Abstract: Business environment serves as the foundation for the survival and development of business entities, and its optimization is crucial for building a high-level socialist market economy. Despite continuous improvements in China’s overall business environment in recent years, private economic activities have shown signs of slowing down. This paper investigates the impact of business environment on short-term investment confidence among private enterprises and its underlying mechanisms, utilizing empirical survey data. The findings reveal a paradox: business entities’ perception of an improved business environment paradoxically inhibits their short-term investment intention. However, strengthening technological advantages and decentralizing decision-making effectively mitigate this negative effect. Heterogeneity analysis indicates that the inhibitory impact is primarily observed in firms lacking political networks. Post-hoc analysis further identifies three root causes of entrepreneurs’ skepticism toward business environment initiatives: distrust in government-business relations, policy implementation biases, and cadre inaction. By unraveling the “business environment paradox,” this study contributes theoretical insights to institutional reform literature and provides practical implications for enhancing policy implementation consistency and revitalizing private sector vitality.

Key words: business environment, organizational inertia, investment intention, paradox phenomenon