Broadening the Horizons of China's Domestic Private Sector as the Future Engine of Growth

July 02, 2005 | BY

clpstaff &clp articles

For the first time, the State Council has offered substantive legal parameters for the growth of China's burgeoning domestic private sector. The Opinion issued by the State Council brings the legal status of local private enterprises closer to that enjoyed by state and foreign-owned companies. Despite this, there is still more to be done to make China's private sector globally competitive.

By Susan Munro, Bingna Guo and Sean Y.S. Tai, O'Melveny & Myers LLP, Shanghai and Hong Kong

On February 25 2005, the State Council issued Certain Opinions on Supporting and Guiding the Development of the Private Economy (the Opinion). The Opinion is the first high-profile document issued by the State Council to promote, support and guide China's 'domestic private economy' - or domestic private sector - which refers to any economic entity owned by a private individual, company or entity. The Opinion recognizes the economic and social contributions made by private enterprises. Most importantly, the Opinion represents the first step in the Chinese government's plan to give local private enterprises access to new markets and to the rights enjoyed by state-owned enterprises (SOEs) and foreign-invested enterprises (FIEs).

The legal status of private enterprises in China was officially recognized in the 1988 Amendments to the Constitution of the People's Republic of China. However, private enterprises have only become a significant part of the domestic economy in the last six years. In 2003, local private enterprises accounted for 15% of China's industrial production - a 62% increase on 2002.1

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