Chinese companies are setting a new global business model, exemplified by the role-playing game Black Myth: Wukong. Inspired by the classic Chinese novel Journey to the West, this game highlights China’s rich heritage and engages a worldwide audience, reflecting an innovative approach supporting domestic and international business growth.
Often, we think of innovation as synonymous with invention, which rests on research and development. Certainly, innovation can come from new inventions, but most innovation comes from applying new inventions.
The handphone is not just a smaller telephone. The innovation of adding smartphone features has completely changed the social and commercial environment. WeChat did not invent the smartphone but innovated on this platform to expand the possibilities.
This presents both an opportunity and a competitive threat for businesses. It is an opportunity because, like Grab, you can innovate using existing products and services without creating something entirely new. However, it is also a threat because competitors are doing the same, which could erode your market share. This is evident in the electric vehicle industry, where the slow-to-adapt American auto industry resorts to tariffs to shield itself from innovative competition.
In her book Chinafy, Joanna Hutchins discusses nine catalysts businesses can apply to emulate how China can innovate successfully. She discusses these catalysts as ways for Western businesses to improve, drawing on companies as diverse as Haier and ByteDance. This discussion falls into the same category as management books from the 1980s that tried to apply the lessons of Japan’s business success to lagging Western business and management practices.
The important difference between then and now is that in the 1980s, there was little appetite for Western businesses to penetrate the Japanese market. Today, many businesses dream of developing a significant market in China. For some US companies, China is their largest consumer market and contributes more than half their profits. Much of this success has rested on the premium attached to foreign products, but this is changing.
See also: Trump's tariffs hurt more than just China
Starbucks illustrates this shift well. In today’s competitive market, where Luckin Coffee and bubble tea are major players, the appeal of Starbucks’ coffee and ambience is no longer enough. The most successful competitors are those who innovate rather than imitate. For example, Luckin Coffee’s innovation has enabled its expansion into markets like Singapore and beyond.
Hutchins writes: “It’s not just about creating new products to sell in the same old ways and through the same systems; it’s about looking holistically at every piece of the supply chain and route to market and finding new ways to iterate in the system itself.”
This observation is crucial because it outlines how Singaporean businesses can enter and maintain their position in the Chinese market. It also highlights the global challenge Chinese innovation poses to traditional business practices. The Chinese approach offers a new model for business development.
See also: Buying into China stimulus Is ‘painful trade’, Lombard Odier says
Technical outlook for the Shanghai market
The Shanghai index chart presents a miserable picture with its relentless downtrend. The rally above trendline D was quickly snuffed out, and the index returned to trading below the value of the downtrend line. Despite this, the market offers a few good rally trading opportunities.
There are very limited trend-changing trading opportunities in this market. The relentless downward pressure limits rallies, but the size of those rallies is growing. The positions of the two downtrend lines, C and D, explain the growth. Trend line D acts as a resistance feature. It is currently slowly moving away from this resistance feature.
Trend line C acts as a support feature. When the index retreats, it uses trend line C as a rally rebound point. The index activity is usually kept with trend line C and trend line D. The rally breakout above this line on Aug 29 was an aberration and not an indication of an increase in bullish pressure.
These two lines are moving apart, so the gap between them gets larger and larger. This means that a rally from the value of trend line C has more room to move as the days go by, creating more rewarding rally trading opportunities.
The market shows little indication of a trend change. A breakout above trend line D has strong resistance created by the long-term group of moving averages in the Guppy Multiple Moving Average (GMMA) indicator. This group of moving averages smothered the rally last week. Investors quickly sold into the rally, forcing its collapse.
The short-term group of averages in the GMMA continue to move down and maintain a steady degree of expansion. The long-term GMMA is well separated with no indications of compression. There was no change in the long-term GMMA in response to the Aug 29 rally. This shows investors remain sellers in this market, selling into any rally.
This index is likely to continue moving down. Next week, the historical support level near 2,720 will become important. Any market fall after the end of this week will use the horizontal line as a support feature rather than the value of trend line C. Investors will watch carefully for any evidence of consolidation and a sustainable trend breakout from this support level.
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. The writer owns China stock and index ETFs
