Consumer rights in China remain a developing area from a regulatory perspective. The most powerful of the informal consumer advocates are WeChat and other social media platforms.
When it comes to medium- and high-end consumer goods, many Chinese consumers will turn to WeChat and other chat groups to seek out the opinions of genuine buyers and users of the product. As a seller, that’s great if your product has garnered hundreds or thousands of independent recommendations or reviews extolling its quality and service.
What’s not so good is that this organic process cannot be managed, and this is both its strength for consumers and its weakness for producers.
The use of word-of-mouth verification for consumer products is a powerful tool. However, it is difficult to formally deploy this consumer surveillance as a deliberate completive tool.
Every year, the China Central Television (CCTV) airs the 315 Gala show on World Consumer Rights Day. This day was first observed in 1983, and soon afterwards China created the China Consumers Association.
The broadcast is an influential report of consumer opinion across a range of consumer sectors. More than 80% of viewers said they were very concerned about the issues reported, while more than 18% said they were generally concerned. This is a self-selecting audience in that they choose to watch the programme because they were already interested. However, it is a good guide to sectors that concern the broader consumer base.
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The show aims to highlight any “wrongdoings” committed by businesses during the previous year. This includes selling defective goods, employing unsafe materials, implementing unfair return policies, engaging in questionable marketing practices, or illegally collecting customers’ personal information. It is a “name and shame” environment and you don’t want to be on the show.
What is particularly important for commodity product and service exporters to China is the clues the 315 Gala provides on consumer concerns. Address these, and your product or service instantly addresses consumer concerns and becomes more competitive as a result. The 315 Gala is a roadmap to the way the Chinese consumers are thinking about product quality.
This year, concerns about dodgy practices in the food, catering and beverages sector topped the ranks, representing 44.6% of all complaints. Singapore companies with high standards of quality and service, such as BreadTalk, already have a competitive advantage in this area.
See also: Eight reasons why I am still in favour of China stocks
Perhaps not surprisingly, complaints about suspect practices in the property management sector came in second with 37%. Shareholders in CapitaLand may take an interest in these results.
The third major area of concern, coming in at 27.7%, was the clothing, shoes and bags sector. Of particular concern with this result is the fact that these products feature prominently in the online economy. The challenge is how to overcome these perceptions of poor service and gain a competitive advantage.
Technical outlook for the Shanghai market
The Shanghai index continues to trade within the sideways trading band and is testing the lower edge of the band as a support level. This behaviour has the characteristics of a consolidation prior to a resumption of the uptrend. However, this consolidation behaviour is also sometimes associated with a pause before a collapse below support.
There is a slight mildly bullish outlook in the balance of index activity. This bullish bias 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 and then rallied to resistance near 3,280. The subsequent retreats tested the lower edge of the long-term GMMA, which is still showing an uptrend. The retreats did not test the lower horizontal support level.
Although the long-term GMMA has flattened out, it still shows an upwards bias and only a small degree of compression. This continues to suggest that investors have not yet become sellers. Certainly, they are not active buyers. Currently, investors are ignoring the price retreat rather than joining the selling activity. Compression in the longterm GMMA would indicate that investors have become sellers. This remains a bullish environment, although the full strength of the bull cannot be determined until a successful breakout out above the resistance level near 3,280.
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The index activity suggests a consolidation prior to an uptrend resumption. The evidence remains unchanged from previous weeks. Summarising briefly:
First is the steady degree of separation in the long-term GMMA. There is only a small degree of compression in the long-term group of averages in the GMMA and this suggests that investors are using the index retreat as buying opportunities.
Second, the support level near 3,220 was a previous resistance level, so it suggests it has strong influence in the market. The index is not regularly testing this level and this confirms the slight bullish bias. When historical support level holds, it suggests we are seeing consolidation rather than 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. This confirms investor support. A leading indication of the potential for a change to a downtrend is when the short-term GMMA moves below 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.
A break below this consolidation band has a downside target near 3,150. This is also a minor historical support level.
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 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
