China’s private economy has emerged as a cornerstone of the nation’s remarkable economic ascent over the past four decades following the economic reforms and opening up that began in the 1970s. It has been the citadel driving innovation and spearheading economic growth. The private sector already accounts for over 60% of GDP, 70% of technological innovation, and, more potently, employs over 80% of the workforce across the country’s urban cities.
Focusing on continuing to improve the business environment, promoting emerging consumption trends, and fostering an upward adjustment in employment opportunities, this insight explores how these strategies could propel China to strengthen its private economy.
Strategic Role of the Private Economy in China
The strategic importance of the private economy goes beyond and above economic contributions and permeates areas such as technological innovations, becoming a pivotal part of China’s social stability. It is a correlated fact that China’s recent economic success and global standings owe to the pivotal role played by the private economy.
The private economy’s share of the country’s GDP, which, according to the National Bureau of Statistics of China (2020), was more than 60% of the GDP. Underemployment, the private economy accounted for 80% of urban employment.
Additionally, private enterprises contribute substantially to taxation revenue, contributing over 50% of tax revenue and bolstering the national fiscal base, which is critical for sustaining public goods and services.
In an equally more strategic role, China’s private economy has been at the forefront of the industrialization and modernization drive that has transcended across multiple sectors such as manufacturing, artificial intelligence, and renewable energy, representing over 70% of technological innovations in the country.
The Chinese government has been smart by enacting and promoting policies that ensure fair competition and a level playing field for private businesses. The level of commitment in ensuring transparency and ease of doing business has been a major game changer for the private economy to thrive.
For example, the Fair Competition Review Regulations have ensured equitable market access for private businesses, removing favoritism. This certainly allows private businesses to compete with state-owned enterprises on a level playing field.
The level of transparency has been very impressive in recent years as China seeks to reduce bureaucratic hurdles. Measures such as the introduction of the “Negative List,” a guide that outlines which sectors of the economy that foreign and private investment is restricted. In doing so, it sets a clear expectation and avoids uncertainties that are common in other jurisdictions.
Expanding Market Opportunities Through New Consumption
There is a huge potential for China to create and expand market opportunities through new consumption approaches, especially in areas such as e-commerce and live-streaming sales, which are gaining popularity among the youth, as well as in digital services. The rapid expansion in China’s digital economy (Cheng & Zhang, 2023) presents an opportunity to drive new consumption growth, engineer innovations, and drive connectivity between the rural and urban markets.
The government’s investment in critical IT infrastructures such as 5G networks and financial and technical innovations has facilitated the rapid development of the e-commerce ecosystem both in China and globally, thereby opening up opportunities for cross-border trade.
With the continuous rise in China’s middle class, domestic consumption has also surged, presenting limitless opportunities for private-sector businesses. Premium services, quality products, and world-class experiences have been key determinants of what private businesses can and cannot do in China.
China’s rural revitalization strategy has been remarkably successful in modernizing and developing rural industries, leveraging technological innovation, and expanding services such as e-commerce into rural markets. The private sector has played a monumental role in achieving this success.
Strengthening Employment and Protecting Livelihoods
Through the innovations of private sectors as key job creators and enhancement of workforce skills and entrepreneurship, China can create sustainable employment opportunities and protect livelihoods.
In rural areas, private firms absorb surplus labor, reducing urban migration pressures and supporting local economies. One can draw a successful example from the role firms such as Alibaba and Huawei have played and continue to play in generating millions of direct and indirect jobs (Wang, 2023).
Under workforce skills enhancement, China’s launch of programs such as the National Vocational Education Reform Plan and the Digital China Strategy has ensured that Chinese workers, whether in rural or urban areas, remain competitive through technical and digital literacies. In 2023 alone, China offered subsidized training for 18 million people in areas such as advanced manufacturing and digital competencies (Mo & Liu, 2024).
While it’s essential to ensure that there’s availability of jobs and career opportunities, it is equally imperative for China to ascertain the sustainability of the same. This is why for all intents and purposes, the government prioritized introducing social security measures covering private sector employees. This is a novel achievement that has a role to play in ensuring stability and protecting livelihoods.
Making it Sustainable
The Chinese government’s effective partnership with the private sector has been central to the country’s economic success through enhancing prosperity, employment, and overall livelihoods.
By driving GDP growth, creating jobs, and fostering innovation, private enterprises underpin the nation’s economic resilience. By fostering a dynamic and inclusive private economy, China can sustain high-quality growth, improve living standards, and enhance global competitiveness.
Source: CGTN
Written by: Paul Frimpong, Executive Director, ACCPA
