Investment is a broad and general concept covering the process when money is converted into capital. Based on the criteria of fund-raising channels, it is classified into direct investment and indirect investment. The first refers to investing directly into a program to change it into capital, or buying the investment of current enterprises. The latter stands for buying stocks, bonds, or other financial derivatives of companies.
Direct investments in China
Generally, there are fewer participants in direct investment than those in indirect investment, but they invest more money on average than their indirect counterparts. Investing directly means that you have to shoulder a bigger risk with a chance to earn greater profits. Most of newborn companies quit after experiencing setbacks from competition, but many of the survivors are seeing great success. New Oriental, the miracle-making Chinese education and training institution which listed on NASDAQ in 2006, is a typical example. In China, there are a lot of policies that give special support to pioneering enterprises, giving fertile earth for the new firms to grow.
Indirect investments in China
The easier and more prevalent way for most people is to go to the stock exchange to buy securities or buy corporate bonds, holding or selling them to make a profit. The majority of people invest most frequently in bonds and stock shares. Mainland China currently has two stock exchanges, one in Shanghai and one in Shenzhen. There is also one in Hong Kong and Taiwan. Chinese stock exchanges are constituted by their memberships, and individual investor can only authorize the registered members to invest. In these four stock exchanges, financial assets, mainly stock and bonds, together with funds, options, futures and other various types of new derivatives are traded here. Due to the expectation that the interest rate for fixed deposit rates will fall, people are becoming more and more interested in mid-and long-term financial assets to gain more profit.
The 2008 global financial crisis had a huge impact on the global investments industry, and China was no exception. China’s exports to America shrunk due to the shrinking market demand. The unstable and volatile interest rates and exchange rates made it difficult for Chinese firms to raise money to operate. Many firms quit the industry and many others downsized their workforce. The speed of Chinese economic growth slowed down, and China entered into a bear market. Fortunately, the government’s financial departments issued a series of policies that stabilized the market, making it less fragile to financial shocks. Now, the global economy is facing another issue with the Euro debt crisis. Although Asia does not use the Euro, it will inevitably be affected putting China again at its crossroads. To avoid another catastrophe, the Chinese government is likely to take strong measures to ensure the normal operation of the Chinese investment industry.
- FDI from China (official website)
- Report from KPMG
- Analysis from The Economis
- Report from Ernst and Young
- BBC article
- China Business Intelligence
Picture Source: Shanghai Stock Market