China’s sixth plenum — a meeting of the Communist Party’s Central Committee — is scheduled for Nov 8. The Central Committee is the largest of the Party’s top decision-making bodies, bringing together about 400 state leaders, ministers, military chiefs, provincial bosses and top academics.
Such meetings are often dismissed as a rubber stamp exercise, but this reflects a misunderstanding of the Chinese political process.
Vigorous discussion has already taken place around the proposals that will be presented for ratification at the plenum. The discussion is not always behind closed doors, although the extensive committee system does not operate in the public eye in the same way as their US equivalents.
However, the debate and discussion amongst advisors, think tanks and policy leaders is just as vigorous.
The results of these discussions are presented as an agreed policy to the plenum and to this extent, they are rubber-stamped.
The Chinese Communist Party has a long history, and it is not unnatural to expect that much of the sixth plenum will focus on its achievements. We can expect lots of back-slapping and self-congratulation.
This is also the last full-scale Party gathering before the 20th Party Congress, which is due next year.
Many analysts believe the sixth plenum is going to inevitably project a new party direction and doctrine, which will cement President Xi Jinping’s paramount leadership.
Xi, who was due to step down in 2023, is expected to go for a third term after securing a constitutional rewrite to the presidential term limits. In the 1990s, China imposed a two-term limit on its President.
Former leader Deng Xiaoping’s conception of “letting some get rich first, then let the wealth trickle down to the rest of China” has ended. We see this with the moves to rein in large companies. Having built a “moderately prosperous society” (which Deng introduced in 1979 to describe the middle-class), the Party now needs a new “common prosperity’’ goal.
Xi, who assumed office in March 2013, aims to narrow the gap between the rich and the poor. He is committed to technological upgrading, better education, better jobs, better social welfare and better healthcare. In previous speeches, he has suggested the Party would make the skies cleaner, the food better, the housing more affordable and lifestyles more rewarding
It is a mistake to dismiss these as just the high-sounding slogans of Communist China. The desire for better education has seen the elimination of elitist coaching schools. Technological upgrading has seen the reduction in the reach of the tech giants and the introduction of Personal Data Privacy laws. Meanwhile, commitments to greenhouse targets are aimed at clear skies and safer food.
The attacks on the “996 culture” — working 9 am to 9pm, six days a week — delivers on the promise of more rewarding lifestyles.
Much of the reporting will probably focus on the histrionic statements about the achievements of the Party and the promotion of Xi’s leadership. The headline agenda item will be reviewing the major achievements of the Party and its historical experiences in the 100 years since its founding, the official Xinhua News Agency reported. It will also “better promote socialism with Chinese characteristics in the new era”.
Behind the rhetoric and shorthand slogans lies a raft of regulatory changes that will impact industry development. These are the key clues, most likely under-reported, that investors will take note of.
Technical outlook for the Shanghai market
The Shanghai Index is clustered around the upper edge of the long-term trading band near 3,580. It has tested this level several times as a support feature. This most recent test has failed, with a close below the line. The rally above this level is limited by the value of uptrend line A. This value is currently near 3,635. This long-term resistance feature limits the development of a strong trend breakout.
The index activity is trapped between the value of support line B and the rising value of trend line A. A successful breakout above trend line A is very bullish and has the first upside target near the previous highs at 3,724.
The Guppy Multiple Moving Average (GMMA) indicator relationships will give early indication of a sustainable breakout. This signal developed as the short-term GMMA group of averages moved completely above the upper edge of the long-term GMMA. An unsuccessful retest of the long-term GMMA is bearish.
An upwards trend change rally is confirmed when the longterm GMMA compresses and also turns upwards. This is a slow development.
The potential for an uptrend change is increasing however, failure to hold the 3,580 level sets the scene for a resumption of the downtrend. This type of retreat represents a return to the trading behaviour which dominated the market in 2021. During this period the index oscillated around a central support and resistance level at 3,450.
The current behaviour looks bullish with index activity staying above the resistance features at 3,580 and below the value of uptrend line A.
As the market retreated from 3,720 there were five potential support features. The failure of these five supports confirmed the downtrend. The really above downtrend line C has confirmed the development of a new uptrend.
The current testing of the resistance around the value of trend line A has the potential to develop into a long-term sustainable uptrend.
Traders remain very cautious until further evidence develops to confirm the strength of the trend development. Currently, this is an uncertain market with no clear trending activity.
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
