Where would Chinese cuisine be without pork and fish? The price of pork significantly influences consumer inflation levels. Our understanding of the role these two protein sources play in Chinese cuisine is correct, but it is not the entire story.
It is a little like the idea that the staple diet of the Chinese is rice. This is true in southern China, but not in northern China, where the staple is noodles. Southern China is a rice-based cuisine, while northern China has a wheat-based cuisine.
The common saying “no meal is complete without rice” has different applications in Guangzhou and Beijing. In southern China, it means rice is served at the beginning of the meal and accompanies most dishes. In northern China, rice is a starch filler that comes at the end of the meal, along with a choice of noodles.
Singapore has a long tradition of food drawn from southern China, particularly Hainan. In recent years, the Chinese culinary landscape in Singapore has changed.
It started with a couple of small restaurants in Chinatown or the HDB heartlands serving northern Chinese dishes. Then came higher-end chains like Haidilao Hot Pot that offered a broader sweep of the eight cuisines that define Chinese cooking. More recently, we have seen the opening of restaurant chains like One Hundred Grains that are similar to their counterparts in Beijing.
The palate of Singaporeans is changing, and although nothing will replace a preference for chicken rice or the home comforts of congee, Singaporeans are extending the everyday menu to include a wider variety of Chinese regional dishes.
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The same change in preferences is taking place in China. The meat-heavy menus of the Xibei chain of restaurants brought high-quality mutton dishes from the far northwest to mainstream dining in Beijing, and gradually, it extended to the south in Shanghai and Shenzhen. This particular chain has yet to reach Singapore.
Beef prices in China have become cheaper, spurring changes in the restaurant industry. Lower prices have seen an explosion in the number of beef-related restaurants. In the first six months of the year, more than 20,000 new businesses were registered using the word “beef” in China.
This is not to say that beef will suddenly replace pork as a preferred menu item. However, even at cheaper prices, unless there is a consumer demand for beef then it is not a good idea to build a restaurant around beef offerings.
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Beef dishes, like Lanzhou beef noodles, have always been available in China, but beef-heavy meals are more of a premium market. Australian beef positions itself in this premium niche. The cheaper beef prices have expanded the reach of this product, and in so doing, have upset some myths surrounding Chinese food choices that suggest Chinese do not like to eat beef.
This belief was as deeply entrenched as the idea that the Chinese were lactose-intolerant, so for many years, dairy producers avoided the China market despite the everyday consumption of yoghurt.
Sometimes, changes in consumption are accelerated by price, as in the case of lower-priced beef. At other times, the changes are driven by expanding expat populations, such as an increase in the number of northern Chinese residing in Singapore.
Changes are also driven by increasing prosperity, which is accompanied by a desire to try new experiences. When dealing with the China market, we need to put aside assumptions that are often inaccurate. We also need to be alert to changes in consumption patterns and adjust product offerings accordingly.
Technical outlook of the Shanghai market
The Shanghai Index rally has lost momentum and is testing support near 3,150, which was also the resistance level in May. The historical support level is a little lower, near 3,080. Consolidation in this area lays the foundation for a new uptrend.
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Usually, the low before the rally is used as an anchor point for the trend line. This would connect with a second low made by the current rally retreat. This would result in a very steep uptrend line. Steep uptrends are inherently more unstable because they rely on significant flows of new capital into the market to sustain them
However, rather than use the absolute low, it may make more sense to use the low following the September rally as the first anchor point of a new uptrend. This was the method used in February following the sharp rebound. This may develop as a more sustainable uptrend, but it requires a new second anchor point to confirm the trend line placement.
A trend is initially defined with two anchor points and confirmed with a third. These anchor points may develop over several weeks, with each anchor low preceding a genuine change in the short-term trend. This is the behaviour traders and investors await with the Shanghai Index.
We need to see several retreat lows to provide a series of anchor points for plotting longer-term trend lines, no matter which low is used as the initial starting point
A new rally from the current support area faces resistance near 3,430, which is a historical resistance area. Again, we look for the market to consolidate in this area before developing another retreat and rebound, which provides the third anchor point for the emerging trend.
Volatility is a feature of the China market and a starting point for stable and prolonged trend development.
The fast breakout was consistent with a double-bottom pattern and some traders look to this pattern for further indications of how the market may develop. Unfortunately, once the target is reached, the double-bottom pattern provides no guidance on how the market may develop beyond that.
The key point for traders and investors is confirmation of a support area. This provides a platform for future development, which is usually bullish.
A fall below this support area means the next level of support is near 3,050. This support level is not well defined, so overshoots are highly likely.
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
