Overseas investors to be given wider access

More importantly, the draft introduces a "new normal" in the market, that is, zero tolerance for violation of rules such as those to illegally acquire super-national treatment. If passed, the draft will bring to an end the variable interest entity, or VIE, which allows foreign investors to bypass the Chinese government's restrictions on foreign ownership of businesses in certain sectors. But on the whole, investors will face fewer restrictions.

Also, a draft joint ministerial mechanism to conduct security reviews on foreign investment conforms to international practice. Unlike many countries, China has not had a foolproof reviewing system to protect its security. In fact, it has a weak link in China's overseas capital management since it launched the reform and opening-up in the late 1970s.

For instance, facing increasing non-traditional security threats, including environmental pollution and cyberattacks, China has struggled to prevent hostile overseas takeovers of domestic enterprises because of its flawed security review mechanism. And many Chinese companies have become victims of Western trade protectionism measures over the past decades because of lack of a proactive domestic review mechanism.

Therefore, it is more than necessary to establish a ministerial mechanism to mitigate (rather eliminate) foreign investments that have the potential to undermine China's national security. According to the draft law, foreign investors will have to gain security clearance from the government for latent security dangers, and those rejected will not be allowed to appeal against the decision.

More such improvements in the law, which the draft promises, will better protect China's national security and make it significantly more competent in the global economic game.

The author is a researcher on American studies with the Chinese Academy of Social Sciences.