A recent survey conducted by the Beijing-based Dacheng Enterprise Research Institute highlights growing challenges faced by China’s private sector amid uneven economic recovery, with technology firms gaining ground while traditional industries continue to struggle. The study, which polled 79 entrepreneurs from medium- and large-sized private enterprises, reveals that more than 70 percent of respondents find current business conditions difficult or very difficult.

The survey identified persistent issues including intense market competition, ongoing delays in payments, and weak domestic demand as key factors pressuring firms. Nearly 60 percent of participants reported that rising accounts receivable have eroded their profit margins, with some companies pushed toward financial distress. The investigation underscores payment arrears as a widespread problem, citing examples where firms are owed tens of millions of yuan by public institutions with enforcement of favorable rulings remaining stalled for years.

Despite these broad challenges, the economic stress is not uniform across sectors. Around 20 percent of surveyed firms indicated revenue and profit gains, primarily in emerging industries such as artificial intelligence (AI), semiconductors, and advanced materials. This polarization reflects a "K-shaped" economic recovery in China, where high-tech and advanced manufacturing sectors advance, while traditional industries like vehicle manufacturing and ferrous metal smelting experience significant profit declines. Official data from the National Bureau of Statistics corroborate this divide: electronics industry profits soared by nearly 97 percent year-on-year, driven by AI demand, whereas vehicle manufacturing and metal smelting profits dropped by 19.5 percent and 25 percent respectively.

The increasing importance of AI was emphasized by nearly 90 percent of respondents, who reported closely monitoring AI developments and exploring its applications for their businesses, viewing adoption as essential rather than optional. This shift comes more than a year after China enacted its Private Economy Promotion Law aimed at supporting private enterprises amid pressures on employment and local government finances.

While the legal environment for private firms has seen some improvement, payment arrears remain a significant obstacle. Some local governments under fiscal strain have adopted controversial debt-clearing methods, including requiring firms to accept discounted repayments or non-cash compensation such as property. Such arrangements have sometimes resulted in firms facing additional tax liabilities on discrepancies between property values and recorded debt, compounding financial burdens.

Further complicating the landscape, certain local authorities have reassessed historical tax and social security compliance, increasing risks for businesses and discouraging hiring and capital investment. Additionally, the survey highlights concerns about intensified competition—referred to as “involution”—particularly in traditional manufacturing and service sectors. Nearly 70 percent of respondents indicated companies face a dilemma between engaging in price wars to maintain revenue and scaling back operations to protect profits.

The findings suggest China’s private sector continues to navigate a complex and bifurcated environment, marked by rapid growth in technology-driven industries alongside persistent difficulties for conventional sectors and smaller firms.