You know you have outdated perceptions when the level of Chinese development astounds you, and you marvel at the technical infrastructure and the quiet roads dominated by electric vehicles. These are all physical signs that your ideas about China might be out of date.
The cultural and social signs that you are out of date are often more challenging to identify because they are so ingrained in Western thinking about China. A year or two in Singapore does not really prepare you for the cultural shift required for working in China.
Chief among these is the term guanxi. It means relationship, but many Westerners believe it is shorthand for corruption. It is also an easy thing to blame for business failures because it is easy to allege that your competitors enjoy exclusive in-country relationships.
Of course, your competitors think the same about Singapore when they try to do business here. There is always a home-ground advantage, but somehow Westerners think it is particularly unfair in China due to guanxi.
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It’s fair to say that in the early days of China’s opening up, the use of home-grown guanxi — the wide circle of domestic relationships — did put foreign companies at a competitive disadvantage. Tim Clisshold’s 2004 book, Mr. China, resonates with examples of how guanxi played against foreign competitors.
But it has been 20 years since Mr. China, and times have changed. The concept of guanxi has not changed, but the way in which it is applied is no longer as anti-competitive as it used to be. President Xi Jinping’s Tigers and Flies campaign has helped to root out the large-scale and petty corruption that abuses the guanxi concept.
Guanxi now covers a much wider range of relationships, although family will always remain the most significant.
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When we discuss guanxi and business, we are referring to the relationship between trust and performance. In the West, performance creates trust. A task is allocated, a business deal is formalised, but trust does not really develop until performance delivers the required results. It is this business relationship that, in part, explains why Western businesses rely so heavily on legal agreements prior to doing business. The agreements replace the need for trust.
From a Chinese guanxi perspective, trust is what creates performance. Trust means I enter into a business relationship with you, whether it is a partnership, a joint venture, or a supply arrangement. Reciprocal trust underpins performance. It is trust that makes a sketchy agreement more binding than any legal document. That’s guanxi at work.
Of course, this is a generalisation. Businesses in Guangzhou and Shanghai operate within the familiar legal frameworks of Western business, but these frameworks are often merely transactional and easily discarded when times are tough. A long-term business that survives through challenges like the Covid-19 pandemic rests on trust and delivers outstanding performance.
Technical outlook of the Shanghai market
The Shanghai Index is pulling back after a strong uptrend. The retreat has four support levels.
The first support level is the value of the lower edge of the short-term group of averages in the Guppy Multiple Moving Average (GMMA) indicator. This is currently near 3,800. A retreat and rebound from this level confirms the strong bullish continuation of the uptrend. A pullback of this nature is normal behaviour in any fast-moving rally.
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The second support feature is the value of the long-term uptrend line A. This is currently near 3,750. This long-term trend line has been a significant feature in the market. For many months early this year, it acted as a support feature. The line is projected forward into the future, and again, this is now acting as a support level. This has yet to be tested, so it may turn out to be unimportant.
The third, fourth and fifth support features are all clustered near 3,700. This combination makes this level a formidable support area. In a significant retreat, this is where the market is expected to pause and rebound. If support in these areas fails, then it signals a change to a downtrend.
The third support feature is the upper level of the trading band — now the lower edge of the next trading band. This value is near 3,710.
The fourth support factor is the value of the upper edge of the long-term GMMA. This is also around 3,715.
The fifth support feature is the value of trend line C. The current value is around 3,715. The cluster of support values makes this a significant area when assessing trend change.
However, a bullish outlook sees a rally rebound from this level or from the lower edge of the short-term GMMA. A rebound has a longer-term upside target near 3,970. This target is calculated by measuring the width of the trading bands and projecting this value upwards. This is a theoretically calculated target and does not closely match any previous historical resistance or consolidation levels.
Since there are no historical resistance levels, this suggests the index has room for further rises towards its peak high of June 2015.
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
