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The Legal Kickstart for Private Economies – From China to Vietnam

21 May, 2025

A clear, stable, and predictable legal environment with a courteous civil servant team is essential for private sector growth. Photo: LE VU

Legal Commitment: China’s Boost for the Private Sector

Long recognized as a vital component of the socialist market economy and a primary driver of modernization, the private sector in China has been enshrined in the Constitution and especially emphasized at the 18th Party Congress. However, prior to 2025, promoting the private sector mainly took the form of local policies and regulations. It wasn’t until July 2024, after a proposal by the Third Plenary Session of the 20th Central Committee, that legislation to promote the private sector was initiated.

After three discussions, the Private Sector Promotion Law was officially adopted on April 30, 2025, and will come into force on May 20, 2025. This is not a mere formalistic law but one designed to address the pain points faced by the private sector, ranging from market access barriers and financial access limitations to the burden of compliance costs and policy uncertainty.

From the first draft, Chinese lawmakers identified that sustainable and high-quality private sector development requires legislative promotion. Throughout the consultation process, the rule of law was unanimously agreed upon as a core element as only the law can create a stable, transparent, and reliable business environment. This is especially important in consolidating the legal foundation, shaping long-term expectations, and boosting business confidence. This is also the first law in China specifically designed to directly regulate the issue of supporting and promoting the private sector.

The Private Sector Promotion Law is a test of China’s determination to reform its institutions, and they have passed. Now it’s Vietnam’s turn to face this same test…

While inheriting traditional principles, this law also demonstrates a clear advance in legislative thinking by choosing a problem-based approach. Instead of merely providing general orientations or overall encouragement policies, the law focuses on specific solution-oriented regulations to directly address the bottlenecks hindering private sector development. As a result, the law contributes to enhancing the transparency, fairness, predictability, and stability of the business environment.

With 9 chapters and 78 articles, the Private Sector Promotion Law is structured to correspond with each group of issues. The first chapter lays the foundation, clarifying the legitimacy of the private sector and affirming its important role, ensuring legal equality, and providing equal development opportunities with other economic sectors in the modern socialist market economy. Notably, this part includes the Chinese state’s commitment to protecting and promoting the private sector, in exchange for compliance requirements, support, and the private sector’s unity and endorsement of the Party and the state in national development.

The remainder of the law focuses on addressing specific barriers hindering the development of the private sector. Firstly, Chapters 2 and 3 deal with discrimination and market access barriers. The law establishes a fair competition review system, preventing the exclusion of the private sector from investment and business fields. It mandates a unified market access mechanism with a “negative list” approach, where the private sector is free to invest and operate in all sectors not prohibited by law, including participation in projects and fields previously open only to the state sector. By 2025, this list was reduced to 106 industries, a significant decrease from 152 industries in 2020, greatly expanding the business space for the private sector.

This law demonstrates a clear advance in legislative thinking by choosing a problem-based approach. Instead of general orientations or encouragement policies, it offers specific solution-oriented regulations to address the bottlenecks hindering private sector development.

Additionally, the principle of fairness in accessing capital is emphasized, and financial service reforms are required to better suit the private sector’s characteristics. Proposed solutions include: (i) accepting non-traditional collateral such as receivables and intellectual property rights; (ii) encouraging risk-sharing models; and (iii) supporting credit transactions based on reputation instead of solely relying on collateral.

Chapters 4 and 5 shift focus to strengthening the private sector’s internal capabilities. Chapter 4 emphasizes promoting scientific and technological innovation, ensuring equal access to high-quality human resources, technology, data, and innovation resources. The law encourages cooperation between the private sector and research institutions and commits to protecting intellectual property rights, even in international disputes. Chapter 5 provides guidance on overcoming internal governance limitations, requiring the private sector to enhance management capabilities, standardize operations, and improve property, accounting, and risk management regimes.

The last three chapters (6–8) delve into resolving policy instability and high compliance costs. Chapter 6 focuses on reducing compliance costs and improving the quality of public services. Chapter 7 emphasizes ensuring fairness and legal safety in policy implementation, highlighting transparency and consistency in the application of laws. Chapter 8 clearly defines the legal responsibilities of state agencies and officials in formulating and implementing policies related to the private sector. Notably, this law affirms the principle of non-criminalization of economic disputes, reflecting an effort to build a more predictable and legally secure investment and business environment for enterprises.

Overall, nearly half of the law’s content directly addresses the shortcomings of the policy environment, including inconsistencies, unpredictability, and high compliance burdens such as overlapping licenses, complex tax regulations, dense inspections, and arbitrary penalties. These “knots” have been identified by lawmakers and systematically untangled with proposed solutions.

Mirroring China’s Reforms: From Resolutions to Actions in Vietnam

Observing the contexts of China and Vietnam, one can identify many similar issues that need to be addressed to develop the private sector. Resolution 68, recently issued by the Politburo, has pointed out most of these bottlenecks, ranging from market barriers and the “asking-for-permission” mechanism to high compliance costs, lack of transparency, and the risk of arbitrary administrative intervention. The resolution calls for a mindset shift in management, moving from “if it cannot be controlled, then ban it” to creating favorable conditions for businesses and completely eradicating the “asking-for-permission” mechanism in resource allocation. This spirit is very close to the approach taken by China in its law, ensuring that people and businesses are free to engage in sectors not prohibited by law.

Regarding the business environment, Resolution 68 sets the goal of building a conducive, transparent, stable, safe, and low-cost environment for the private sector. Specific targets and tasks have been set, such as: (i) improving laws to eliminate all market access barriers and reviewing and removing unnecessary business conditions and overlaps; (ii) reducing by at least 30% the time for handling procedures and the compliance cost for businesses in 2025. The aim is for Vietnam to be among the top three ASEAN countries and the top 30 countries worldwide in terms of investment and business environment by 2028. These are clear indicators of Vietnam’s determination to improve its investment and business environment, rivaling China’s efforts. The key challenge now is effective and timely implementation.

Resolution 68 also emphasizes the need for strong institutional reforms, including完善法律体系 and improving state management methods. For example, the resolution directs a complete shift from pre-checks to post-checks, with a focus on serving and creating favorable conditions for development. Ministries and sectors must overcome inconsistencies between central and local levels in policy implementation. At the same time, the state commits to non-discrimination among enterprises of different economic sectors in accessing capital, land, and resources… This is similar to the principle of equality advocated by China’s Private Sector Promotion Law. Clearly, in terms of orientation, Vietnam has identified the full coordinates for reform. The challenge now is to translate these orientations into concrete results, building trust among the business community. Therefore, to bring the spirit of Resolution 68 to life, a comprehensive reform program is needed, combining legislation, executive, and judicial branches.

In the immediate future, it is necessary to urgently institutionalize the orientations of Resolution 68 into specific laws and policies. The National Assembly should soon issue a resolution on private sector promotion as a prelude to the formulation and promulgation of a law on private sector development, aiming to establish a strong legal framework to ensure property rights, freedom of business, and equal competition for the private sector. Simultaneously, a review and amendment of existing laws (related to investment, enterprise, land, credit, etc.) should be conducted to eliminate discriminatory provisions or unnecessary burdens. The principles of “people and businesses are allowed to do what is not prohibited by law” and “non-criminalization of economic and civil relations” need to be boldly legalized and promoted in the process of improving the legal system. In addition, the legal responsibilities of state agencies and civil servants in supporting and protecting businesses should be clearly defined, especially regarding acts of harassment and causing damage to businesses, similar to the provisions of China’s Private Sector Promotion Law.

It can be said that the Private Sector Promotion Law is a test of China’s determination to reform its institutions, and they have passed. Now it’s Vietnam’s turn to face this same test. The private sector does not need preferential treatment. What it needs is a clear, stable, and predictable legal environment with a courteous civil servant team.

Nguyen Ngoc Phuong Hong – Luu Minh Sang (University of Economics and Law, VNU-HCM)