The law — open to suggestions from the public until March 27 — proposes allowing foreigners’ dependants to apply simultaneously for permanent residency, as well as relaxing education and salary requirements.
State media said less than one percent of foreigners in China have permanent residency.
The draft bill comes at a time when China is seeking to expand its global influence and attract foreign exchange and investment.
Its massive Belt and Road infrastructure investment project has funded thousands of lucrative scholarships for students from developing countries.
But there have been points of tension, including a crackdown on illegal immigrants in commercial hub Guangzhou’s “Little Africa” which left many complaining of hard treatment from authorities.
There are also long-standing anxieties about perceived preferential treatment for foreigners in China, especially international students.
“For a long time, some foreigners in China have secretly received ‘superior treatment’ as citizens,” wrote Hu Xijin, editor of the nationalistic Global Times.
Last July, Shandong University apologized after a backlash over a policy that introduced foreign students to local students of the opposite sex.
Heather Li, a China-Africa business consultant, said she was “really shocked” by the extent of the online racism.
She used to tell her African friends that many Chinese people were friendly and curious about their culture, despite their occasional encounters with prejudice.
“But after seeing it on Weibo, I realized there was so much more to it, because people were using very strong language and really disrespecting people from other races,” she said.