assignment on account

Investor

An investor is a party that makes an investment into one or more categories of assets --- equity, debt securities, real estate, currency, commodity, derivatives such as put and call options, etc. --- with the objective of making a profit.

Definition

An individual who commits money to investment products with the expectation of financial return. Generally, the primary concern of an investor is to minimize risk while maximizing return, as opposed to a speculator, who is willing to accept a higher level of risk in the hopes of collecting higher-than-average profits.

Types of investors

The following classes of investors are not mutually exclusive:

• Individual investors (including trusts on behalf of individuals, and umbrella companies formed by two or more to pool investment funds)
• Collectors of art, antiques, and other things of value
• Angel investors (individuals and groups)
• Sweat equity investor
• Venture capital funds, which serve as investment collectives on behalf of individuals, companies, pension plans, insurance reserves, or other funds.
• Investment banks
• Businesses that make investments, either directly or via a captive fund
• Investment trusts, including real estate investment trusts
• Mutual funds, hedge funds, and other funds, ownership of which may or may not be publicly traded (these funds typically pool money raised from their owner-subscribers to invest in securities)
• Sovereign wealth funds

Also, investors might be classified according to their styles. In this respect, an important distinctive investor psychology trait is risk attitude.

Why Is China Growing So Fast?

In 1978, after years of state control of all productive assets, the government of China embarked on a major program of economic reform. In an effort to awaken a dormant economic giant, it encouraged the formation of rural enterprises and private businesses, liberalized foreign trade and investment, relaxed state control over some prices, and invested in industrial production and the education of its workforce. By nearly all accounts, the strategy has worked spectacularly.

While pre-1978 China had seen annual growth of 6 percent a year (with some painful ups and downs along the way), post-1978 China saw average real growth of more than 9 percent a year with fewer and less painful ups and downs. In several peak years, the economy grew more than 13 percent. Per capita income has nearly quadrupled in the last 15 years, and a few analysts are even predicting that the Chinese economy will be larger than that of the United States in about 20 years. Such growth compares very favorably to that of the "Asian tigers"--Hong Kong, Korea, Singapore, and Taiwan Province of China--which, as a group, had an average growth rate of 7-8 percent over the last 15 years.

Curious about why China has done so well, an IMF research team recently examined the sources of that nation's growth and arrived at a surprising conclusion. Although capital accumulation--the growth in the country's stock of capital assets, such as new factories, manufacturing machinery, and communications systems--was important, as were the number of Chinese workers, a sharp, sustained increase in productivity (that is, increased worker efficiency) was the driving force behind the economic boom. During 1979-94 productivity gains accounted for more than 42 percent of China's growth and by the early 1990s had overtaken capital as the most significant source of that growth. This marks a departure from the traditional view of development in which capital investment takes the lead. This jump in productivity originated in the economic reforms begun in 1978.

Why the Productivity Boom?

Exactly how did China's economic reforms work to boost productivity, especially in an economy still burdened by extensive government controls? In the important rural sector the story is particularly interesting.

Prior to the 1978 reforms, nearly four in five Chinese worked in agriculture; by 1994, only one in two did. Reforms expanded property rights in the countryside and touched off a race to form small nonagricultural businesses in rural areas. Decollectivization and higher prices for agricultural products also led to more productive (family) farms and more efficient use of labor. Together these forces induced many workers to move out of agriculture. The resulting rapid growth of village enterprises has drawn tens of millions of people from traditional agriculture into higher-value-added manufacturing.

Further, the post-1978 reforms granted greater autonomy to enterprise managers. They became more free to set their own production goals, sell some products in the private market at competitive prices, grant bonuses to good workers and fire bad ones, and retain some portion of the firm's earnings for future investment. The reforms also gave greater room for private ownership of production, and these privately held businesses created jobs, developed much-wanted consumer products, earned important hard currency through foreign trade, paid state taxes, and gave the national economy a flexibility and resiliency that it did not have before.

By welcoming foreign investment, China's open-door policy has added power to the economic transformation. Cumulative foreign direct investment, negligible before 1978, reached nearly US$100 billion in 1994; annual inflows increased from less than 1 percent of total fixed investment in 1979 to 18 percent in 1994. This foreign money has built factories, created jobs, linked China to international markets, and led to important transfers of technology. These trends are especially apparent in the more than one dozen open coastal areas where foreign investors enjoy tax advantages. In addition, economic liberalization has boosted exports--which rose 19 percent a year during 1981-94. Strong export growth, in turn, appears to have fueled productivity growth in domestic industries.

In one final area, price reform, the Chinese have proceeded cautiously, granting a fair amount of autonomy to producers of consumer goods and agricultural products but much less to other sectors. Several bouts of inflation have buffeted the Chinese economy in the past two decades, deterring the government from implementing full-scale price liberalization. High rates of growth also raise inflationary worries. Inflation may pose the single greatest threat to Chinese growth, though thus far it has been largely contained.

Conclusion

Although China occupies a unique niche in the world's political economy--its vast populace and large physical size alone mark it as a powerful global presence--it is still possible to look at the Chinese experience and draw some general lessons for other developing countries. Most important, while capital investment is crucial to growth, it becomes even more potent when accompanied by market-oriented reforms that introduce profit incentives to rural enterprises and small private businesses. That combination can unleash a productivity boom that will propel aggregate growth. For countries with a large segment of the population underemployed in agriculture, the Chinese example may be particularly instructive. By encouraging the growth of rural enterprises and not focusing exclusively on the urban industrial sector, China has successfully moved millions of workers off farms and into factories without creating an urban crisis. Finally, China's open-door policy has spurred foreign direct investment in the country, creating still more jobs and linking the Chinese economy with international markets.

China's strong productivity growth, spurred by the 1978 market-oriented reforms, is the leading cause of China's unprecedented economic performance. Despite significant obstacles relating to the measurement of economic variables in China, these findings hold up after various tests for robustness. As such, they offer an excellent jumping-off point for future research on the potential roles for productivity measures in other developing countries.