Even though it is a distant memory, arriving in Australia is not always a pleasant experience for tourists from Asia.
Gone are the days of in-flight spraying aircraft cabins prior to landing. However, the extensive range of quarantine restrictions seem confusing and somewhat arbitrary.
For instance, my packet for coating cereal prawns was rejected because it might contain milk powder.
Whether we agree with these restrictions or not, we must abide by them if we want to visit Australia.
The same also applies for business operations in a foreign country.
We have a choice: Abide by the regulations and do business, or seek to ignore or overturn the regulations.
Unfortunately, the second approach still seems acceptable for some Western businesses operating in China.
Agree or not, China believes that Covid-19 can travel on frozen goods. On one hand, it is not a surprising conclusion because many viruses are able to survive dormant in sub-zero temperatures prior to reactivation. It is a foundation of the AstraZeneca vaccine, which has to be stored at near freezing prior to use.
China has adjusted its quarantine regulations accordingly. Last week, the Shenzhen Administration for Market Regulation released a report about the performance of its centralised inspection warehouse for imported cold chain food.
Shenzhen established a comprehensive traceability system for imported cold chain food and promoted the interconnection, mutual interoperability and mutual recognition of tracing code.
Not all exporters agreed to participate in this mutual recognition of trac- ing codes because they believed that Covid-19 could not travel on frozen goods. Their national governments scoffed at the suggestion and this emboldened these exports to ignore China’s traceability requirements.
However, they continued to try to essentially evade these Chinese quarantine requirements.
The Shenzhen Administration for Market Regulation report noted that three overseas manufacturers of imported frozen products were caught breaking the quarantine requirements.
These breaches were reported by the local warehouse to the General Administration of Customs of Chi- na, which took emergency measures against these companies. This effectively eliminated the risk of epidemic transmission through imported cold chain food.
Companies exporting food into China provide a sound investment opportunity, but not if they wilfully ignore the changed quarantine requirements. Companies that refuse to adopt or implement the relevant mutually interoperable and tracing recognition codes put their business — and our investment in them — at risk.
These culprits are not always small companies. Some large Western firms carry with them an arrogance due to their size and are astounded when they are slapped with export bans because they believe Chinese law should not apply to them.
Often, they complain that this is an example of unfair Chinese punishment because they have done nothing wrong under their home country regulations.
Although we might not agree with Australia’s seemingly unreasonably strict quarantine requirements, we have to abide by them if we want to visit Australia. The same applies to any company doing business with China. They may disagree with the reasons for new regulations, but business growth depends on compliance and that is increasingly framed by the Belt and Road Initiative.
Technical outlook for the Shanghai market
The two resistance features on the Shanghai Index are a very powerful combination with the market rapidly retreating from the value of up trend line A near 3,540. The retreat tested the central support level near 3,450 before developing a new rebound rally which will retest the resistance strength of trend line A.
This rally and retreat behaviour is likely to dominate the index over the next few weeks. The strength of the support level near 3,450 is a well-established feature of the Shanghai Index behaviour. It is the central level around which the index has oscillated for many months.
It is also the central level of the very broad trading band. The first resistance feature is the value of uptrend line A. This trend line intersects with the upper horizontal resistance level near 3,580 in early September.
This suggests that any rebound rally activity in the Shanghai Index will continue to be capped by uptrend line A for several more weeks. Any breakout above the trend line A will encounter resistance at the upper edge of the trading band near 3,580.
The combined resistance features of the trend line and the trading band resistance level will act as a very strong resistance feature making it difficult for the index to develop a bullish uptrend.
This suggests that the market will continue its rally and retreat behaviour within the bounds of the trading band. It suggests the Shanghai index is unlikely to develop new sustainable uptrend behaviour.
Despite a short-lived dip below 3,450, the Shanghai index has moved constantly in the upper half of the trading band. This is bullish behaviour.
The dominant feature of the Index chart is the long-term horizontal support and resistance level near 3,450. The market has oscillated around this level on a consistent basis. The upper level of the trading band is the resistance level near 3,580. The lower limits of the trading band are near 3,330.
The general upwards trend starting in March was defined by trend line A and this led to the market breaking into the upper half of the oscillation band in late May. The outlook remains bullish whilst the index continues to move in the upper half of the trading band.
The current behaviour is rally and retreat behaviour and this does not have the characteristics of a sustainable uptrend. A sustainable uptrend is defined with multiple tests of the trend line as a support feature. A rally moves quickly without any sustained retreat and rebound activity that confirms a trendline. Traders watch for further rally, retreat and rebound activity to develop because this will enable the placement of a reliable trend line.
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
Cover image: Bloomberg
