Know your customer is the baseline of all client relationships in the financial market. This is not some fuzzy, feel-good concept. It is legislated and regulated.
When it comes to China, the know-your-customer concept often rests on guesswork, ignorance, out-dated ideas and assumptions. Harsh words, but all too often accurate.
Of course, it’s rare that these approaches are stated so obviously, but it doesn’t take much effort to see them subtly at work. It’s an invidious process that can kill a business proposal.
Recently, I was asked to advise an Australian publisher on the appropriate strategy for a publication aimed at Chinese investors and tourists. The conversation is relevant for any business thinking about China.
The editor pointed to a photo of Australia’s iconic red rock at Uluru in the Northern Territory. “We cannot use that,” he said, and went on to explain why. In 2008, the film Australia was released in China and the tourism authority was excited at the prospect of the thousands of Chinese tourists it would attract to visit Australia.
However, the film was set in the dusty outback of Australia. Chinese audiences were repelled by the dirt, flies and primitive conditions that they associated with life in the countryside — a life which the modern Chinese tourist was keen to escape from.
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It was a valuable lesson in the dangers of cultural (un)awareness and it has not been forgotten. It really set the strategy focus for Australian tourism for the next 16 years.
Unfortunately, this mistake has achieved an iconic mythical status, which has itself become a new mistake in cultural misunderstanding.
One of the significant impacts of Covid in China, from a tourism perspective, was the discovery of the Chinese “outback”. Unable to travel internationally, Chinese tourists discovered their own backyard. Tourism boomed in Gansu, Xinjiang and other remote places that were the very opposite of the glittering cities of China, Asia and Europe.
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Intrepid Chinese travellers discovered 4WD vehicles, adventure trekking, camping outdoors and the harsh beauty of the Taklamakan Desert or the Gansu wilderness. This is “adventure tourism” and it has set a new paradigm for Chinese international tourist travel.
And this is why, in 2024, a photo of the Uluru red rock may be relevant to Chinese tourists and investors. It is the tourist with additional money to spend that forms the core of adventure tourism. This tourist is also a potential investor. The know-your-customer requirement is not something set in stone, done once and then unchanged forever.
This is an Australian experience, but it clearly shows how business needs to adapt as customers grow and change. Their requirements and their desires change in response to life’s events, particularly major disruptive events like Covid.
Existing businesses are forced to acknowledge these changes in consumer preferences because they can track the growth, or decline, of China orders in real time. Smart businesses alter their product lines or adjust the way services are delivered.
The challenge is more difficult for those businesses which are looking to enter the Chinese market for the first time. Even if they access the most recent market research, the results are filtered through their own preconceptions that may be seriously outdated. Conclusions and lessons that were valid pre-Covid may, like the lesson from the 2008 Australia film, now be completely wrong or irrelevant.
Technical outlook for the Shanghai market
Support near 3,150 on the Shanghai Index was successfully tested. It provided a point of a steady rebound rally towards the next resistance level near 3,400. Support near 3,150 was also the resistance level in May this year.
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The analysis of the Shanghai index chart is a little arcane. Please bear with the discussion because the conclusion defines how the continuation of the uptrend may develop.
We start with the theory. Every trend line requires at least three anchor points. The first anchor point retrospectively defines the starting point of the new uptrend. The second and third anchor points determine the slope of the line. This is also the support area for the trend. The index moves above the line, then retreats and uses the line as a support feature. These values are projected forward by extending the trend line.
A break below the trend line signals a change in the trend.
It is clear that the Sept 25 rally broke the downtrend. What is not so clear is whether the Sept 25 low is the anchor point for the beginning of the new uptrend.
This matters because an inaccurate trend line takes you out of the trend on a false exit. You exit, and the trend continues upwards so you lose potential profits.
If the trend line starts with the absolute low at point A then the rally retreat low at point B is the second anchor point of the trend line. This is a very steep trend line. Trends that behave like this often end in tears because when the trend line is broken, the market fall is often precipitous.
In this sense, it is similar to the behaviour following the Sept 25 rally and subsequent rapid retreat.
The Shanghai Index has a history of trend lines being more effective if they are plotted from the rally rebound. This can be seen in the February 2024 rally and subsequent slower trend development. The most effective trend line started from the Feb 29 low rather than the absolute downtrend low on Feb 5.
In this trend line scenario, point B becomes the starting point for a new and shallower uptrend line. A trend line with a shallower degree of slope signals a more stable and sustainable uptrend and that’s welcome news for investors.
However, a new uptrend starting from point B is not confirmed until a new anchor point — call it C — is created by a retreat and rebound. This may be a retreat and consolidation near the resistance level at 3,400.
If anchor points A, B and C can be connected with a single straight trend line, then this will correctly define the trend. If only points B and C can be connected by a single straight line, then this will be the accurate trend line for the emerging trend.
It’s too soon to know which anchor point is correct, but in any case there is a high probability that the broad uptrend will continue.
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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
