Guanxi is loosely translated as relationships, usually among family and business friends, and is essential for living in China because bureaucracy is so large. When there are millions of people, there are potentially millions of possible mistakes, so you must choose your friends, associates and business associates very carefully. Guanxi helps by providing trusted introductions.
Trust became even more important during the Cultural Revolution. It gave birth to a new part of the guanxi network in the concept of true friends outside the family. These were people you shared secrets with and whom you trusted not to turn you over to the Red Guards. These true friendships shaped the emergence of China's first modern entrepreneurs. The concept of true friendship continues and, because the Cultural Revolution in many ways destroyed family trust, this true friendship trust is even more important.
Trust is essential in a commercial relationship where the law, corporate or otherwise, is sometimes applied in inconsistent ways. Nobody really benefits from taking commercial legal action in China, and generally people will go to great lengths to avoid this. The court system is as opaque to Chinese residents as it is to foreigners.
In this type of legal situation, trust becomes particularly important as written documents may not offer the same levels of protection as they do in the Western legal and commercial law systems.
See also: China’s factory activity at slowest since 2023 as US tariffs hit
US President Donald Trump is running a masterclass on how to quickly destroy trust. Trump's word, or promise, is worthless. His written trade and defence agreements are not worth the paper they are written on, as shown by his withdrawal of support for Ukraine and the way he has dumped the North America Free Trade Agreement. His tariff threats against China have become, as Macbeth lamented, "a tale told by an idiot, full of sound and fury, signifying nothing".
For those doing business on the ground in China, this erosion of trust on a global scale is corrosive. It is even more corrosive in China because of the greater role that trust plays in all relationships.
The solution is to take extra care, and pay additional attention to maintaining trust, establishing trust and reinforcing trust. It will be challenging. Trump has tipped the scales against all foreigners doing business in China. It is unwise to assume that the levels of trust previously afforded to your business will continue.
See also: Chinese set to spend record US$1 trillion in local travel boom
On a general level, Trump has caused these trust levels to be tested. On a specific level, Chinese partners may seek reassurance and this often involves new tests of trust. Be prepared, and act accordingly.
Technical outlook for the Shanghai market
The Shanghai Index has rallied strongly from its low of 3,041 and has encountered its first resistance feature. This is the value of the long-term group of moving averages in the Guppy Multiple Moving Average (GMMA) indicator. This is near 3,306. The degree of separation is small, so this is a weak resistance feature.
A breakout above this feature has a stronger resistance level near 3,400. This is the current value of the uptrend line that defined the previous trend. From January to March, this line acted as a support feature. Now, it acts as a resistance feature.
The current value of this uptrend line is near to the value of the historical resistance level near 3,435. This combination cluster of resistance features becomes more significant. A break above both of these resistance features has the potential to be very powerful. This makes the next target near 3,674 more achievable.
Previous recent breakouts above 3,435 have not been sustainable, but paradoxically, the combination of two resistance features gives a new breakout a higher potential for success. Why? It requires considerable market strength to break above these two resistance features. That strength reflects a new level of enthusiasm and bullishness. That suggests the breakout would be more powerful rather than just a temporary burst of enthusiasm.
Using a trading band projection method, the next technical upside target is near 3,710. This is an important resistance level. It acted as resistance in 2014 and 2015. It was a strong resistance level three times in 2021.
Failure to move above the current resistance features has a downside support level near 3,160.
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
