'Second-generation' private enterprises will bring new hope to the market when they come on stream in the next few years, according to Salomon Smith Barney.
The new generation of firms with a better governance structure would emerge with Beijing expected to introduce policies giving the private sector more political power and an improved business environment, said senior economist Huang Yiping.
The remarks come as investment sentiment for private chips has been damaged by the recent arrest of a number of high-profile private entrepreneurs for tax evasion and other illegal activities.
Mr Huang said many private enterprises suffered from corporate governance problems because they did not consider investors' interests.
Discrimination against the private sector could also force them to become involved in irregularities, he said.
'It is usually very difficult for a private company to obtain bank loans, foreign exchange or other resources. While tax rates are the same in theory, private companies often have heavier burdens of fees levied by local authorities,' Mr Huang said.
'Many private entrepreneurs argue that they wouldn't be able to earn any profit if they did not evade taxes.'