China has surpassed the United States for the first time in becoming the hottest spot for foreign direct investment (FDI), according to a FDI Confidence Index report released Monday by A. T. Kearney Inc, one of the world's biggest business strategy consulting firms.

The report shows that China scored 1.99 in a scale from zero to three, while the United States ranked second with 1.89 due to a slow economic recovery, enterprise scandals at companies such as Enron and WorldCom, as well as continuing worries about security in the world's biggest economy.

The FDI Confidence Index is based on surveys of executives at the world's 1,000 biggest companies, which contributes about 70 per cent of FDI flows and generates US$18 trillion in annual sales.

"Since China has the world's biggest internal market, it helps the country insulate itself from the shocks that most of other countries have experienced or are experiencing," said Paul Laudicina, vice-president of A. K. Kearney and chairman of its Global Business Policy Council.

He said that China has a competitive strength in all three major factors for attracting FDI: a huge domestic market, sustained economic growth and political stability and policy consistency.

The country's accession to the World Trade Organization (WTO) and Beijing's hosting of the 2008 Olympics also add to China's attraction, Laudicina added.

He predicted that among the 400 million new consumers with annual incomes of over US$10,000 in the coming five years, half of them will be Chinese.

The A.T. Kearney's survey also found that one-third of the 1,000 executives surveyed said they would choose China as their first investment destination.

While China continues to attract foreign investment, it is also becoming a source of FDI, Laudicina said.

In 2001, China's 12 biggest multinationals, mainly State-owned enterprises, invested US$3 billion overseas and their sales also amounted to US$3.3 billion.

Non-State-owned companies also invested in more than 40 countries.

However, Laudicina also warned that China should speed up the infrastructure construction, distribute its wealth more evenly, and build a consistent legal system.

Jiang Zemin, in his report to the 16th National Congress of the Communist Party of China, said the Party's door is open to all positive factors of the society, including private entrepreneurs, foreign-invested firm employees, self-employed businessmen and freelance professionals, he also said that the Party should advance with the times. What's your opinion?