The Shanghai market was closed for most of last week for the national day holiday break, so this gives us an opportunity to completely unpack the suite of policy changes and to bring the pieces together to develop appropriate business and investment solutions.
The unpacked pieces include the restructuring of the education system and the wrestling of control of big data away from commercial operators.
Both of these policy actions are related to the idea of common prosperity and related to the idea of sovereignty.
These policy changes all influence access to capital for economic growth.
The final piece to unpack is the changes in the capital markets which have three aspects.
The first is the way this signals the end of the Wild West period of China’s financial market development. This is all part of tighter regulation of the emerging financial system and in response to the problems the regulators have seen emerging in Western markets.
With a poor legacy of financial market infrastructure, it is easy to make changes. When these are put against a western legacy background, they look extreme.
However, there is no indication that China is moving away from its ambition to become a world financial centre.
The changes, dramatic as they seem, are designed to improve the standing of China as a global financial centre by tightening regulations, cutting off the extremes of bad behaviour and building the necessary foundations for global financial activity.
The second is the return of Chinese capital from the US, as it has been driven out by Donald Trump-inspired regulatory changes.
Chinese companies looking for capital are now shifting back to China, and US money is following.
US hedge funds are finding ways around US regulatory constructions and are increasing their exposure to China.
The third is the unleashing of financial market disruption by establishing new, although still traditional, avenues for capital access by SMEs.
This breaks the hold of the banks, and of other FinTech companies who were beginning to amass bank-like capabilities.
There are 40 million SMEs in China and the new exchange can take in hundreds, or at best thousands of them.
Choices ahead
So, what does this mean for business? We have a choice.
We can continue to go with the crowd which is wedded to Western ideas of what a financial market should look like and complain about delays and obstructions as we refuse to recognise change.
Or, we can recognise the philosophical foundations of the change and adjust our point of entry accordingly.
There is no room in Xi Jinping’s vision for Gordon Gecko — the fictional villain from the 1987 movie Wall Street — or for people like Facebook CEO Mark Zuckerberg.
President Xi sees that the role of the Government is to restrain the excesses of capitalism and make it both socially responsible and responsive.
If we accept that approach, it means we need to redefine the target market for premium priced products. The luxury market will always exist, but it will become more discreet as public displays of wealth are discouraged.
We also need to restructure marketing towards a common prosperity theme. This includes the delivery of affordable but unique products.
For example, the 100 tonnes of uniquely Australian mandarins exported to China for the mid-autumn festival are a working example of this approach.
This points the way to longerterm opportunities, like the delivery of health and aged care services and agricultural technology.
Conclusion
We also need to adjust customer data acquisition to comply with data rules.
The unfettered scraping of data that characterises much of Western marketing can no longer be used in China.
The new personal data protection laws are more akin to those privacy provisions in Europe, so marketing campaigns need to be restructured to deliver informed consent to marketing follow-ups.
Businesses need to understand, apply and comply with China’s Belt and Road Initiative (BRI) protocols to speed up customs clearances and cross-border transactions.
They also need to prepare to accept payments with domestic and international payment for cross-border transactions.
If there is one key conclusion from this unpacking, it is this: Chinese socialism is not opulent extravagance, so we can expect to see further policy changes.
It could undermine the principles of capitalist excess, but the outcomes will form the foundations of the concept of a common prosperity.
Finally, there is no Shanghai index update this week: With so many recent holidays in China, the index remains virtually unchanged.
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
Photo: Bloomberg
