Introduction: A New Era of Compliance and Governance
On May 20, 2025, China's first foundational law dedicated to the private sector—the Private Enterprise Promotion Law—came into effect, signaling a new phase of legal protection for private businesses. The law explicitly encourages private firms to improve governance structures, strengthen compliance management, and mitigate legal risks. Against this backdrop, the shift from informal, founder-centric management to institutionalized, rule-based governance has become a matter of survival and long-term success.
Many private enterprises still suffer from weak governance, arbitrary decision-making, and opaque financial practices, which hinder access to financing, partnerships, and public listings. In contrast, compliant companies earn trust from banks, clients, and regulators. Compliance is not a constraint but an enabler—it allows businesses to move forward with confidence.
Optimizing Governance: From Family Control to Professional Management
Most private firms started as family ventures where the founder's authority often substitutes for formal processes. Yet as companies scale, the risks of unilateral decision-making grow exponentially. The new law encourages the establishment of standardized structures—shareholders' meetings, boards of directors, supervisory boards, and senior management—with clear separation of powers and effective checks and balances.
Key steps include: separating ownership from management by bringing in professional executives; strengthening board functions through audit, remuneration, and nomination committees; and improving information disclosure to protect minority shareholders. For example, Huawei’s employee stock ownership and rotating chairmanship model—though not universally replicable—offers valuable lessons in distributed leadership and collective decision-making.
Digital tools also play a pivotal role. ERP and OA systems automate workflows, create audit trails, and reduce human discretion, enhancing transparency and efficiency. Modern governance not only lowers internal friction but also facilitates capital market access and international cooperation.
Building a Compliance System: The First Line of Defense
Compliance management is the operational extension of good governance. The Private Enterprise Promotion Law emphasizes adherence to laws, social ethics, and commercial morality. Private firms should establish comprehensive compliance frameworks covering anti-bribery, anti-monopoly, data protection, tax planning, and labor practices. Specific actions include:
- Designating a Chief Compliance Officer or a dedicated department to conduct periodic risk assessments and targeted audits.
- Developing a compliance manual with clear red lines and procedural guidelines, integrated into all business processes.
- Training and accountability—regular compliance training, whistleblower mechanisms, and zero-tolerance policies for violations.
- Leveraging external expertise—engaging legal counsel and accounting firms for compliance audits and certifications such as ISO 37301.
History shows that ignoring compliance can be catastrophic—for instance, major fines imposed on tech platforms for antitrust violations or on live-streaming companies for tax evasion. Conversely, companies like CATL, which maintain rigorous IP and environmental compliance, have enhanced their brand reputation and competitive edge.
Conclusion: Building a Century-Old Enterprise on Compliance
The Private Enterprise Promotion Law offers a fairer market environment and stronger rights protections, but it also raises the bar. Compliance is not a one-off campaign but a long-term commitment. It requires leaders to embrace legal thinking and ethical boundaries, embedding compliance into strategy and daily actions.
When every private enterprise embraces modern governance and compliant operations, China's private economy will unleash even greater vitality. Let us make compliance part of our corporate DNA and trust our market passport—this is the only path to becoming a century-old firm.