For ordinary business transactions, there are no more daunting words in banking than “Know Your Customer”. The intent is excellent but the execution can be mind-numbingly complex and unnecessarily irritating. The requirements in some countries take this to the extreme and act as a friction on business.
Yet, despite all this pettifogging attention to detail, it seems to pose just a minor inconvenience to drug dealers and international criminals with Australian regulators finally charging some casinos for laundering more than a billion dollars in suspect or outright fraudulent transactions.
Chinese business and banking regulations have imposed considerable friction on everyday banking and in some areas, this is getting worse. However, in very welcome news, there are now some areas of business documentation that are getting easier. This gives businesses hope that sentiments contained in outgoing Premier Li Keqiang’s work report to the recent Two Sessions meeting are actually having a practical impact on the ground.
Anyone who has done business in China knows that the legalisation procedures to authenticate documents are very burdensome and time-consuming. This is a process that could take around two months or more to complete and that is assuming everything went right the first time. The good news is that this process may be reduced to just a few days later this year.
China is set to join the Apostille Convention in November. This is excellent news for foreign individuals and companies intent on setting up a subsidiary in China. The move further confirms China’s intention to re-engage with foreign businesses and facilitate international trade and people-to-people exchanges.
The Apostille Convention is intended to simplify the procedure through which a document can be certified for legal purposes in the other participating states of the convention. An apostille is an international certification comparable to a notarisation and may supplement a local notarisation of the document. In November, Singapore and China will both be parties to the convention, so an apostille issued in Singapore will be sufficient to certify the document and removes the need for further certification by Chinese authorities.
See also: China tightens securities lending rule to support stock market
The agreements apply to court documents, administrative documents such as vital records, notarial acts and official certificates which are placed on documents signed by persons in their private capacity, such as official certificates recording the registration of a document.
China’s participation in the Apostille Convention has a major impact on companies aspiring to do business in the country because it significantly reduces the time needed to set up a China subsidiary.
This is great news for document authentication when setting up a business or changing business operations in China. Now if only businesses could get the same type of efficiency when it comes to international transactions with China banking services.
See also: Eight reasons why I am still in favour of China stocks
Technical outlook of the Shanghai Composite Index
The Shanghai index activity remains trapped within the sideways trading band. We still do not know if this is a consolidation before a resumption of the uptrend or a pause before a collapse below support.
There is a slight tilt in the balance of index activity that suggests a mildly bullish interpretation. This comes from the way the index has used the lower edge of the long-term Guppy Multiple Moving Average (GMMA) as a support feature. The index briefly tested the long-term historical support level near 3,220.
Although the index has failed to convincingly rally from this level, the index has tested and retested the lower edge of the long-term GMMA as a support feature. Although the longterm GMMA has flattened out, it still shows a slight upwards bias.
More importantly, there is a limited degree of compression in the long-term GMMA. This suggests that investors have not yet become sellers. Certainly, they are not active buyers. Investors are ignoring the price retreat rather than joining the price retreat. This is a bullish environment although the measure of the full strength of the bull cannot be gauged until a successful breakout out above resistance near 3,280.
The index activity suggests a consolidation before an uptrend resumption. The evidence remains unchanged from last week and we summarise briefly
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First, the small degree of compression long-term group of averages in the GMMA suggests that investors are using the index retreat as a buying opportunity.
Second, the support level near 3,220 was a previous resistance level so this suggests it has a strong influence in the market. When support holds it suggests we are seeing consolidation rather than a trend change.
Third, the short-term GMMA has compressed and crossed into the value of the long-term GMMA but it has not moved below the lower edge of the long-term GMMA.
The fourth feature is the long-term trading consolidation band. The lower edge is near 3,220. The upper edge is near 3,280. A return to trading within this trading band is still bullish for the continuation of the longer-term uptrend because it provides a consolidation base for the trend breakout.
It is also important to remember that the old uptrend line will now act as a resistance level. This will limit the extent of any breakout above resistance near 3,280. In this sense, a longer period of consolidation delivers a better breakout opportunity with higher upside targets.
The fifth feature is the fan pattern (not shown on the chart). This pattern signals a long-term trend change. The sixth feature is the double-bottom pattern (also not shown on this chart). The depth of the double-bottom pattern is measured and then this value is projected upwards to give a very long-term target of around 3,860.
The combination of these features and the longer-term bullish chart patterns suggest that the longer-term uptrend in the Shanghai Index remains intact following a period of consolidation.
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
