In the first two months of 2026, China's exports showed a strong growth trend, with a year-on-year increase of over 18%. The primary growth drivers were mechanical and electrical products, alongside the three new high-tech sectors, namely electric vehicles, lithium batteries, and solar cells. Exports to countries within the Belt and Road Initiative (BRI), the EU, and the U.S. remained active, a clear indication of China’s significant resilience. That being said, reports on this trend often involve a degree of guesswork and are wrapped in polished rhetoric.
The ambiguity lies within the terms "mechanical and electrical products" and "high-tech products". Behind these concepts, private enterprises have already become the dominant force. Looking back at the full year of 2025, Fortune magazine pointed out that despite the challenges brought about by the trade wars, China's exports of intermediate goods grew by over 9% last year. It argues that China is increasingly becoming the "factory to the factories", with a massive surge in exports of industrial components, such as smartphone parts, processors, memory chips, and lithium-ion batteries, primarily shipped to economies like Southeast Asia for final assembly.
The export products of private enterprises remain the most resilient segment of China’s economy. Quoting Jeongmin Seong of the McKinsey Global Institute (MGI), the Fortune magazine noted, “we may buy fewer ‘Made in China’ goods going forward, but more products will have internal components manufactured in China”. Amid challenging conditions, it is private enterprises, and private manufacturing in particular, that continue to underpin China’s economy. Within China’s economic system, this is the sector that truly drives growth.
Without a thriving private sector, China can hardly be considered truly prosperous or strong. This is a longstanding issue, one that has been debated for decades yet never fundamentally resolved. From operating on the margins of legality in the early years of reform and opening-up, to now accounting for roughly half of China’s economic output, the status and role of the private economy have undergone a historic transformation. Yet whether this trajectory represents progress or decline remains difficult to judge.
Persistent challenges, such as financing constraints, heavy tax and fee burdens, and barriers to market entry, continue to weigh on private enterprises. Despite contributing the largest share of employment, they still face forms of policy discrimination. While there have been ongoing calls for change across society and efforts at the central policy level, the underlying structural issues remain unaddressed.
This issue, which is not a primary contradiction in most economies, persists in China. Its roots extend beyond economic efficiency into deep structural and institutional tensions. State-owned and private enterprises remain fundamentally different concepts operating under two distinct power structures. As long as this fissure is neither eliminated nor broken, nothing will truly change.
ANBOUND’s founder Kung Chan has pointed out that China’s economy operates within a “forest of power”, where government bodies, policies, and state-owned enterprises form a dense web that constitutes the most important rules of the game in today’s market. He further argues that an oppositional relationship has emerged between the “power sector” and the “growth sector”, one in which the power dynamics are those of the handling side and the side being handled. In the latter, the control can be imposed at any moment, with pressure coming from all directions, through a variety of methods, all appearing legal and compliant. A recent example is Hengli Hydraulics, a leading manufacturing company based in Changzhou.
The true causes behind these developments are “unclear”, yet as Kung Chan has noted, the oppositional relationship between the “power sector” and the “growth sector” is plainly evident.
It is well known that private enterprises contribute more than 50% of national tax revenue, over 60% of GDP, more than 70% of technological innovation, over 80% of urban employment, and more than 90% of the total number of enterprises. In cities like Shenzhen, where the private economy is highly developed, private firms can account for as much as 97% of all businesses. Even in the recent period, the vitality of private enterprises remains evident. For example, in the first two months of this year, their import and export growth rate significantly outpaced the overall average, with their share continuing to rise.
To say that China’s economy is resilient is, in reality, to say that its private enterprises are resilient. More importantly, private enterprises do not belong to any particular locality. As the most important engine of China’s economic growth, they belong to the nation as a whole, while local governments merely act as custodians. Yet this power relationship has never been properly recognized or set right. As a result, the steady stream of “incidents” is hardly surprising; they are the product of a distorted conception of power.
From this perspective, the “oppositional relationship between the power sector and the growth sector”, as identified by Kung Chan, is in fact one of the fundamental underlying problems in China’s economy today.
It is worth noting that improvements in the development environment for private enterprises have significantly lagged behind the expansion of China’s overall economic scale. This is closely related to differential treatment embedded in institutions, policies, and resource allocation. At its core, the primary demand of private enterprises is not for special privileges, but for two fundamental conditions: first, a fair and level competitive environment; and second, a reduction in undue administrative intervention. Some well-known private entrepreneurs have called for the gradual removal of ownership-based labels for enterprises, advocating that all firms be treated uniformly as market entities, equal before tax laws and market rules. Such appeals have in fact been made for a long time, only expressed less directly than by Kung Chan, who more clearly points to the heart of the issue.
It is noteworthy that critical steps have been taken in the development of the rule of law. The Private Sector Promotion Law officially came into effect in May 2025. As the first foundational law focused on the private economy, it clearly defines the legal status of private enterprises for the first time, and establishes the promotion of their high-quality development as a long-term national policy. Since the law’s implementation, both central and local authorities have been advancing and supporting institutional frameworks, though this is clearly still a work in progress. Based on previous policies, the national direction is clear, but fully realizing it remains a long journey. Particularly under China’s “dependent-oppositional” conditions, breaking through the “forest of power” and reshaping the informal “market relationships” involves not only political determination and decisiveness but also navigating the technical barriers maintained by numerous power-holding departments, each with considerable experience in protecting its own interests.
Today, many private entrepreneurs openly admit that market challenges are generally manageable; the most difficult problems often arise in interactions with the government. China’s institutional framework makes the role of government crucial, effectively determining how private entrepreneurs operate and leaving them little alternative. In terms of all issues of accountability, this is the single most important factor shaping the oppositional relationship between the power sector and the growth sector.
From the perspective of development trends, once the central government provides guarantees for the “hard environment”, the construction of a favorable “soft environment” at the local level becomes particularly critical. Yet in reality, a paradox exists: on one hand, economic growth is increasingly dependent on private enterprises; on the other hand, the actions of some local governments, even measures taken under specific official pretexts, may in fact suppress enterprise vitality. If this adversarial tension between the economic growth sector and administrative authorities cannot be resolved, the limited resilience that China’s economy currently possesses will inevitably disappear.
Serving the private economy well requires not only genuinely recognizing the importance of private enterprises but also truly respecting them and putting real effort into providing creative, practical support. A representative example comes from the Binjiang District government in Hangzhou, which helped Hikvision establish kindergarten within its industrial park. After understanding the company’s needs, the local government thoughtfully approached the issue from the perspective of serving the enterprise and ultimately resolved the problem of employees’ children struggling to gain admission through a cooperative public-school model. This kind of creative service mindset is a key part of what is known as the “Zhejiang experience”.
Looking ahead, China’s private economy needs to receive a universal form of “institutional national treatment”, truly eliminating the differential treatments between private and state-owned enterprises at the systemic level. During the 2026 National People’s Congress, the government work report explicitly emphasized fully unleashing the vitality of all types of market participants while upholding the support and encouragement for the public and non-public sectors. All of these measures are positive and constructive efforts. Yet one thing is clear: if the deep-rooted disparities are not addressed, the private economy will continue to face cyclical development challenges.
Final analysis conclusion:
The prosperity of the private economy directly determines whether China can become a truly wealthy and strong modern nation. At present, improvements in the business environment and the development of the rule of law provide a certain foundational support for private enterprise, but deep-seated institutional and conceptual obstacles remain. The key issue lies in the constraints of the “forest of power” and the oppositional relationship between the power sector and the growth sector. Only by addressing these problems can China’s market economy system become more mature and genuinely resilient.
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Yang Xite is a Research Fellow at ANBOUND, an independent think tank.
