(Aug 28): Belief in ill-founded myths and clichés makes it easier for us to believe some interpretations of China. Business finds fertile ground for claims of protection from foreign imports and the export of jobs to foreign lands. Some others feed off the propensity to always believe the worst about China.
This is a dangerous way to construct foreign policy and develop trade policy responses.
There are two widely divergent opinions when it comes to China, but it would be foolish to characterise them as pro- or anti-China, as they reflect very different views on doing business there.
One group feels it is too difficult and risky to do business in China because the country does not apply Western rules and regulations. They fail to understand the regulatory environment, or feel that it should not apply to them. They rarely say this directly, but it is strongly implied in their comments and actions.
The deliberate testing of the laws around the promotion of gambling that underpin the viability of casino operations in Macau and outside of China suggests that some still believe Chinese law does not really apply to Western companies.
Variations of “China does not follow our rules” quickly leads to the idea that China should, or must, follow Western rules in everything, from the value of the renminbi to increasing domestic consumption based on credit rather than savings. The belief that business can go to China in the hope that it can remould the country into an image of the West is one of the most dangerous business myths. Of course, this belief is rarely stated so boldly. Instead, companies talk about bringing the benefits of modern accounting, management and market practices to a country that is, by implication, lacking in modernity.
The other group is very aware of the need to understand and work within the regulatory framework in China. They understand the importance of working within its laws as a means of developing business success. Success requires working within the laws, understanding the law and researching your market and competitors. It sounds like marketing 101 and it is astounding that, at an international business level, so many companies apparently do not understand these basics.
Does the answer lie somewhere in the middle? Probably yes, and over time, there will be adjustments. But the conditions in China will remain very much Chinese, with selected Western characteristics. Rather than fight this, it is more effective to learn to work within these conditions. Companies that succeed in China may not necessarily have better products or services. But they do have a higher degree of willingness to respect the rules and regulatory environment of the country in which they are working.
Myths about Western supremacy undermined our understanding of China in the past — and all too often, the present. China is changing rapidly, so it is a significant challenge to keep up with its strategic and structural changes. The assumption that China aspires to emulate the West is deeply flawed and the equivalent of a modern myth standing in the way of understanding and business success.
These assumptions hinder our understanding of China’s One Belt, One Road initiative and that, in turn, limits our ability to become fully involved. There are rich pickings to be had from Belt and Road projects, but long-term sustainable survival depends on a better understanding of the environment surrounding the initiative.
The Shanghai Index is making a strong attempt to break above the triple-top resistance level near 3,290. This is a very strong resistance level and the behaviour here is critical for the future development of the Shanghai Index.
The strong resistance area has a contradiction. The strength of the resistance means there is strong potential for the market to retreat from resistance. But the strength of the resistance level means a successful breakout above resistance sets the conditions for a strong uptrend. It is very bullish when strong resistance is broken.
A failure to break out above the resistance level confirms the resistance level is exceptionally strong. This breakout failure would suggest that the Shanghai Index would continue to trade between a high of near 3,290 and a low near 3,000. Failure to break out above 3,290 suggests the index will not develop a strong uptrend.
A successful breakout above resistance near 3,290 suggests a new and strong uptrend will develop. The resistance level develops because many people previously entered the market near the 3,290 level. Unfortunately, the market fell away from this level and many people did not sell. When the index gets near the 3,290 level again, these people will sell so they can get a break even result. This selling happens every time the market gets near the 3,290 level and this selling creates the resistance level.
When most of the people who entered the market near 3,290 have sold, then the resistance level is broken because there are no more sellers near 3,290. New people have entered the market and they hold on, hoping the market will go up. Because these new people will not sell near 3,290, it means that other people who want to enter the market must pay a higher price to get in. This helps establish a new uptrend.
This is the foundation of volume turnover analysis or free-float analysis. The important conclusion is that a successful breakout above 3,290 has a high probability of developing into a new uptrend with the first target near 3,335.
Uptrend strength has been confirmed. The lower edge of the longterm Guppy Multiple Moving Average was successful in acting as a support level. The long-term GMMA remains widely separated and this gives a stronger support base for a continuation of the rebound rally and retests of resistance near 3,290.
Investors are watching for the index to remain above the upper edge of the short-term GMMA. They are also watching for the short-term GMMA to move above 3,290 because this shows that traders have more confidence in the uptrend continuation.
Daryl Guppy is an international financial technical analysis expert and special consultant to Axicorp. He has provided weekly Shanghai Index analysis for mainland Chinese media for more than a decade. Guppy appears regularly on CNBC Asia and is known as “The Chart Man”. He is a national board member of the Australia China Business Council.
