and enhance the confidence" of private companies.

Shanghai jumped the gun on the national law last month, releasing its own set of 26 new measures to support the high-quality development of private enterprise in the city.

Under the new municipal policies, private companies will have wider opportunities to participate in transportation, energy and government-subsidized rental housing projects. The measures also support companies working on green energy and other environmental projects.

In addition, companies in the city will receive support for mergers and acquisitions, particularly in projects that develop new technologies or upgrade traditional industries.

"Shanghai's measures precisely target a more tech-driven and international private sector," said Tang Yunyi, deputy director of the Institute of Applied Economics, Shanghai Academy of Social Sciences. "It's a combination of providing short-term relief, medium-term empowerment and long-term development, with the aim of creating high-quality growth and participation in the global value chain."

According to the Shanghai Development and Reform Commission, private companies created 75 percent of new employment in the city last year and comprised 30 percent of the city's industrial output and fixed investments. About 80 percent of companies at the forefront of innovative businesses are privately owned.

Ma Tao, president of Shanghai Superconductor, said the enhanced support will make private companies more confident about big investments, noting that his company plans to build up a new 150,000-square-meter research center in the Zhangjiang area in the Pudong New Area.