It is difficult to avoid the antics of governance in the US. We are all familiar with how politics is conducted and how decisions are made in the US political system.
We constantly assess the impact of Oval Office discussions on our business and business strategies, so President Donald Trump’s address to Congress was eagerly watched and discussed.
When it comes to China, we are generally less well-informed. Many people are only vaguely aware of the Two Sessions meetings in Beijing. Despite the increasingly sophisticated coverage by Singapore media, few are aware of or appreciate the full importance of the meetings. Many even dismiss them with some contempt as political theatre.
In fact, the sessions are among the most important decision-making events in China’s annual calendar. Unlike the Oval Office, what is said and approved at the Two Sessions can be counted on being implemented.
For businesses, this provides unprecedented certainty, often extending over several years or more. This is why it is so important to understand the decisions taken and the strategic directions endorsed. These decisions point the way to future opportunities, confirm or disrupt current business approaches and expose which policy initiatives have greater priority.
Many dismiss the Two Sessions as a rubber stamp of the Communist Party. To some extent, that is true. However, that dismissal also fails to understand the decision-making process in China. The Two Sessions are filled with long speeches. Premier Li Qiang’s Work Report is essential listening because it provides a roadmap for the coming year. Likewise, President Xi Jinping’s speech sets the strategic direction, while speeches by others fill in the details.
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All are duly voted on and endorsed in a way that avoids open conflict. However, these speeches and strategic directions result from months of vigorous discussion and conflict over policy directions. Despite the assertions made by hostile Western media, Xi does not make all the decisions. Like the US president, he sets the strategic policy direction, but he has to play politics to implement his strategy.
Think tanks play a vital role in China’s policy development. They are tasked with looking at specific issues. Some are strategic, some are centred on proposed policy details and some are tasked with finding solutions for administrative challenges. The prestige of the think tank and its level of funding depends in part on its successful completion of these tasks.
A think tank that successfully has elements of its research and recommendations adopted as part of national policy — the policy rubber-stamped at the Two Sessions — attracts more funding and support for itself and its host university. The debate and decision-making within each think tank and between think tanks are as vigorous and bare-knuckled as any debate in Congress, although with Chinese characteristics.
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Recommendations and papers progress through provincial and regional processes before arriving at the point where final decisions are made. They are then mixed with political influences before becoming the policy endorsed at the Two Sessions.
Smart businesses, large and small, will pay close attention to the details of the Two Sessions meeting. Although it lacks the theatre and entertainment of the US government and does not make for good TV, it is just as important.
Technical outlook of the Shanghai market
The Shanghai Index breakout lost momentum and pulled back to the lower edge of the long-term group of moving averages in the Guppy Multiple Moving Average (GMMA) indicator. This did not trigger compression in the long-term GMMA, which shows that investors absorbed the sell-off. Investors used this as an opportunity to join the developing uptrend at advantageous prices.
The GMMA indicator relationships continue to suggest the trend is sustainable as it has tolerated the pullback without threatening the underlying trend activity.
The index did dip below the uptrend line but quickly recovered and the value of the uptrend line is being tested as a resistance feature.
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Although the trend continues, the significant pullback shows some weakness in the trend behaviour. This is obviously triggered by tariff announcements coming out of the US. What is important is how the support features hold when the market reacts to these announcements. The current pullback has rebounded from support. In other markets, like Australia, the retreats have been much more severe at around 4%. This minor 2% retreat in the Shanghai index confirms trend strength.
The GMMA indicator is used to understand the behaviour and character of the two groups in the market — traders and investors. These groups of moving averages show the level of confidence in the developing trend.
The long-term group of averages shown in red have maintained a steady degree of separation despite the index plunge. Improved trend strength is indicated when the long-term GMMA is more widely separated. Investors will wait for this development. The current steady separation shows steady support for the trend development.
The chart’s support and resistance features and trend line analysis provide the market’s structure and help the trader set index objectives.
The first significant barrier to a rising trend is the value of the upper edge of the trading band, near 3,435.
This remains a bullish breakout environment, but traders will be alerted to sustained moves below the trend line. This would signal a move towards temporary support near 3,230.
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
