The State Council, China's central government, discussed and approved in principle a draft of anti-monopoly law on Wednesday.
The approval was made at an executive meeting of the State Council presided over by Premier Wen Jiabao.
A release from the meeting said the draft law, after further revision, will be submitted to the Standing Committee of the National People's Congress, China's top legislature, for deliberation.
The State Council meeting agreed that the law is an important legislation aimed at protecting fair competition, preventing and checking monopolistic behavior, and maintaining an orderly marketplace.
The State Council admitted that relevant anti-monopoly provisions in China's existing laws and regulations have become insufficient for the development of the socialist market economy and for China's participation in international competition.
It is necessary for China to enact a comprehensive and systematic anti-monopoly legislation, which will help create a fair and orderly marketplace and ensure that the market economy develops in a sound and healthy way, the release said.
According to the meeting source, the approved draft law has absorbed experience from other countries and contains provisions on banning monopoly-oriented agreement,forbidding abuse of dominance in the market, as well as investigation and prosecution of monopolistic practices.
Anti-monopoly legislation is vital for the market economy, and regarded as the basic law for the market economy in western countries.
China started drafting the anti-monopoly law in 1994, with the first draft completed in 2003. The draft is said to target monopolistic practices in various industries, regional trade barriers, and monopoly by administrative means.
Chinese economists have urged the government to accelerate anti-monopoly legislation to curb risks from multinationals acquiring more and more Chinese firms.
Xie Fuzhan, deputy director of the State Council's Development Research Center, said the government should establish an early-warning mechanism to safeguard national economic security concerning mergers and acquisitions, and prevent monopoly risks related to foreign investment.
Xie said more than 400 of the Top 500 multinationals have investments in China. In 2004, the average foreign investment per project was 3.51 million U.S. dollars, but in the first nine months of 2005 the volume rose to 4.04 million dollars.
According to Xie, currently foreign investors in China prefer solely-owned ventures rather than joint ventures, and concentration of foreign investment in the electronics, auto and chemical industries is rising.