The name plate of the China (Shanghai) Pilot Free Trade Zone on a gate of the Waigaoqiao free trade zone in Shanghai. ZHAO YUN / FOR CHINA DAILY

Many expect the draft of the new Foreign Investment Law, released by the Ministry of Commerce on Jan 19, to remove major barriers for foreign investors granting them easier access to the Chinese market. In this context, institutional innovations in the draft to improve foreign investment in the country are worth noting.

To begin with, the draft, if it is passed, will replace the existing case-by-case approval system with one in which foreign investors shall enjoy "national treatment", that is, they can make investments on the same terms as Chinese investors without being subjected to approvals or sectoral restrictions, except in areas on the "negative list" (industries in which foreign investment is restricted or prohibited).

Last year China overtook the United States as the world's top foreign investment destination, making a new Foreign Investment Law necessary. Promoting both the "negative list" and national treatment models through legislation, the draft promises to make foreign investment in China simpler and smoother.

Besides, the draft, if passed, will allow the market to play the decisive role in allocation of resources and thus create a level playing field for foreign and domestic investors.

Second, based on China's experience of foreign capital management over the past three decades, the draft introduces the "actual control" test to regulate foreign enterprises. In other words, foreign companies in China that are controlled by overseas investors will be deemed foreign, but those under actual control of Chinese investors will be considered domestic.

The reporting mechanism outlined in the draft, including initial, subsequent and periodic reporting obligations, will no longer require troublesome pre-approval in most foreign investment cases. In other words, foreign investment on the "negative list" will have to ask for permission, while all investors must "report" investment to the government no matter whether they are on the list or not. If this change comes into effect, it would help better supervise and protect overseas investment in the country.