E-commerce is an essential part of reaching out to China’s new discretionary economy but the rules are changing. E-commerce is part of the digital economic transformation of China as it seeks to improve productivity and move up the value chain.
Along with the broader area of consumer rights, the live-streaming segment of the e-commerce environment is undergoing significant changes. New consumer regulations will come into force on July 1. Businesses using e-commerce platforms in China will need to follow these rules, which relate to live-streaming as a sales channel and also when operating as merchants on various sales platforms.
These new regulations are designed to protect consumer rights. In many ways, they duplicate the consumer protections found in the EU. They are designed to remove the “Wild West” aspects of this market.
The first area is a crackdown on fake reviews. Deceptive practices like fake “likes”, paid positive feedback and the removal of negative comments are being targeted in the new regulations. No business willingly admits to using these practices but consumers know that this is not uncommon. The regulatory environment now gives consumers greater powers to expose these deceptions and have them taken down.
The regulations also outlaw forced bundling. This is where you want to watch one cable TV channel but are forced to buy a bundle package that includes many channels you do not want to watch. It is a common tactic used by US and UK cable service providers.
In China, this forced bundling is illegal from July 1. Site and service operators can no longer push consumers into unwanted registrations or bundle vouchers with online bookings. After July 1, they will be required to inform consumers when offering bundled goods or services. This does not stop bundling but it changes the way it is promoted.
See also: Uniqlo owner Fast Retailing watching for China boycott after Xinjiang remarks
The Uber-style model of surge pricing is also outlawed. Merchants will no longer be permitted to charge different prices for the same product or service based on consumer profiles without their consent.
This pricing model, sometimes referred to as dynamic pricing, is becoming increasingly common in the West. Some airlines are pitching specifically priced seats to consumers based on their previous booking activity and perceived ability to pay more.
These new regulations mark China’s first administrative action against such pricing tactics. This applies across the board to all marketing activities, not just in the e-commerce area. It will impact international airlines that apply this model on flights into and out of China.
See also: China resumes multiple-entry visas for Shenzhen to Hong Kong
Anyone who has tried to cancel an Amazon Prime TV subscription knows how difficult this is. China has moved to ensure transparent notifications and easy cancellation options are available for automatic renewals of subscription services. Businesses that rely on customer inertia or frustration when it comes to cancelling subscriptions will have to change their model when working in China.
The new regulations also increase the enforcement of the seven-day no-reason return policy. This prohibits merchants from evading this obligation and provides teeth for enforcement. Items ineligible for return must be clearly marked to ensure consumer awareness and consent at purchase.
The rights of the consumer are growing and include better enforcement provisions. Businesses may need to adjust their approach to ensure compliance after July 1.
Technical outlook of the Shanghai market
The most significant feature of the Shanghai index chart is the behaviour of the long-term group of moving averages in the Guppy Multiple Moving Average (GMMA) indicator. The short-term group of averages track the behaviour of traders. The long-term group of moving averages tracks the behaviour of investors.
The degree of separation in the long-term GMMA provides information about the level of investor support for the trend. The wider the separation, the stronger and more sustainable the trend.
For more stories about where money flows, click here for Capital Section
Currently, the long-term GMMA continues to be well separated with no evidence of compression.
More importantly, if the Shanghai Index retreats into the value of the long-term GMMA, this means the long-term GMMA group of averages has not developed any compression. This lack of compression shows that investors remain strong buyers. They regard the retreats as buying opportunities. They see these as a temporary weakness in the trend.
If the long-term group becomes compressed in response to these pullbacks in the Shanghai Index, this would indicate that investors were losing confidence in the trend sustainability and selling into the trend retreat. This would be bearish.
The 3,080 level is a powerful resistance level so it would be unusual for a breakout to occur on the first attempt. There have been three failed attempts to break out above 3,080. Paradoxically, this can be seen as a bullish signal because the retreats have not caused compression in the long-term GMMA. This consistent buying on the retreats suggests there is a higher probability there will be a successful breakout above 3,080.
The eventual breakout above strong resistance is often very powerful and moves quickly towards the next target level set at 3,240.
The behaviour of the index around the 3,080 level is critical in understanding how the index trend breakout will develop. The balance of probability continues to favour a renewed breakout above 3,080 with an upside target near 3,240. This target is calculated by taking the width of the trading band and projecting it upwards. This trading band calculation was successful in projecting the index recovery target at 2,920 and again at 3,080.
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
