Private Economy Promotion Law released for public comment

Legislative support for private companies may exclude some of China's biggest national champions.

On Thursday, the Ministry of Justice (MoJ) and macro planner (NDRC) released a draft Private Economy Promotion Law for public comment.

• The fast-tracked draft is part of the government’s effort to support the private sector and reassure private companies of their critical role in the economy.

The main issue with the draft: It defines private companies as those “controlled or primarily owned by Chinese citizens” and legally established in China.

That’s a big problem: Chinese companies dual-listed on international exchanges – like tech giants Alibaba and Tencent – likely have majority foreign ownership, excluding them from the Private Economy Promotion Law.

• Even for domestically listed companies, it's complicated – and sometimes impossible – to determine the jurisdiction of majority shareholders.

Get smart: Given the complex ownership structure of listed companies, the draft law’s definition of a "private company" risks excluding many of China’s big corporates from the law's protections and benefits.

• Without clearer criteria for identifying ownership, the law will struggle to promote private sector growth.

Next steps: The draft will be revised once public comment ends on November 8. The State Council then needs to approve the draft, before passing it on to the legislative (NPCSC) for further deliberation.

• This will delay its implementation, but it's better that legislators take the time to refine the law now rather than rush it through in its current form.