In China, investment corporations are a kind of financial inter-mediation, whose main function is to gather money from individual investor and invest in multiple stock securities and other assets. We all know the saying ‘Do not put all eggs in the same basket’. The basic idea of an investment company is to collect capital and pool the money together into a diversified portfolio so small investors can reduce risk while gaining more profit.
Function of Chinese investment corporations
Investment corporations serve multiple functions: they finance for companies, give advises on company turnovers and acquisitions, sell and exchange stocks, manage assets, and study the risks of the market. They keep a record of the allocation of capital, distribution of dividend, and investments that are made. Due to their limited budget constraints, small individual investors cannot make their portfolio as diverse as possible to avoid risk, but bigger ones can. By gathering small amounts of money from multiple investors, these corporations make it possible for individual investors to hold a combination of various kinds of securities to eliminate firm-specific risks. Most but not all Chinese investment banks have professional security analysts and security managers to manipulate the financial assets. The professional training they receive enable them to find the hard-to-find profit opportunities in the volatile stock market, and make more money for their clients. Since all these small investors, by putting money together, only need to pay one stock analyst, they can save a lot on commission.
Investment banks
In China, investment corporations usually come to be known by common people as investment banks. Chinese investment banks can be put into three types: national, local, and private. National investment banks can be divided into banks related to big national commercial banks and banks related to China’s state council. Local investment banks refer to provincial and municipal professional security companies. The private ones are mainly investment management companies, asset consultant companies, and asset management companies which developed from institutions that used to provide consulting services.
Potential in the Chinese market
Chinese investment corporations have only fifteen years of history and thus still have many shortcomings. They are small in scale, their business scope is narrow, and there are too many of them making the market very competitive. However, there is a lot of potential due to the growing market demand in China. More and more Chinese citizens beginning to consider investing. Also, national big and medium scale enterprises are making switches in their operation and private firms are relying more and more on the capital market. These all lay the foundation for Chinese investment banks to develop into a brighter future.
Sources:
Picture Source: China Investment Corporations
