China's new law targets private sector growth through stronger financial support

People work in the filling workshop of the Global Intelligent Manufacturing Industrial Park of Yili Modern Intelligent Health Valley in Tumd Left Banner in Hohhot, north China's Inner Mongolia Autonomous Region, April 17, 2025. [Photo/Xinhua]

China's newly enacted Private Sector Promotion Law has drawn significant attention for introducing a range of financial support mechanisms designed to bolster private businesses.

The legislation, which took effect on May 20, 2025, aims to address long-standing financing challenges faced by private enterprises and promote high-quality economic development.

Expanding financing channels

The Private Sector Promotion Law explicitly encourages private businesses to diversify their financing channels. By supporting the development of a multi-layered capital market, the law makes it easier for private companies to raise money directly, for example, by issuing stocks or bonds.

Some local governments are already introducing new financing tools. Jiangsu province, for instance, has launched the "Private Credit Loan," which breaks through traditional loan limits and offers more flexible financing options for private businesses.

Specifically, Jiangsu's loan breaks through the previous loan ceiling of 10 million yuan ($1.3 million), with the maximum amount now reaching up to 30 million yuan. The funding usage term has also been extended to a maximum of three years, and for project-based financing, it can be extended to 10 years — far longer than the traditional corporate loan practice of annual review within a one-year term.

Optimizing credit policies

The law also requires relevant State Council departments to use monetary policy tools and macro-credit policies to encourage financial institutions to provide more inclusive financial services to private businesses. Measures include setting reasonable tolerance levels for non-performing loans, improving the due diligence and liability exemption mechanisms, and enhancing professional service capabilities.

The National Financial Regulatory Administration has also called for optimizing credit supply policies, directing financial institutions to offer more targeted financial services to private enterprises.

Innovating financial products and services

The law encourages financial institutions to create products and services tailored to the specific needs of private businesses. This includes innovative financing methods such as accounts receivable financing, warehouse receipt financing, equity financing, and intellectual property financing.

For example, Chongqing has promoted IP financing to help small- and medium-sized technology firms access funding. When Zhongke Guangzhi (Chongqing) Technology Co., Ltd. faced financing challenges, the Chongqing Intellectual Property Operation Center arranged an IP pledge loan.

By using the company's core patents as collateral, and combining this with a credit assessment, the center helped the company secure a 5 million yuan loan. Across China, financial institutions are also using big data and artificial intelligence to develop new service models, aiming to make financial services more efficient and better suited to the needs of private enterprises.

Strengthening financing guarantee functions

The Private Sector Promotion Law aims to establish a comprehensive risk-sharing system for private enterprise financing, supporting collaboration between financial institutions and guarantee providers. The National Financial Regulatory Administration, together with the Ministry of Finance, is promoting the creation of a nationwide government-backed guarantee system to offer low-cost financing guarantees for small and micro businesses.

Establishing information-sharing mechanisms

The law also calls for the development of a robust credit information collection and sharing mechanism, encouraging credit reporting agencies and rating institutions to serve private enterprises. This measure is designed to reduce information gaps between lenders and private businesses, lowering lending risks.

In short, the Private Sector Promotion Law introduces a broad range of financial support policies to make financing more accessible and equitable for private companies. These initiatives are expected to ease funding challenges, unlock innovation, and drive high-quality economic development in China.

Luo Weijie is an associate professor in economics at Beijing International Studies University.