(July 22): It is midsummer in Beijing and the clear, blue skies are enough to entice people to visit the city’s many landmarks and public parks. Some seek the coolness of the Xiangshan hills or the waterways and gardens around the Summer Palace, or perhaps venture into the countryside and visit the Ming Tombs, where it might be a little cooler. Others visit the lesser-known Yuanming Yuan ruins, also called the Old Summer Palace.
The Yuanming Yuan palace had no military significance, but was blown up in what some describe as a fit of spite by the Western powers in 1860. On the orders of Lord Elgin, it took 4,000 men three days to destroy it. Many exquisite artworks — sculptures, porcelain, jade, silk robes, elaborate textiles, gold objects and more — were looted and are now found in 47 museums around the world.
Built by the Qianlong emperor and his successors throughout the 18th and early 19th centuries, Yuanming Yuan showcased modern European technology, from clocks to French architecture, and was known for its extensive collection of gardens, its building architecture and numerous art and historical treasures. One purpose was to introduce to the Chinese intelligentsia these new ideas so they could be adapted and applied in China. To be sure, the adaptations would be in the context of the existing political structure, but it was a powerful statement of China’s openness to European developments.
Summer in Singapore will see tourists, but not so many locals, following the Balestier Heritage Trail. One attraction is the house where Sun Yat Sen spent time on the run from the Qing authorities. Like many Chinese intelligentsia of his age, he had studied in France, then considered the leading location of new political and social ideas. An entire generation of scholars studied in Europe with the express purpose of learning new ideas and adapting them to Chinese needs. Ultimately, this became a challenge to the political system.
The fall of the Qing dynasty was made easier as it was weakened by foreign powers, but the impetus for change and the changes that took place were implemented by Chinese citizens who were open to foreign ideas. It is a far cry from the idea that China was not interested in foreign ideas, innovations or products.
Standing among the Yuanming Yuan -ruins, it is easy to feel remorse for the activities of earlier generations. What is less easy to acknowledge is the way this destruction helped sustain the myth that China is not interested in new ideas. Yet, there is a simultaneously contradictory thinking that prevails today that the existence of the -Yuanming Yuan palace also supports the view that China stole ideas from the West so that it could make inferior copies.
Chinese innovation gave the West many things, as diverse as paper money and advanced horticultural management, including the seed drill that is essential for modern agriculture.
The Yuanming Yuan palace incident reminds us that understanding China requires more careful, considered and informed thinking if we are to overcome the myths that distort the past. We cannot rely on tweets or ill-informed media reports when we make investment decisions related to China. It is a challenge to establish accurate analysis, but it is not a task we can afford to shirk.
Technical outlook for the Shanghai market
The Shanghai Index has developed a consolidation pattern near the middle of recent high and low trading activity. Support is near the low of 2,830 and the peak highs are near 3,040. The midpoint consolidation is near 2,920. The index appears to be developing an oscillation around the 2,920 level.
This 2,920 level provided a general resistance level between May and June. It now appears to be creating a general support level around 2,920. The market has lost downward momentum, so the consolidation pause is good. It shows that bearish pressure has abated, but it is not yet showing evidence of new bullish pressure. This activity gives a downside target near 2,830 and an upside target near 3,040. Moves above or below these levels are critical because these breakouts will confirm the direction of any new trend.
The short-term Guppy Multiple Moving Average has started to move below the long-term GMMA. The lower edge of the long-term GMMA is acting as a weak resistance feature.
The narrow separation in the long-term GMMA shows that investors have become less bearish even though the long-term GMMA is moving slowly downwards. Wider separation in the long-term group would show that investors are more bearish and signal the potential for a stronger downtrend.
Traders remain alert for the development of one of two scenarios. The first is a rally rebound from weak support near 2,900. Traders will be ready to trade any rally from 2,900 to 3,040.
The second scenario is a market fall to 2,830. In this scenario, traders will trade the rally rebounds from 2,830 to 2,900 and potentially higher.
The current chart developments suggest a period of short-term rally-and-retreat behaviour as the index oscillates around the 2,920 level. The GMMA indicator is less useful in this environment, so traders watch for market behaviour around the support and resistance features. Aggressive traders will enter on the first rallies from support. Cautious traders will wait for a successful test and retest of support before entering new trades.
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
