March 5, 2025
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China Shifts Its Attitude on the Private Sector
But will its new approach stick?
By: Victoria Herczegh
Last month, Chinese President Xi Jinping assembled China’s top corporate leaders for a business forum in Beijing, the first such event since 2018. He promised them the government’s continued support, more protection of business interests and wider market access. In exchange, he urged attendees to cooperate with and contribute to Beijing’s initiatives to boost technological innovation and economic growth.
It was a stark contrast to the way the Chinese leadership has treated private enterprise over the past few years, during which Beijing provided little financial support and imposed harsh regulatory crackdowns. While the shift hasn’t come out of the blue – proposals and efforts to provide better conditions for private companies have been raised in the past – this is the first time the leadership appears willing to follow through with changes and communicate transparently with the business community about what it can expect.
Xi’s motivation for the shift is clear. The Chinese economy is flagging, and the government’s previous efforts to spur growth yielded few results. To maintain its competitive edge, China now needs to restore investor confidence, which means supporting the country’s crucial private sector. But while this approach would have benefits in both the immediate and long term, it would also mark a radical shift away from the cornerstone of the Chinese political system: the Communist Party’s control over most aspects of political and economic life in the country.
Crackdown on Tech
The list of attendees at last month’s business symposium included prominent figures from the technology space, including the CEOs of tech firms Xiaomi, Tencent and Huawei Technologies, as well as electric carmaker BYD. Alibaba founder Jack Ma also made a surprise appearance, pictured sitting in the front row and even shaking hands with Xi. Such a meeting would have been unthinkable just a few years ago, when Ma disappeared from public life following his harsh criticism of the “lack of innovation” in Chinese industry and financial services. Ma left China for Japan in 2022, around the time that the Chinese government intensified its crackdown on Big Tech, targeting some of China’s most prominent technology companies and their executives.
The crackdown that began in 2020 was a precarious time for China’s top entrepreneurs – even those who had not spoken out against the leadership. Local governments were empowered to use various means to boost their finances by exacting resources from private enterprises. They conducted monthslong investigations that threatened to disrupt or halt business operations and imposed heavy fines, often without any legal basis. Large private enterprises like Alibaba were also targeted under Beijing’s “common prosperity” initiatives, which were intended to rein in the billionaire founders of these companies and redistribute the funds to those in need – including local governments in the country’s poorer provinces. However, the government failed to monitor and disclose where the money actually went. It’s clear a substantial amount was confiscated, but it’s unclear whether the disadvantaged benefited at all from the funds.
Private Sector Focus
Despite the government’s heavy-handed approach to economic management, the significance of China’s private sector is undeniable. According to China’s State Administration for Market Regulation, the number of private businesses in China reached 180.45 million last May, accounting for 96.4 percent of the country’s total enterprises. Of this total, 55.18 million were private companies and 125.27 million were self-employed individuals. Private businesses now account for more than 90 percent of the country’s high-tech, scientific research and manufacturing sectors. They also contribute more than 60 percent of China’s gross domestic product, nearly 50 percent of foreign trade and more than 80 percent of urban employment. The government can’t afford to stifle these enterprises, especially not when it’s in need of a serious economic boost.
By 2023, it was clear that the country’s real estate and banking sectors were in serious trouble and that local government debt and youth unemployment were becoming unsustainable. These issues were too deep to be addressed with mere stimulus programs, so the central government started to look to the private sector, especially in high tech, as an avenue through which to spur economic growth. A year ago, the government also tried to promote changes to state-owned enterprises, launching new support measures especially in strategic sectors such as renewable energy and artificial intelligence. It seems, however, that these initiatives showed more marginal results than expected (though the government continues to introduce new programs and policies for SOEs).
As a result, state regulators began easing their grip on large private enterprises, ending their sprawling investigations and lifting restrictions on top companies like ride-hailing platform Didi and e-finance giant Ant Group, even declaring in 2024 that Alibaba had stopped its “monopoly behavior.” Importantly, as the central government introduced a package of major stimulus measures last fall, including financial support for local governments, it also began monitoring local authorities to ensure they did not confiscate funds intended for private enterprises.
Despite these changes, however, more hurdles remain. For the private sector, one lingering challenge has been the long-standing obligation to comply with government demands for oversight, monitoring and backing of the political leadership. In the 1990s, the Chinese Communist Party started systematically integrating the growing and increasingly vital private sector into the nation’s political establishment, making entrepreneurs take on political roles and join an advisory body called the Chinese People’s Political Consultative Conference.
Under Xi, these efforts intensified. In 2017, the government adopted the National Intelligence Law, which requires all firms in China to provide information and data to authorities when asked in the interest of national security. The CCP also formed official party units within companies that conducted regular internal monitoring, ranking firms according to the loyalty of their leaders and employees. (Disloyalty could mean anything from having an insufficient number of employees taking active political roles to using wording critical of the leadership on social media.) In 2014, the government launched the Corporate Social Credit System, which allowed the central leadership to place companies on blacklists if they were deemed not loyal enough to the party and restrict their freedom of operation and market access. Chinese private companies are thus not really “private” in the strictest sense, as the CCP and the central government are deeply infused in all areas of operation. By most Western standards, they would be categorized at best as mixed-ownership enterprises.
Making Changes
Following the crackdowns and years of constraint, not to mention the country’s flagging economy and heightened international tensions, confidence within the business and investor communities has been extremely low. This could now change, as Xi turns to the people his government once targeted to lead a much-needed economic rebound. In addition to meeting with business leaders last month, his government has unveiled new, targeted measures that would ban authorities from imposing fines on private businesses without a legal basis, ensure private companies receive clear legal protections, facilitate their participation in trade-in programs and large-scale projects, and support financing for the private sector.
These measures, in addition to the government’s rare admission of the existence of economic problems, are indicators of its new strategy. The symposium already resulted in a short-term bump for private company stocks. However, a long-term boost would require assurances that private enterprises won’t be subject to more monitoring requirements or loyalty-based evaluations and fines in the future. Major reforms to the Corporate Social Credit System would likely be needed to ensure private enterprises have genuine autonomy in their operations and business decisions. Judging by the rare endorsement of private sector CEOs and the proposed support measures, Xi seems ready to make changes. His willingness to rebuild trust contrasts the Chinese government’s aggressive control of corporations in the past. The key will be to see if this shift continues in the future – not just in words and public appearances but also in action.
