Having travelled to China innumerable times, it is easy for me to forget how some first-time business visitors react to China. These are intelligent and informed business travellers, and despite their research, their opinions are largely shaped by the everyday media reporting they are exposed to over many years.
A few weeks ago, I worked with a small group of Westerners visiting China for the first time. We were all speakers at a conference attended by more than 1,000 guests. Speakers mingled with the guests at events, banquets and around the hotel and the surrounding streets. They were mainly European, but there was a smattering of English and Australians in the group. I asked them for their top three impressions of China. There were three features that were most common in their responses.
The first was that the Chinese were nice people and they did not live in fear. Certainly, conference attendees treated the speakers with deference and helpful friendliness. However, outside of the conference venue, in the streets and restaurants, the shops and byways, people were unfailingly friendly and helpful. Strangers were happy to use their limited English to help overcome language barriers when shopping transactions went awry. No-one shunned contact with foreigners for fear of being under surveillance.
This “revelation” is not restricted to naive first-time visitors. Australian journalist Michael Smith, writing about his closely escorted, official tour of Xinjiang, proudly recounts how he and another journalist escaped their “official minders” in Urumqi and walked the city.
“We spent two hours that night wandering through alleyways, peering into homes and soaking up the street life. Street vendors grilled lamb kebabs and boisterous groups of kids kicked a soccer ball around. It was the only real thing I saw on that trip, and ironically, the scenes that night matched the government’s narrative that the people of Xinjiang were not living in a state of fear.” (My italics)
The second observation was great surprise at the advanced level of infrastructure. Americans in particular were astounded at the quality of freeways and rail infrastructure, including clean airport-like stations.
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I am not sure what they expected from this Tier 2 city, but they were surprised by its modernity and functionality. Piccadilly Circus may be quaint, but it’s not advanced infrastructure. The US subway and stations come from another century when compared with the smoothly efficient high-speed rail system in China.
The third common impression was in relation to the advanced green and hi-tech services. Smooth payment by WePay was a surprise to many. They found cash was virtually useless. The extensive use of solar and wind power, the smart placement of solar panels and the proliferation of so many different modern electric vehicles came as a surprise.
Sure, they knew about Chinese EVs, but they were unaware of the variety available and the technical advances. They watched in awe as a driver, whilst standing on the curb, used his Huawei phone to automatically park his car. There was an unspoken assumption that China was exporting EVs to Europe while ignoring the home market.
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For first-time visitors, their experience with these advanced technologies was a leap into the future.
I don’t want to suggest that these are the three most important observations about China. However, what is of interest is the degree to which these observations were wildly different from what these Westerners had been led to believe about China.
Businesses and business people new to China face the same problem. Long-term success in the China market depends on how quickly errors of perception are recognised and on how quickly viewpoints can be adjusted to accept the reality on the ground.
Technical outlook for the Shanghai market
On price charts, we use trend lines to project how prices will behave in the future if the trend line placement is valid. The flip side of this is that we use trend line to indicate when this future projection has failed, and also when the trend line placement has failed. This is always a retrospective exercise because trend line failure cannot be confirmed until after the line is placed. Trend line failure does not have to means trend reversal.
Sounds a bit confusing?
We ended last week with the projection of the trend line from point A and anchored on point B on the Shanghai Index chart. This line has a steep slope and this is often associated with rallies.
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The index closed below the trend line, invalidating the placement of that trend line as an accurate definition of the developing trend.
It did not signal the beginning of a new downtrend. It simply told us that the trend line was not a valid way to define the emerging trend.
As we discussed, the new and more stable trend would be measured from a different initial anchor point. We use point B as the first anchor point. The objective is to follow the new rebound and retreat to establish a second anchor point of a new trend. This is shown in the chart as point C. It is actually a cluster of lows, all of which are joined by a single trend line starting from point B. This is the potential uptrend line.
The degree of the slope is more shallow and this suggests the trend is likely to be more stable and reliable.
This is a retrospective adjustment. It is valid because there are three well-defined reversal or rebound points on the chart. They are point A, B and C. These three points cannot be connected by a single straight line. The projected trend line — A to B — has failed, so a new plot is made, connecting anchor point B and C. Traders can now watch for proof that this new trend line is an accurate definition of the emerging uptrend.
Proof comes when the market moves towards resistance near 3,440 and then retreats. If the trend line placement is accurate then the retreat should use the value of the new trend line as a support area for a rebound and uptrend continuation. This would provide a third confirmation anchor point. We show this tentatively as anchor D.
This is not an upwards-sloping triangle pattern because there is no well-defined resistance level forming the upper edge of the pattern. As a result, we cannot set a price projection target. However, the pattern of behaviour supports a continuation of the uptrend.
This is confirmed with the Guppy Multiple Moving Average (GMMA) relationships, and in particular by the long-term GMMA. This group of averages did not compress in reaction to the pullbacks at points B and C and this tells us that investors were buyers in this situation. They did not join the selling. This bullish feature is confirmed with the current rebound.
Daryl Guppy is an international financial technical analysis expert. He has provided weekly Shanghai Index analysis for mainland Chinese media for two decades. Guppy appears regularly on CNBC Asia and is known as “The Chart Man”. He is a former national board member of the Australia China Business Council
