China view: Doing business in China, postCovid-19
How the business environment in China has changed post-Covid-19 was a key issue I discussed at the launch of my new book China for SMEs. The China business environment is significantly different now compared to what it was in 2019.
This is not related to changes in the Chinese economy but stem from different currents in China’s engagement with the world. Recognising these changes will assist existing businesses in China to improve their business activities.
It also provides a foundation for new business ventures. China under President Xi Jinping has seen a resurgence of confidence in its abilities and its place in the world.
At the same time, this increased confidence has been met with opposition from many in the Western media and leadership.
They have cast doubt upon the support enjoyed by the Chinese Government and the Chinese Communist Party (CCP). They have also cast doubt on the legitimacy of China’s Government and aspirations.
There is every indication that the government and the CCP enjoy widespread support throughout China.
The recent celebrations were coordinated in the same way as the National day celebrations coming up in October are coordinated by the government and others.
However, this coordination is not a stage-managed event that covers up discontent as there is genuine widespread support for the government.
Businesses may choose to believe the Western narrative but they also need to recognise this is not a view held by their Chinese counterparts.
China is increasingly reluctant to do business with those who openly criticise its government and the country.
The anti-sanction law, passed by China’s top legislative body on June 10, reflects this popular feeling. The tolerance that may have developed in the past has all but disappeared in the post-Covid-19 environment.
Coupled with this is an increase in the impact of historical events. China’s determination to avoid a repeat of the century of humiliation starting with the Opium Wars in the mid-19th century should not be underestimated.
This determination is another driver of the growth of confidence. The confidence comes from the belief that the Chinese government under the leadership of the CCP can continue to deliver growth and prosperity.
This confidence also comes from the belief that the government is determined to avoid a repeat of the humiliation that followed the first and second Opium Wars.
Many in the Western media dismiss this as irrelevant ancient history and thus fail to consider the impact it has on current Chinese perspectives.
At the same time, this same media is cognisant of the lasting impact of the American Civil War on the politics of today.
This impact includes the Black Lives Matter movement that seeks to resolve issues still unresolved by the Civil War. It includes a tolerant understanding of crowds waving confederate flags.
However, there is a reluctance to recognise the impact of historical events in China that occurred around the same time as the Civil War.
Businesses that dismiss this growing awareness in China are failing to read the changes in the business environment.
China has become more nationalistic and more confident that it can deliver prosperity having overcome the threat of Covid-19.
It is unwise not to recognise these changes when it comes to business engagement with China, especially in the post-Covid-19 period.
Technical outlook for the Shanghai market
The upwards move in the Shanghai Index is constrained by two resistance features.
The first and strongest feature is the historical resistance level near 3,580. The second powerful resistance feature is the value of the shortterm trend line, currently near 3,570.
The Index breakout failed and retreated towards support near the long-term uptrend line B. The rebound rally was capped by the new short-term up trend line A.
It was anticipated that the rebound rally would be the start of a new longer-term rally and a continuation of the uptrend. A new trend line A was plotted to define the emerging short-term trend.
Two events developed: First the index dropped below the value of trend line A. This signals a change in the trend behaviour.
This index retreats also moved below the lower edge of the long-term group of averages in the Guppy Multiple Moving Average (GMMA) Indicator. This was bearish and suggested the uptrend rally that started in May had come to an end.
The second event was the way the index created a new short-term resistance level near 3,615. This is important because this short-term resistance level near 3,615 and the nearby long-term resistance level near 3,580 will form a strong resistance to any future index rally and uptrend.
The fall below the lower edge of the long-term GMMA suggested a significant change in the trend behaviour
The first support feature is the value of the long-term uptrend line B. this was successfully tested. The rebound from this level will suggest that the long-term uptrend that started in March remains intact. This is a much slower moving uptrend.
Although the index has closed below the lower edge of the long-term GMMA there is limited evidence of compression in the long-term GMMA. The long-term GMMA is moving sideways. This shows that investors have not yet joined in the selling so there is a small probability that the index retreat is temporary. This is only proven if the index moves up quickly and continues to consistently use trend line A as a resistance level.
The current condition of the index has the characteristics of a developing trend change so any rebound rally is treated with caution. Additional caution is required because of the twin resistance features coming from the value of trend line A and the long-term resistance level near 3,580. These act as significant barriers to any rally rebound. A move above 3,580 is very bullish.
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 two decades. 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. The writer owns China stock and index ETFs