27 October 2016
President Xi Jinping said private enterprises are crucial to China's overall development. Photo: AFP
President Xi Jinping said private enterprises are crucial to China's overall development. Photo: AFP

Xi vows to protect rights of private firms

Why do so many Chinese entrepreneurs want to get a foreign passport and transfer their wealth overseas?

This can be partly explained by how they made their fortune in China in the first place.

China’s first group of private companies emerged in the 1970s, when the country adopted an opening-up policy.

This first batch of private firms typically grew from state-owned companies.

With no proper rules at that time, some of them may have actually “expropriated” state assets.

Then in the ’80s, a large group of startups arose as individuals were keen to build their own businesses.

Due to a lack of clear regulations regarding property rights, foreign exchange, etc., they often had to bribe officials to get things done or resort to practices whose legality is in the grey area.

Worried about getting sued for these “original sins”, not a few entrepreneurs are planning or have already sent their money and families abroad, resulting in the outflow of talent and capital that undermines the country’s economic vitality.

The central government is now planning to institute some changes that may ease their concerns and encourage them to stay.

In a recent statement, the Central Leading Group for Deepening Overall Reform, headed by President Xi Jinping, said that while public ownership is a mainstay of the economy, other sectors, such as private enterprises, are also crucial to overall development.

“We need to protect the rights of different entities of all forms of ownership,” the statement said.

”Infringements on the legitimate rights and interests of non-public-sector enterprises and private-sector firms should both be prohibited.” 

It continued: “Governments at all levels should honor contracts with private investors. They should not breach contracts by using reasons like the change of officials in charge.”

“We should remove unreasonable regulations for non-public-ownership economy, and dismantle hidden hurdles. We should make sure entities under all forms of ownership are able to compete in an open and fair market,” it added.

Most importantly, the authorities pledged to apply the principles of non-retroactivity of the law and exception from retroactivity as well as to apply the older or more lenient law.

“We should look at irregularities of various companies – in particular, private companies – in light of development,” the statement said, implying that the government views some of the obscure practices as part of the necessary evils of the economic development and will turn a blind eye to those past misdeeds.

The same thing happened in Hong Kong. 

Right after the Independent Commission Against Corruption was set up to stamp out rampant graft in the territory, the then governor Murray MacLehose granted a partial amnesty and promised the government wouldn’t take action on corruption cases that occurred before the 1977 amnesty.

This article appeared in the Hong Kong Economic Journal on Sep. 30.

Translation by Julie Zhu

[Chinese version 中文版]

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