The opening of China’s borders opened the door to a trickle of tourists and a flood of expats fleeing the country. Many want to build on their experience by advising businesses new to exporting to China. They set up a shingle as a China expert.
Others fall into this ‘expert’ task simply because they have China experience and their employer has decided to investigate the China market. Every Singaporean company will have Mandarin-speaking staff, which is not the same as having Chinese experience.
An accounting employee is an expat who has worked in China and can speak Mandarin, so he has become the in-house China expert. This promotion rests on dangerous assumptions.
Consider this from outside of China’s context. You would not expect an English-speaking Irishman in the US to understand the nuances of business conditions in America just because he can speak English. However, there is the temptation to expect the Irishman fresh from office work in Shanghai to understand the business conditions in Beijing just because he has a smattering of Mandarin.
The same cautions apply to the Chinese expat. Living in China does not guarantee to understand the country’s complex business and political environment. Most expats will come from simple office manager jobs where skills in handling office problems are more important than understanding the Chinese environment.
You may be lucky and have an expat from Shanghai who can provide information and support about the culture of business in China. They can be a middleman between Western and often bewildering Chinese business concepts. These expats can become an invaluable resource for the company’s business in China.
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At an ultimate level, the Chinese expat can be used to interpret and explain the practices of business in China and the way they interact with your business. These employees bridge the two business cultures, explaining Western business practices to their Chinese counterparts and Chinese business practices to their Western office colleagues. The work involved at this level is to explain and understand the different drivers of business practice in China and the home country so that cooperative solutions can be created.
These expat staff can work alongside managers and staff to advise them on protocol when they visit China and their Chinese counterparts visit their office. On a broader level, this is one of the roles filled by the best Chinese consultants who draw on knowledge of why things are done and how things are done from both perspectives.
Understanding and working effectively in China requires a deeper understanding than that gained from working in the country. Chinese expats are useful, but separating those with genuine expertise and insight from the mundane is essential. Fail to make this separation, and the Chinese expat can do more damage than good to a business.
See also: Eight reasons why I am still in favour of China stocks
Technical outlook for the Shanghai market
The first feature on the Shanghai Index chart is the rise to 3,419. This peak exceeded the trading band-measured move price projection target of 3,415. Although the index has dropped back from this level, it shows this method of index movement calculation is useful.
The Shanghai Index has been dominated by trading bands for extended periods. The lower edge of the trading band is near 3,220. The upper edge of the band is near 3,280. These are the base reference points for future index move calculations. The width of the trading band is measured, and this value is projected upwards in a breakout to set the first target.
This target is near 3,350. This is a little above the previous highest high, near 3,343. When the price projection target matches a previous support or resistance level, the target is highly likely to be achieved. When, as in this situation, the calculated theoretical move does not match a previous historical level, it still retains a good probability of being achieved.
We are generally reluctant to use theoretically calculated targets unless other chart features verify them. The next projection of the move above 3,350 gives a target near 3,415. This is a more reliable target because it matches the chart’s peak highs in mid-2022 and earlier periods. It was a reasonable expectation that the index would reach 3,415.
So where to from here? The same measured move calculation is applied. A breakout above 3,415 has a calculated target near 3,480. This target level has a history of acting as a support and resistance feature from 2020 to 2021, likely creating a pause area in the index breakout. A fall below 3,350 has support near 3,280.
These target projections based on the width of the trading band provide a series of potential index targets. However, they do not indicate how the index will reach these targets. It may be a fast rally move achieved over just a few days. Or it may be a more traditional trend rise consisting of rally and retreat behaviour which can be easily defined with a trend line. This trend is more stable and provides a better long-term outlook for the market.
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The Guppy Multiple Moving Average (GMMA) captures the behaviour of traders and investors. The long-term GMMA provides information about the way investors think. Despite the strong pullback before the Labour Day holidays, the long-term GMMA remained well separated. This suggested that investors remained strong buyers and supported continuing the uptrend.
Despite the pullback below 3,350, the current rally supports this conclusion. The Shanghai index has a history of volatility, so fast moves are always expected. The index dip below support near 33,50 is likely temporary, and test support near 3,280. Whilst the long-term GMMA remains well separated, these dips are buying opportunities.
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
