A worker on the production line of a packaging company in Wuzhong, Ningxia Hui Autonomous Region, on Feb. 21 Photo: IC PHOTO

Since the launch of reform and opening up, the private sector has evolved from modest beginnings into an indispensable driver of Chinese modernization and a key pillar of high-quality development—transitioning from imitation to innovation, and from contract manufacturing to establishing its own brands.

Policy-friendly environment

Following the Third Plenary Session of the 11th CPC Central Committee, China took active steps to break free from the constraints of traditional notions of ownership, laying the groundwork for the growth of the private sector. After decades of development, the sector has expanded in scale and influence, significantly contributing to stable growth, innovation, employment, and improved livelihoods.

Since the 18th CPC National Congress, great importance has been attached to the private sector’s high-quality development, with General Secretary Xi Jinping repeatedly stressing its critical role in reform and opening up and in advancing socialist modernization during multiple symposiums on private enterprises.

The 19th CPC National Congress incorporated the directive of “unswervingly consolidating and developing the public sector and unswervingly encouraging, supporting, and guiding the development of the non-public sector” into the basic guideline for upholding and developing socialism with Chinese characteristics in the new era. The 20th CPC National Congress further emphasized the importance of “providing an enabling environment for private enterprises, protecting their property rights and the rights and interests of entrepreneurs in accordance with the law, and facilitating the growth of the private sector.”

In July 2023, the “Opinions on Promoting the Development and Growth of the Private Economy” introduced a series of supportive policies aimed at refining the top-level framework for the sector’s high-quality development. In October 2024, public consultation on the law promoting the private sector was completed, accelerating the legislative process and strengthening the legal foundation for the sector’s continued growth.

Temporal, local challenges

In recent years, due to external impacts such as new dynamics in international competition and the restructuring of the global industrial chain, in addition to cyclical factors in domestic economic transformation, China’s private sector has faced new challenges in its transition from high-speed growth to high-quality development.

In 2024, private investment in manufacturing posted strong growth; however, persistently sluggish investment in the tertiary sector dragged down overall private investment, resulting in two consecutive years of negative growth and weakening the expansionary momentum of the private sector.

Moreover, entry barriers in certain regions and industries have impeded the sector’s vertical upgrading while intensifying horizontal competition, squeezing private enterprises’ profit margins and dampening their innovation drive.

That said, many of these challenges are largely byproducts of reform, development, and industrial transformation. They are localized rather than systemic, temporary rather than enduring, and resolvable rather than insurmountable.

The development of China’s private sector has by no means been a smooth process. Since reform and opening up, cyclical fluctuations in the domestic economy and systemic risks in international markets have repeatedly exerted significant pressure on private enterprises. Under such circumstances, the Chinese government has consistently extended staunch support to help the private sector pull through.

In 2008, the outbreak of the global financial crisis triggered a sharp decline in demand for orders from Europe and the United States, leading to a slump in exports from private enterprises. At the same time, tightened bank credit caused financing costs to soar. In response, the Chinese government acted decisively—adjusting fiscal and monetary policies and introducing structural tax cuts—enabling private enterprises to overcome difficulties and play a constructive role in resolving the crisis.

Similarly, in 2020, the sudden onset of the COVID-19 pandemic disrupted global supply chains, forcing many enterprises to halt operations and production, while rising raw material costs further eroded their survival margins. To mitigate the impact, a series of policies were rolled out to help these enterprises recover, including tax and fee reductions, inclusive finance, and other measures. With the aid of supportive government policies, the private sector demonstrated remarkable resilience.

Compared with the past, the current challenges facing the private sector are more localized and confined to specific industries and regions. Drawing from historical experience, they are well within the sector’s capacity to overcome.

Pan Shiyuan (professor), Chen Xiumao, and Ren Xiaomeng (associate research fellow) are from Zhejiang University.