In 2007, I went to a bank in Beijing to withdraw a relatively large sum of money. It was paid out in cash and given to me in one of the infamous brown paper bags. In this case, the bag was marked with the bank logo. In 1970, most employees in Australia were paid their wages in cash and this was still the case in China in 2007. There was nothing sinister or corrupt about the process, although cash made these activities easier.
The growth of digital banking and digital exchanges initially made money transfers both faster and safer. But just as thieves once turned from targeting cash payroll vans to targeting bank branches, they have since turned to targeting electronic transfers and building elaborate electronic scams.
For instance, just this week, we became aware of a Facebook/Instagram scam that promised to offer stock tips from our company, GuppyTraders. It is a service we do not provide. To add authenticity, the scam had used my photograph.
As the economy becomes more digitalised, it also needs to become more digitally savvy. This is a good outcome, but brings an unexpected level of friction to the transaction process and that is impacting the way business is undertaken in China.
In many ways, the digital process is faster and more efficient and there are far fewer opportunities for corruption. But in some other ways, it is slower and more difficult to process legitimate transactions.
There is nothing we can do as individuals to change this, but we need to be aware of this increased friction because business practices that once operated smoothly for years are now being disrupted. These are the new KYC or “know your customer” rules.
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Here are some of the features to be aware of when money is remitted from China to your corporate or business account.
The receiver’s name must be exactly the same as on the bank account
Receiver’s name must be exactly the same as on the invoice. If you forget to add a full stop after “Pte”, the transfer may be rejected.
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The receiver’s name must be exactly the same as on the Acra registration, including the word spacing.
The receiver’s name must be exactly the same as on the original contract or service agreement.
If the receiver’s name carries more letters than permitted by the Swift transfer system, then the transfer may be rejected because corresponding names do not match.
In one sense, this is not a genuine KYC approach. It is more like a rigid box-ticking exercise undertaken by an AI process that lacks understanding and compromise. Minor differences that have been ignored in the past, such as writing “Pte” with inconsistent capitalisation across a range of documents, are increasingly becoming significant obstacles to the smooth process of cross-border trade remittances. The Chinese banks simply reject the foreign currency transfer request.
It is difficult to argue against this trade settlement friction. Its purpose and intent are laudable but its implementation is adding unnecessary obstacles to business and trading. Where possible, it pays to identify these paperwork inconsistencies before they become a problem. It is more important than ever to ensure absolute consistency between all documents involved in initiating and completing a business transaction with China.
Technical outlook for the Shanghai market
The current rebound on the Shanghai index has the characteristics of a rebound rally rather than a trend change. Despite the current rebound, the fall below support near 3,080 is very bearish because the downtrend remains very strong. There are four significant resistance features which must be overcome before a rally can be considered to be part of a trend breakout.
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The first of these barriers is the value of the lower edge of the long-term group of moving averages. This is currently near 3,050. The long-term Guppy Multiple Moving Average (GMMA) is indicative of the way investors are thinking about the market. The wide separation in this group of averages suggests they are aggressive sellers. This selling will cap and limit any rally activity.
The second of these barriers is the value of the historical resistance level near 3,080. The market tested this on several occasions recently and it held as a support level. This means it is likely to act as a substantial resistance feature in any market recovery.
The third resistance feature is the value of the upper edge of the long-term GMMA. A trend change is not signalled until the index can close above and stay above this upper edge of the long-term GMMA. Sustained closes above this level show that investors have stopped selling and become buyers.
The fourth and final resistance feature is the value of the longer-term downtrend line. This is currently near to the value of the upper edge of the long-term GMMA. As the downtrend continues, the downtrend line will become a significant feature in its own right.
The odds are stacked against a rapid or immediate development of a sustainable uptrend, so traders must consider the potential downside targets for the index.
The next historical support level is near 2,900. The 2,900 level is not a well-established support level. It is the value of the spike low of the market retreat in October 2022. It is around the same level as the market spike low in April 2022.
These are individual trend exhaustion lows but they may also represent a new support area around 2,900.
Investors are watching for the market fall to continue and then pause in the 2,900 area and develop some consolidation activity. This occurs when the market stops its rapid decline and begins to move sideways.
This is what investors are watching for — a test of support near 2,900 followed by a rapid rally and tests of resistance near 3,080.
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. The writer owns China stock and index ETFs
