China's recent restrictions on private sector firms has raised fears that China's private sector is being crushed. But revenue data tell a different story. Privately-owned firms are increasing their share of the revenue taken by China's largest firms, indicating continued private sector growth.
State-owned firms still comprise the dominant share of revenue generated by Chinese firms in the Fortune 500 rankings, but the share held by private firms has been steadily increasing. In the mid-2000s, private firms held none of the aggregate revenue. In 2021, 19 percent of revenues ($1.7 trillion out of $8.8 trillion) went to private firms.
The private sector's advance arguably does not result from long-term government planning or top-down policy decisions but from bottom-up dynamics. Privatization has been almost nonexistent among China's largest firms, and the state has not taken steps to advantage the private sector and foster its competition with state-owned enterprises. But private firms have been more dynamic and profitable than the state sector and have therefore been able to grow faster than state-owned firms despite an unfavorable policy environment.
Since the 1980s, China watchers have frequently claimed China is pivoting back to state-sector dominance. Meanwhile, China's private sector has continued to advance. There is no indication that this time is different.
This PIIE Chart is based on Tianlei Huang and Nicolas Véron's blog, Is the private sector retreating in China? Not among its largest companies and related Working Paper The private sector advances in China: The evolving ownership structures of the largest companies in the Xi Jinping era.