The newspaper heading says it all: “Two sessions: Can a rubberstamp parliament help China’s economy?”
It is a summary of the profound ignorance that characterises Western understanding of how decisions are made in China. They promote the belief that somehow a single man — President Xi Jinping — makes all the major decisions in China. Even a moment of thought would send this idea to the rubbish bin.
A single man making all the decisions for the world’s second-largest economy? As the English would say: “Piffle.” However, this entrenched ignorance hinders the way the business understands China and that is a major disadvantage.
Just as anywhere else, every decision of the government is a contested decision. How it is contested is one of the important differences between Western and Chinese political approaches. The West is full of loud public debates where the ignorant can overwhelm the more informed simply by shouting. Social media has amplified this and we see this move towards continuous and divisive political conflict in the US.
There is vigorous debate about policy directions in China but they do not take place on the streets. They take place in the numerous think tanks, along the halls of bureaucracy and the among the factions of the party.
There are more think tanks in China than in the US and Europe combined. Their task is to examine policy alternatives, often at the request of the government. Their funding depends on their suggestions and analyses being adopted by the government at all levels. There is a fierce competition of ideas among these think tanks and universities. It is part of the Confucianist tradition where scholars help the state.
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Their proposals are forwarded to the relevant arms of the government where again there is fierce debate about which suggestions are included in the final policy mix. These discussions are in the multiple forums held throughout China. Foreign experts are routinely invited to participate in these forum discussions and their ideas may be included in the final policy suggestions.
These are passed into the bureaucracy where again they undergo fierce selection and assessment before final policy recommendations are made to what we would consider as cabinet level.
Xi does not sit down one evening to come up with solutions by himself. Just as in the West, he selects a Cabinet of advisers who support his policy preferences.
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Although the Two Sessions do not have openly opposite parties like the Democrats and Republicans on the floor of Congress, the Two Sessions do have strong advocates for different policy approaches and solutions. As with any political process, particularly with some 3,000 delegates, political compromises are reached.
In keeping with Asean-style traditions, the final vote is a consensus agreement along lines already discussed before the formal vote. It is this final process that the Western media, in its ignorance, characterises as a rubber stamp. It is true in one sense in that it rubber stamps the conclusion of an often long, tortuous and fiercely fought debate about the appropriate policy directions.
When we consider the outcomes of the Two Sessions, we need to remember that they are outcomes supported by Xi but they are not policies developed personally by Xi. The Two Sessions is letting go of its hyper-growth model in favour of around 5% and reaching for a tech-driven future built on growth areas of electric vehicles, batteries and renewable energy. Businesses will have to adapt to the new priorities.
Technical outlook of the Shanghai market
The Shanghai Index is clustered along the upper edge of the short-term group of moving averages in the Guppy Multiple Moving Average (GMMA) indicator. This is a very bullish market condition. However, the index is also approaching a significant resistance level near 3,080. It is reasonable to anticipate the upward momentum will slow near this level.
The Relative Strength Index (RSI) divergence signal on the Shanghai index accurately predicted the trend reversal. However, does not provide a method for estimating the upside targets for the trend breakout. It is resistance levels and the trend lines, that help establish targets for the breakout.
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An important feature on the Shanghai Index chart is the value of the long-term downtrend — currently near 2,953. The index can retreat to this level and remain in an uptrend breakout environment. In a retreat the Index may slide down the value of the downtrend line, using it as a support feature. This is also bullish. The down-sloping trend line intersects the horizontal support level around the last week in March.
The most bullish outcome is for the index to break through the resistance level near 3,080. The next resistance level is near 3,240.
The strength of the rebound rally and trend development is shown in the GMMA relationships. The short-term group has compressed, rapidly turned upwards and then quickly expanded. This is the normal behaviour in a rally but the degree of expansion suggests this is a more stable trend breakout.
The long-term group of moving averages has also quickly compressed and turned upwards. Expansion in this group of averages will confirm the trend breakout. This shows that investors have joined in the buying and are providing good support for the emerging uptrend.
Trend continuation is confirmed when the lower edge of the long-term GMMA moves above the value of the horizontal support level near 2,920. This is currently developing.
The index needs to develop a retreat and rebound, or consolidation and rally pattern before an accurate uptrend line can be plotted on the chart.
The key feature to watch is the way the index behaves as it reaches the resistance level near 3,080. It is reasonable to expect some sideways consolidation around this level as traders take short-term profits.
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 ETFs of Chinese stocks
