(Sept 30): For the past three weeks working in China, I have not used any cash. Every single transaction in China, from buying a fresh apple from a roadside vendor in Dunhuang in Gansu province to paying for a rather expensive lunch I hosted in Beijing, was done via WePay using my Huawei phone.
This is more than just convenience. After all, cash is the most convenient transaction of all as long as you are not buying an apple for RMB2 and paying with an RMB100 note.
Speaking at the Global Knowledge Economy conference in Qingdao, I noted that the electronic cashless payment is transformative. It lies at the heart of poverty alleviation, which in turn lies at the core of the Belt and Road Initiative; one of the central aims of the BRI is poverty alleviation.
China takes this concept of poverty alleviation seriously and the task continues in the cities, remote provinces, Yunnan, the upper Mekong, Gansu and Xinjiang, and it extends across central and southern Asia. The China focus is on enabling people to lift themselves out of poverty by creating and supporting economic opportunities.
In China, these cashless payments have become such a common process that we barely pause to think about it and yet this is the stairway out of poverty. It has turned everybody with a smartphone into an internet-connected merchant. This roadside fruit seller is as much an e-commerce entrepreneur as the latest start-up in New York.
The success of the New Silk Road rests in part on facilitating cross-border transactions in a frictionless environment to enable the smallest participants access to transaction services without the structure of a formalised banking system. This is a leapfrog environment where fintech is able to provide solutions beyond those provided by legacy financial structures in the banking system.
But it is not just the poor who benefit from this financial innovation. In Dunhuang, I booked a tour with a young entrepreneur. He had established the Silk Road China Tours and provided an excellent service. His target audience was foreigners and his pricing was in US dollars. I received a substantial discount because I paid by WePay in renminbi. The reason for the discount goes to the core of cross-border transaction efficiency.
The most significant obstacle to cross-border transactions is the layer upon layer of service fees along with unreasonably wide currency spreads that destroy the value of the transaction. This is why my tour operator gave me a discount. If I had paid in US dollars, then the transaction would have been processed through PayPal. The exchange rate would have been much worse than the prevailing market rate. In addition, my tour guide has to pay a service and conversion fee, further reducing the amount actually received. Depending on the exchange service he uses, there may be additional fees.
Facilitating cross-border trade is a key objective of the BRI policy. More efficient cross-border transactions such as those under development by AxiCorp Financial Services use financial innovation to build on an exchange structure applied on the ancient Silk Road. This is a modern iteration of the transactional structure that underpinned the success of the original Silk Road. The modern small-time trader carries a handphone and a tokenised blockchain line of credit that enables cross-border trade and settlement. This lies at the core of the BRI and is a facilitation of capital account liquidity rather than an opening of the capital account. It changes the way we do business in China. Foreign companies that adapt will survive and are ideal investment opportunities.
Technical outlook for the Shanghai market
The Shanghai Index has retreated as expected. This is consistent with the trend breakout pattern defined with the Guppy Multiple Moving Average indicator. The retreat is the third section of the GMMA trend breakout pattern. The retreat away from resistance is a normal part of the long-term uptrend breakout pattern.
The unanswered question is where the retreat will find support. There are three potential support levels. The first is the value of the upper edge of the long-term GMMA. The second is the lower edge of the long-term group of moving averages. The third support level is the value of the historical resistance level — now a support level — near 2,920.
The potential future development of the breakout pattern is shown by the thick lines on the chart. Traders and investors wait for the pullback to successfully test the support areas before developing a new rebound rally and retest of resistance near 3,040. The trend breakout and uptrend trend continuation are confirmed when the index hits these support areas and then develops a rebound rally that is able to move above resistance near 3,040. A breakout above 3,040 has an upside target near 3,120.
The GMMA indicator breakout pattern has three tests of trend strength. The first part of the pattern is a fast rally following a significant downtrend (1). Traders wait for a retreat from the upper edge of the long-term GMMA (2). The second rally carries the index above the upper level of the long-term GMMA to the resistance level near 3,040. The index consolidated near this level before developing the current retreat pattern. The short-term GMMA also moved above the long-term GMMA and expanded. This shows strong trader support for the breakout.
The long-term GMMA showed rapid compression and turned upwards, and is slowly expanding. This confirms that investors have entered the market as buyers and are supporting the new uptrend. The third part of the breakout pattern (3) is currently developing. This is when the second rally retreats and tests the support features. The index bounces away from this level and again moves decisively above the upper edge of the long-term GMMA. This rally has a high probability of moving above the resistance level near 3,040 and towards the longerterm resistance target near 3,120.
This breakout into a new sustainable uptrend is confirmed when the long-term GMMA increases the degree of expansion. This indicates strong buying by investors as they join and support the developing uptrend.
Daryl Guppy is an international financial technical analysis expert and special consultant to AxiCorp. He has provided weekly Shanghai Index analysis for mainland Chinese media for more than a decade. Guppy appears regularly on CNBC Asia and is known as ‘The Chart Man’. He is a national board member of the Australia China Business Council.
