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Righting China’s Property Rights

NEW YORK – China recently adopted new guidelines to strengthen protection of property rights. The guidelines are an important step toward ensuring long-term economic growth. But there is more to be done.

The guidelines aim to advance three key objectives. First, they limit the government’s discretionary ability to take private property from entrepreneurs and private citizens. In the past, the law defined the state-owned sector as the “foundation” of a “socialist market economy,” and the private sector as its “supplement.” The new guidelines stress the “equal status” of state-owned enterprises (SOEs) and private firms, and the “equal protection” of their property rights. Now, private property will no longer be inferior to state property – at least officially.

China has lately been facing a new wave of capital flight, driven partly by concerns among entrepreneurs that President Xi Jinping’s anti-corruption campaign – so far focused on corrupt government officials – could one day be re-directed at them and their assets. After all, given that the laws and regulations governing business in China are highly complex and, at times, even contradictory, it has been difficult for Chinese entrepreneurs not to violate some rule or another.

The new guidelines address this by calling for forgiveness of “original sins” – irregular or illegal activities or tax evasion by private entrepreneurs in their firms’ early days. This amnesty program – together with a broader shift toward equality between SOEs and private firms – could remove a thick cloud of uncertainty for Chinese businesspeople, encouraging them to keep their wealth and talent in the country.