Last week saw a variety of meetings with global leaders in Beijing to discuss the 10th anniversary of China’s Belt and Road Initiative (BRI), also known as the New Silk Road.
Many people will dismiss this as irrelevant to their businesses but the BRI has significantly impacted the way business is conducted in China, the efficiency of cross-border trade and the way business is done with China.
Initially, few observers paid much attention when Chinese President Xi Jinping announced the BRI in a speech in Kazakhstan in 2013. However, the initiative has since emerged as one of the world’s most influential development drivers. About 140 other countries, scattered largely across Asia, Africa and Latin America, remain steadfast in their support of the programme.
China has lent or put into equity investments more than US$1 trillion ($1.37 trillion) in related BRI projects. The largest portion has gone to transport, energy and other traditional infrastructure. While most businesses have not been directly involved in these projects, it is also true many others have indirectly benefited from the projects. These benefits include faster shipping times, the opening up of new markets and a broadening of the customer base as living standards are raised in the region due to these infrastructure improvements.
The BRI has adapted to new challenges both domestically and internationally. BRI investment activity is significantly greener with new green-related lending and investments in the first half of 2023 exceeding those in any previous six-month period.
This provides the opportunity for further commercial support for green developments, products and services. It is a new expanding market segment supported by BRI activity.
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There has also been a shift from big projects to smaller ones. Projects like the fast train connection between China, Thailand and Malaysia and the high-speed rail in Indonesia are the large-scale infrastructure projects many typically associate with the BRI. These projects triggered a surge in construction jobs but also left behind a trailing growth in employment necessary for services support in ticketing, scheduling and staffing.
Running a train service involves more than just track and engine maintenance. The transfer of skills and the development of new types of work opportunities are an ongoing impact of these BRI projects.
In 2021, Beijing began promoting “small and beautiful” projects to give more strategic assistance to smaller economies. This generated an increase in private enterprise activity directly involved with the BRI. In the early years of the programme, China’s state-owned enterprises dominated the delivery and implementation of projects. After the pandemic, private companies are beginning to lead the way in terms of financial involvement.
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Smaller projects provide direct opportunities for SMEs based in BRI countries but they also offer opportunities for companies that are not formally engaged with the BRI.
The 10th anniversary of the BRI reminds businesses of the structural development that has taken place under the programme via infrastructure projects. The anniversary also highlights the flow-on benefits of these BRI projects that have increased regional prosperity by offering new areas of job opportunities and making cross-border trade more efficient. Indeed, all businesses in the region have gained from the BRI.
Technical outlook of the Shanghai market
The Shanghai Index is clinging desperately to the support area of 3,080. There is some evidence that 3,055 may also act as a support level. If this is confirmed, then we can place a narrow support band extending from 3,060 to 3,080. However, we are just quibbling about the borders of the index activity.
There is no doubt that the strong downtrend remains untested and has a meagre chance of a quick reversal. Even a good rally finds strong resistance near the value of the downtrend line, currently near 3,120. Near that resistance feature is the long-term resistance near 3,160.
This combination of resistance features gives little hope to the bulls. There is a low potential for the 3,055 level to act as a double-bottom rebound area.
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The bears can trade this prolonged downtrend on the short side using an ETF or CFD derivative.
If support near 3,080 fails, then the next downside target is near 3,000. This is a weak support feature so the market may dip lower towards 2,900 as it did in October 2022.
The downtrend is a sustained pattern which makes it difficult to break with a quick rally. Traders will watch for a sideways consolidation pattern using 3,060 as a support floor. This type of sideways pattern may be trapped between support near 3,060 and resistance near 3,080.
A sustainable long-term uptrend needs to move above both the long-term downtrend line with a current value near 3,130 and the historical resistance level near 3,160.
A 1-2-3 GMMA (Guppy Multiple Moving Average) breakout pattern is still possible if a strong rebound rally develops from 3,060. This GMMA behaviour pattern shows investors gradually becoming convinced that the rallies created by traders are evidence of a trend change. However, the wide separation in the long-term GMMA shows investors currently remain strong sellers.
The primary signal for the development of an uptrend is for the index to move above and stay above the value of the downtrend line.
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
