Lessons for India from China’s Party-State bonhomie with private sector

In its Budget, China has allocated $55.72 billion for science and technology research. India’s Union Budget allocation for the Department of Science and Technology is $2.35 billion

In recent times, private companies in China have voiced their concerns about local protectionism and inter-provincial law enforcement overreach by cash-strapped local administrations to increase their revenue. A similar trend is also visible in India.

In China, these apprehensions come at a time when the private sector’s role has increased in the economy, and private companies are becoming key drivers in China’s development. Interestingly, local protectionism is also visible in India, in the form of domicile-based quotas introduced by different states disincentivising labour mobility. These, along with increased regulatory overdrive on businesses (especially foreign investments), upset the Government of India’s ease of doing business narrative.

According to China’s State Administration of Market Regulation, as of 2024, there are over 180 million private business entities, out of which over 55 million are private companies. The private sector accounts for over 50% of tax revenue, over 60% of GDP, over 70% of technological innovation, over 80% of urban employment, and over 90% of the total number of enterprises. By comparison, in India, their share is 36% in tax revenue, 91% of GDP, 36% in technological innovation, 11% in employment, and over 95% of the number of registered enterprises.

Increased government support

The work report presented by Premier Li Qiang at the annual session of the National People’s Congress in March promised solid steps to spur the growth of the private sector, and protect their lawful rights and interests. Further, private enterprises were encouraged to refine their corporate systems, to assert a distinctive Chinese identity. Li also assured a crackdown on arbitrary fees, fines, and inspections, dismantling barriers to market entry, expanding financing (especially for innovation), and improving public confidence by addressing concerns related to stigmatising the private sector.

In mid-February, Chinese President Xi Jinping met China’s private business leaders at a symposium in Beijing. Many of the participants were from technology companies which, according to the formulation of the Chinese Party-State, constituted the new quality productive forces, which is China’s new development philosophy for advanced transformation.

The new development philosophy (xin fazhan linian) entails economic development to be innovative, co-ordinated, green, open, and shared. Scientific and technological innovation is the key component that would achieve high-quality development in China, pushing it up the value chain. The emphasis is laid upon ‘holistic innovation’, whereby under a strategic vision set by the State, research institutions, firms, and government agencies engaging in innovation are required to build synergies. Every department of their organisation is aligned with the overall strategic goal of innovation, and they collaborate with all relevant institutions in the ecosystem.

It is worth noting that the symposium happened on the close heels of the unveiling of two open-source models by Chinese Artificial Intelligence (AI) company, DeepSeek, challenging the dominance of US companies such as OpenAI, Meta, and Google (DeepSeek’s CEO Liang Wenfeng was also a participant at the symposium).

Pointing out the substantial weight of private companies in China’s economy, with increased prospects and potential for them to further promote high-quality development, Xi called upon the companies to enhance innovation, improve competitiveness to contribute to regional economic co-ordination, and social well-being. He also encouraged the private sector to embrace entrepreneurship and patriotism.

From regulatory crackdowns to legal protection

The show of support by the Party-State marks a shift from the series of heightened regulatory crackdowns on private capital in 2020-2021, which was subsumed under the common prosperity campaign. Its efforts to get behind the private sector also stem from the latter’s role in pushing the boundaries of technological innovation. While the CPC still emphasises its leadership in steering China’s modernisation and, therefore, maintains a tight grip over the economy, through the latest measures of support, it also seeks to corral the private sector to align itself with the national objectives of increasing consumption and indigenous innovation.

In October, China drafted the Private Economy Protection Law — first comprehensive law of its kind and submitted to the CPC for its approval after incorporating feedback — with provisions for strengthening rights of private companies, ensuring fair market competition, improving investment and financing environment, and supporting technological innovation, while providing correct political direction.

Takeaways for India

The sudden State-private sector bonhomie has some takeaways for India. Backing its narrative on innovation, China has allocated 398 billion yuan ($55.72 billion) for science and technology research in the government’s budget. Compared to that, India’s Union Budget has allocated Rs 20,097 crore ($2.35 billion) for the Department of Science and Technology. This glaring gap in spending is only part of the story.

Equally important is the private sector’s low level of participation in Research and Development (R&D) in terms of gross expenditure on R&D. India’s private sector contribution is 36.4%, compared to 77% by China’s private sector. On the whole, industrial R&D in India is concentrated in a few sectors, such as pharmaceuticals, biotechnology, and information technology.

As scientific and technological advancement gains currency in modern geopolitics, there is a need for more involvement of India’s private sector, and better synergies among all stakeholders in fostering innovation and cutting-edge technology.

(Anand P Krishnan is Fellow, Centre of Excellence for Himalayan Studies, Shiv Nadar Institution of Eminence, Delhi NCR.)

Disclaimer: The views expressed above are the author's own. They do not necessarily reflect the views of DH.