China starts drafting bill to boost private sector and tackle sluggish post-Covid economy following major setbacks

Beijing has started drafting a bill to promote the private sector in China’s latest attempt to revive its sluggish post-pandemic economic recovery and boost investor confidence following a recent stock market meltdown and a prolonged property market crisis.

The proposed bill, which debuted as the private economy promotion law, has been introduced into the lawmaking process by the country’s top legislature, the justice ministry and top economic planner, China’s state broadcaster CCTV said on Wednesday.

The private economy promotion law aims to “respond to enterprises’ concerns” and use legal measures to “effectively implement equal treatment of state-owned and private enterprises,” the justice ministry said.

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Neither specific clauses nor the lawmaking timeline were made public by CCTV.

Analysts predicted it would not greatly improve China’s business environment and that no particularly innovative measures would come out of the bill.

The private economy promotion law will focus on protecting the property rights of private enterprises and the rights and interests of entrepreneurs, ensuring fair participation and access to market and fair treatment in judiciary systems, the state broadcaster said.

The bill will also address the concerns of private companies, such as managing overdue payments to small and medium-sized enterprises.

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Tan Tai, a Beijing-based lawyer specialising in commercial law, said the proposed bill appeared to be “old wine in a new bottle” and elements of the proposal could be traced in China’s constitution to the Small and Medium-sized Enterprises Promotion Law as well as policies at the provincial level to promote the private sector.

Similarly, Max Zenglein, chief economist at the Mercator Institute for China Studies, said the proposed bill showed “a kind of a desperation”. He said it might not contain “spectacularly new” items because it would be more of a continuation of measures that had been rolled out since mid last year.

In July, Beijing released a 31-point guide that listed policy solutions and promised political backing for private firms in the hope of boosting the private economy.

It has made an all-out effort to revive its economy since then, the most recent including making the largest cut to its key mortgage rate on Tuesday to shore up the crisis-hit property market.

The proposal comes just days ahead of the gathering of China’s top legislature, the NPC standing committee, which will gather for two days from Monday. Economic recovery is widely expected to be its central narrative.

Beijing has suffered a bumpy recovery since the country’s zero-Covid policy was abandoned in December 2022, with the private sector and wage earners particularly hard hit in the past year.

China’s national GDP grew 5.2 per cent in 2023 but it did not bring positive market sentiment as uncertainties still loom large with the property crisis, local government debts, US tech curbs and shifts in export supply chains amid heightened geopolitical tensions.

Tan said a law alone might have minimal effect in stabilising the downward trend of the private economy and it remained up to those responsible for bringing about laws and enforcing them to stop the slide.

For Zenglein, concrete measures are what count.

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“If you need to repeat things over and over again and have a new ... x-point plan and a new law coming out – that shows that things are not really materialising,” he said.

The proposed bill is still in its infancy in China’s lawmaking process. After a draft comes out it has to go through review by relevant ministries and deliberations by the country’s legislature before coming into effect.

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