Last week, we considered the change in the Chinese narrative to one that places more emphasis on civilisational differences.
In part, it is an assertion that China will not turn its back on 5,000 years of civilisation and pivot to adopt American ideals. It is also an assertion of civilisational legitimacy that seeks to chip away at the misconceptions developed in Western thinking about China and which still shape the West’s approach to China.
This high-level policy discussion is felt every day in the way the US and China approach activity in the South China Sea. These policy decisions impact the way we do business, design services and deliver products in China. The HanFu fashion movement is part of this new narrative.
These tensions can be described as the difference between harmony and hegemony. It is worth understanding how these tensions developed because they shape the current business and trade environment. They play out in the sub-committees of RCEP and Apec that are tasked with formulating the rules and regulations of trade. They shape the flow of investment into and out of China.
In European understanding, tributary states were vassal states which owed their allegiance and fealty to a central feudal lord. In Europe, it was a relationship of enslavement, exploitation and military obligations.
The Europeans assumed that the behaviour they observed in China was evidence of a European-style tributary or vassalage system. That erroneous view persists to this day and shapes the way the West assesses China’s modern global programmes, including the Belt and Road Initiative and the Global Development Initiative. The legacy of these errors is that the West prepares for hegemonic conflict rather than harmonious cooperation.
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Western leaders talk of smaller nations becoming vassals to China. This leads to the idea that China’s ambitions are hegemonic rather than harmonious.
In reality, China sees the so-called vassalage relationship as harmonious. The peace and stability of the region relied on smooth and stable trade relationships. The tribute paid to China was not paid for military protection. The exchange of gifts — or tribute as the West called it — in the Chinese court was not about vassalage and hegemonic domination. It was about harmonisation.
The kingdoms surrounding China, which form the nation-states of modern-day Asia, all aspired to emulate the sophistication and culture of China. The evidence of Chinese influence dates back centuries. It is not, as some in the West believe, a recent attempt by China to extend a hegemonic reach. It is a historical choice that reflects the peaceful and harmonious spread of Chinese culture throughout the region.
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It is not the same as the hegemony sought by Western powers that is based on the domination and exploitation of colonised peoples. The West sees China through its own eyes and ascribes to China the actions that it would take in similar situations. They believe China’s aspirations are hegemonic ambitions.
Tang Dynasty diplomats held a pragmatic view of how countries pursue their own interests and those they share with others. Harmony was an antidote to the poison of hegemony. This Tang diplomatic imperative underpins modern policy approaches that recognise that poverty is always a threat to stability and security. These policy approaches recognise that harmony, not hegemony, should be the guiding principle of civilisational interactions.
Getting the West to understand this requires an improved level of civilisational understanding. This is the purpose of the new policy emphasis on Chinese civilization. Businesses will benefit by developing products and services that acknowledge these policy aspirations.
Technical outlook of the Shanghai market
This week, the Shanghai Index dipped to 2,930 and rebounded, completing the double-bottom trend reversal pattern. This spike was a little lower than our target level but consistent with the double bottom or “W” pattern. We noted last week that the first downside target for this continued downtrend is near the previous lows of 2,935. Investors will watch for the market to consolidate in this area or rebound from this area. There is the potential to develop a double-bottom pattern or “W” pattern which would signal the start of a trend rebound.
The rebound faces strong resistance features. In terms of significance, the first of these resistance barriers is the long-term downtrend line. The peak of the recent rally at 3,089 provided a new anchor point to set a better placement of the downtrend line. The retreat from this downtrend line confirmed the strength of the downtrend and its potential to continue to depress the market.
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The current value is near 3,030. This value will continue to fall along the value of the trend line. There is a high probability the current rally will have problems moving above this resistance feature and that the market will again retest support near 2,930.
The second significant resistance barrier is the value of the historical resistance level near 3,080. The level was tested twice in mid-November and on both occasions, the index retreated from this resistance feature. Any move above the value of the downtrend line will also need to overcome resistance near 3,080 before a new uptrend can be established.
However, the double-bottom or “W” pattern is a powerful trend reversal pattern.
The relationship in the Guppy Multiple Moving Averages (GMMA) remains bearish. The long-term group of averages is well separated showing strong investor selling. The upper edge of the long-term GMMA is also near the value of the downtrend line.
The development of a new trend will be supported by a compression in the long-term GMMA as investors begin to change their opinion of the market.
The most bullish development would be if the short-term GMMA compresses and moves upwards as the index candles move above the upper edge of the long-term GMMA. This is the development traders will watch for over the next several weeks.
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
