When China launched a sudden investigation into Ant Group, the financial subsidiary of the tech giant Alibaba, in 2020, it sent a shiver through China’s business community. Regulators halted Ant Group’s IPO, which was expected to be the world’s largest at the time, and later fined Ant and other tech platforms billions of dollars. Alibaba’s founder, Jack Ma, who had earned the ire of Chinese leaders after criticizing Beijing’s cautious approach to financial regulation, retreated from the public spotlight. For the next few years, most private firms operated in a fog of regulatory uncertainty: permissible boundaries for business activity were shifting, penalties arrived faster than rules could be interpreted, and enforcement agencies did not coordinate. Many entrepreneurs concluded that the business environment had turned against them, and they scaled back investment or relocated their operations abroad.
But one year ago, in February 2025, Chinese leader Xi Jinping signaled that he might be changing course. He invited Ma to a symposium for entrepreneurs, which was the businessman’s first public appearance with top leaders since Ant Group came under regulatory fire. The photo op of Xi and Ma together dominated headlines, but it was only the most visible sign of a larger shift: China’s political leaders were again acknowledging that they need the private sector. Many of the breakthroughs that have powered China’s global dominance in batteries, e-commerce, electric vehicles, and solar panels have come not from state-owned enterprises but from private firms capable of rapid iteration, disciplined commercialization, and global competitiveness. Now, as China attempts to overcome the most critical chokepoints in science and technology—semiconductors, advanced materials, artificial intelligence, and biotechnology—its leaders are increasingly aware that progress depends on entrepreneurial initiative.
Beijing has been laying the groundwork for a new way of managing the private sector. It is not completely loosening political control, nor is it likely to. Instead, the Chinese Communist Party wants to institutionalize a more predictable system of oversight after years of volatile crackdowns. The aim is to encourage ingenuity as long as it serves the country’s drive for technological self-reliance and global leadership. The new model offers regulatory stability to firms in exchange for a commitment to playing by the CCP’s rules and working toward its policy goals. Beijing has not abandoned the conviction that political power must remain superior to private capital; what has changed is the sophistication of the toolkit used to enforce that primacy, and the more nuanced ways it is trying to achieve it.
SETTING BOUNDARIES
China’s new approach starts with redrawing the boundaries of what firms can and cannot do. To better define and stabilize the relationship between the state and private firms, authorities have streamlined conflicting mandates from agencies in China’s regulatory bureaucracy. Whereas past crackdowns created confusion and generated inconsistent or competing demands on firms, policymakers are establishing a coherent set of rules for how firms in each sector need to secure data, register algorithms, and transfer data across borders. The 2026 automotive data guidelines published in early February, for instance, clearly define what data from cars can be shared internationally, making it easier for electric vehicle companies to expand their markets without running afoul of regulators in different agencies.
Beijing is also codifying legal protections for private entrepreneurs. In 2025, the government enacted the Private Economy Promotion Law, China’s first comprehensive statute promising equal legal treatment, property rights protection, and fair market access for private firms. The judiciary launched a campaign emphasizing the need to distinguish economic disputes from criminal cases, which seeks to quell long-standing concerns about arbitrary enforcement actions against private entrepreneurs. And state media outlets have been highlighting rulings in which courts side with companies against government agencies, signaling greater willingness to restrain administrative overreach.
Meanwhile, the party is leaning into the corporatist political structure of the economy to influence companies from the inside. This includes party cells, which are the basic units of CCP organizing and serve as the party’s presence within a company. These cells are required in any firm that employs at least three party members and are usually composed of mid- or senior-level managers who are party members. Although these cells were once treated as peripheral, they have taken on a more visible role in ensuring that political and policy directives become part of corporate governance. Party cells can convey Beijing’s messages to company leaders and reinforce the expectation that companies should match their goals to party-state priorities.
In some cases, authorities can exercise control over firms even more directly. Entities linked to the state, including government-affiliated investment funds, regulatory bodies, or state-owned enterprises, can take golden shares, or small equity stakes in a company. This stake (usually about one percent) provides little financial value but enough veto power to shape a company’s internal decisions. Golden shares allow state agencies to influence companies at critical junctures without micromanaging their daily operations, and their use has become common in data, finance, media, and advanced technology firms. In 2021, for instance, an investor affiliated with the Cyberspace Administration of China acquired a one percent share in ByteDance, the domestic arm of TikTok’s parent company. The golden share gave the agency, China’s web regulator, a board seat and ownership of the operating licenses for ByteDance’s apps in China.
These efforts have reduced some of the regulatory whiplash that marked earlier crackdowns. Companies now better understand the political redlines they cannot cross. But by embedding the party more deeply into corporate governance, Beijing is also formalizing its power to intervene in ways that could undercut its goals. Even if firms’ day-to-day operations remain commercially driven, the need to defer to political priorities could reduce their willingness to take risks, make new investments, and craft long-term plans. If political objectives are prioritized over market logic, investor confidence could weaken, and corporate dynamism could wither.
LET THE RIGHT FLOWERS BLOOM
Previously, Beijing was able to manage tech platforms’ global engagement only in an ad hoc manner. When the ridesharing platform Didi pursued an IPO in New York in 2021, for example, regulators recommended the company delay the listing but did not explicitly block it—only to launch a sweeping review and crackdown soon after the IPO went ahead. China’s new approach to the private sector embraces openness by managing it sector by sector, calibrating how it controls firms’ international exposure based on the risks and rewards that each sector presents to the country’s national development strategy.
In sectors in which China already holds a competitive edge, the key concern is how to keep it. China dominates the global market in batteries, for instance, and Beijing fears leaking its world-leading technology. Many Chinese firms maintain extensive global supply chains, rely on cross-border data and technology linkages, and work with overseas partners and international investors—which policymakers view as vulnerable channels through which sensitive information can leak. Beijing continues to support private firms by offering subsidies, guaranteeing procurement of their products, and channeling capital through state-backed funds. But policymakers remain cautious about which firms may access financing and sensitive data, how technologies may be transferred or exported, and when some entrepreneurs should be allowed to travel overseas.
In fields such as biotech, in which competitiveness depends on constant integration with the global scientific frontier, the tension between innovation and security is even more pronounced. Biotech entrepreneurs need to attend international conferences and collaborate across borders, and their competitiveness hinges on licensing assets to multinational pharmaceutical companies that can commercialize and distribute their products to overseas markets. But although Beijing seeks to accelerate biotech innovation, it has not relaxed its political and security guardrails. Instead, it is increasing control. Beijing is tightening oversight of foreign partnerships and licensing deals, subjecting cross-border collaborations to national security reviews, and restricting university scientists from traveling abroad without approval. These measures reflect real concerns about technology leaks, but they weigh heavily on a sector in which growth depends on global collaboration.
Beijing has not relaxed its political and security guardrails.
Beijing’s new approach is to push biotech firms to make money in China rather than seek profits abroad. For instance, regulators are trying to create more opportunities for pharmaceutical companies to profit in China’s domestic market—which currently offers much lower profit margins because of strict government price controls—by adjusting reimbursement rates for new drugs. And they are trying to get multinational drugmakers to do more R & D within China, such as through joint labs and local partnerships, to keep innovation within the domestic ecosystem rather than flowing outward. Yet biotech is inherently global: limiting cross-border collaboration slows discovery of new drugs and ultimately harms patients everywhere. Whether Beijing can successfully keep Chinese biotech firms competitive while limiting space for overseas collaboration is a test—not only for the biotech sector but also of whether this broader model of managed openness under geopolitical constraints will succeed.
But in some areas critical to the country’s goal of becoming less reliant on the United States for technology, Beijing has become noticeably more open to outside financing in the past year. Regulators are willing to let more “tough tech” firms, which are those operating on scientific and technological frontiers, raise capital in public markets, especially the Hong Kong Stock Exchange. In semiconductors, for instance, Beijing has moved on from trying to gain an edge with state investments. In 2014 and 2019, it launched the so-called Big Funds 1.0 and 2.0, which mobilized tens of billions of dollars into chip fabrication, equipment, and supply chain upgrading. These state-led efforts struggled, however, because they could not efficiently allocate capital to sectors in which experimentation, competition, and failure are necessary. Beijing is now hoping that making it easier for firms to go public and list on international markets will better support promising “tough tech” companies.
Beijing has also pivoted away from relying on picking winners and toward building a broader ecosystem that helps these companies succeed. Policymakers are focusing on providing shared energy and data infrastructure, targeted tax and subsidy incentives, more STEM education, and national coordination of advanced supply chains and logistics networks. The telecommunications giant Huawei, for instance, has increasingly become the state’s leading coordinator for the country’s AI needs. It brings together the building blocks of the country’s AI ecosystem—designing chips, providing cloud computing services, and tailoring hardware and software to the needs of downstream companies that build AI applications—so that firms across China can operate on a common technological core. Yet security concerns persist. Reports show that authorities are restricting overseas travel for engineers at leading AI companies in China, limiting the possibility of global cooperation and hampering China’s ability to influence burgeoning international AI standards.
FROM PARIAH TO POWERHOUSE
The evolution of Alibaba illustrates one way the new state-business relationship operates. Beijing did not crush Ant Group, Alibaba’s financial arm, in 2020 and simply walk away. Instead, authorities narrowed the scope of acceptable private sector expansion and created space for the firm to use its strengths to support the party-state’s goals. Tech behemoths such as Alibaba were not allowed to create financial platforms to challenge state banks, but they could take on “tough tech” challenges to make China a science and technology powerhouse.
In response, Alibaba has quietly reinvented itself. It has shifted from a consumer-facing Internet platform to a foundational AI- and cloud-infrastructure provider. Alibaba developed the Qwen family of open-source large language models, which has grown into the world’s largest ecosystem of its kind. Singapore’s government, for instance, chose Qwen as the foundation for Sea-Lion, its flagship national AI model. In parallel, Alibaba diversified its chip supply chains and developed high-performance chips, including an accelerator chip that can compete with Nvidia’s H20. China wants companies such as Alibaba to develop these domestic chips so the country can pursue its AI ambitions without needing to rely on hardware made by U.S. companies such as Nvidia.
Alibaba is not merely paying lip service to state priorities; it has fundamentally reshaped its business model. As of late 2025, AI-related products within its cloud business have seen triple-digit year-over-year growth for nine consecutive quarters. In 2019, at the height of its expansion into personal financial technology platforms, Ant Group spent less than nine percent of its annual revenue on R & D, most of which focused on credit, wealth management, and insurance products. By 2024, Ant’s R & D spending had more than doubled in absolute terms and exceeded ten percent of revenue for three consecutive years. R & D investment is now concentrated in large language models and AI database technologies.
Following years of expansion into an array of sectors as varied as finance and media, Alibaba also concentrated its operations. It streamlined its corporate structure, restructured its various business arms, and focused on AI, cloud computing, and e-commerce. The company merged different holdings, such as the food delivery service Ele.me and travel agency Fliggy, into its core e-commerce business, to further this consolidation. This narrower scope of operations makes the firm easier for the party to regulate and signals to authorities that the company is aligned with Beijing’s goals.
So far, China’s leaders have embraced the company’s revival. Compared with 2020, when China sought to bring big tech to heel, Beijing has built a stronger arsenal of regulatory, legal, and political tools to keep firms working toward its policy priorities. Alibaba’s pivot from financial technology into AI and cloud infrastructure is also less risky to Beijing. Whereas finance is volatile and creates systemic risk, AI infrastructure is less likely to threaten economic stability. The party’s evolving compact with the private sector is not about obedience but about convergence: ambition is welcome, and the rewards are still massive, but the space to grow is more constrained and defined by political needs.
BRINGING BACK THE GOLDEN GOOSE
The question is not whether China wants to revive its private sector, but how Beijing will try to shape its resurgence. Policymakers are sending a message that big tech companies can only expand if they align their missions with the state’s policy priorities, and upgraded legal and regulatory frameworks are establishing more clarity for entrepreneurs seeking to understand where the party will let them grow.
The biggest challenge for Beijing is that years of regulatory shocks have disillusioned much of China’s entrepreneurial class. Confidence is in short supply, and rebuilding it will take time. Private firms remain outside the party-state apparatus, which means they lack the institutional protection that shields state-owned enterprises from shifting political winds. Domestic investors will not regain their appetite for the type of high-risk, high-cost technological ventures that China is prioritizing until the political boundaries are clear and the business community is confident that it will not face another sudden reversal. Some foreign investment revived in 2025 as China’s stock market grew, but many overseas investors remain wary of putting money into Chinese companies because of capital controls, opaque rules on market access, and limited exit mechanisms should something go wrong.
China has reduced some of the regulatory whiplash of earlier crackdowns.
But Xi does have a couple of structural advantages. Beijing’s evolving compact with private capital is reinforced by the narrowing options Chinese entrepreneurs face abroad. Geopolitical tensions have sharply curtailed the scope for overseas expansion, and no other market rivals China in scale, supply chain depth, or policy coherence. The 2025 U.S. Biosecure Act, for instance, restricts federally funded institutions in the United States from contracting with Chinese biotech firms that it deems to be “of concern,” raising the costs of cross-border collaboration and complicating Chinese firms’ operations in the United States. Amid these mounting constraints, China remains the primary place where things get built—and where breakthroughs can scale.
A new generation of entrepreneurs is also emerging. This younger generation doesn’t remember what it was like to be an entrepreneur a decade or two ago, when rules were laxer. Many did not experience the recent corporate crackdowns firsthand as business leaders. Instead, they have come of age treating tighter state involvement as normal, which means they are more willing to embrace the government’s encouragement and play by its rules. Invoking a darkly humorous metaphor for ordinary citizens in China up against the powerful state as chives—plants that are repeatedly chopped down but regrow quickly—older Chinese entrepreneurs sometimes refer to the younger generation as “new chives,” implying that these entrepreneurs have not yet felt the knife of the state and are eager to be part of China’s tech boom. DeepSeek is representative of this group: the young, engineering-driven startup steers clear of overt politics while operating at the frontier of AI. China’s leaders hope this new generation of entrepreneurs is rising not in defiance of the system, but in response to it.
If the hybrid model succeeds, it could become one of Xi’s most consequential legacies: a political economy that blends centralized authority with entrepreneurial vitality. Whether such a synthesis is sustainable remains an open question, especially because Beijing is hesitant to encourage openness where firms need to collaborate internationally. But after years of crackdowns and recalibration, Beijing appears to have absorbed a critical lesson about the private sector: it is the country’s golden goose. China’s leaders now understand that when it comes to entrepreneurs and the country’s technological and economic goals, what’s good for the goose is good for the gander.
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