When Chinese Economic Law Faces Administrative Powers: How Fairness Between Economic Actors Can Be Promoted Through Law in China

This paper examines how the role of law can affect (adversely) or promote (positively) fair competition in China between SMEs and SOEs (State-Owned Enterprises). This paper investigates State intervention, including industrial policies and relevant economic laws, namely the Law of China on Promotion of Small and Medium-Sized Enterprises 2002 and the Anti-Monopoly Law of China 2007, relating to survival conditions of privately-owned SMEs. The approach to Chinese economic growth has pursued the “partnership dance” principle between enterprises and the government for many years. After ‘the Reform and Opening Up’ policy (1978) was enacted, many Chinese privately-owned SMEs showed up and aspired to operate independently, following the market rules. However, administrative intervention prefers to develop SOEs as a matter of priority, and to consider the fate of privately-owned SMEs at a later stage. Nowadays, the actual competitiveness of SOEs, which have been developing fast under State intervention, could not be strong enough. It seems therefore that the incomplete development of SOEs cannot satisfy all the demands of long-term economic growth. By contrast, China’s prosperity expectations may depend on the flourishing of privately-owned SMEs. Although the Law of China on Promotion of Small and Medium-Sized Enterprises 2002 and the Anti-Monopoly Law of China 2007 are designed to promote and protect competition and consumer welfare for privately-owned SMEs, they fail to do. Thus, local privately-owned SMEs continually face discrimination when competing with SOEs, without effective legal remedies. Accordingly, this paper concludes that without necessary legal reforms, both the State’s industrial policy and relevant economic laws will continue to fail to offer suitable support to privately-owned SMEs, because of the unchallenged exercise of administrative powers in the market, and this threatens the sustainability of SMEs in China and, by extension, the development of sustainable privately-owned business in China (and hence Chinese society).