(Nov 25): Last week, in Beijing, I went to the bank. It was unusual for two reasons. Firstly, because bank branches have almost become redundant with the widespread penetration of WePay. They will become less important from a retail perspective as China progresses more rapidly towards the development of a digital currency and blockchain implementation as recently promoted by President Xi Jinping.
The second unusual feature was that all I had to do was smile to access my account. I needed to deposit cash — this in itself is an unusual event — so I went to the ATM to complete the transaction. I had the choice of using a pin number or smiling for the camera. Facial recognition is now enabled for all bank accounts.
It follows on from the Alipay “Smile to pay” campaign that was launched two years ago. Its adoption by the banks underpins just how advanced, secure and reliable facial recognition technology has become in China. This is in contrast to many Western examples of facial recognition software that have around an 80% success rate and that is when the customer is standing still for several seconds.
I was in Beijing speaking at a digital currency conference. This followed the news that Xi had overseen a government study on innovation and blockchain. He said blockchain technology plays a vital role in industry and emphasised the need to expand and improve its applications.
He advocated for the use of distributed ledger technology, or blockchain, in the digital economy. China already has a leading role in its development and has integrated blockchain in various state-owned or managed sectors such as customs, healthcare and banking. The “Smile to transact” at my local bank ATM is one aspect of this progress.
The multilateral trade system is safeguarded by building a digital alternative to the dollar-based trade settlement system. This means free trade and cross-border transactions cannot be threatened or hijacked by unilateral decisions to deny access to the SWIFT settlement system and the system of US-based co-respondent banks.
The central bank’s digital currency project has the highest profile, but we cannot ignore the “deep integration” of blockchain in artificial intelligence, big data and the Internet of Things. China is improving existing training programmes and establishing high-level talent platforms such as the Global Knowledge Economy conference I spoke at in Qingdao. The aim is to cultivate collaborative research and develop a China-based group of leading blockchain figures.
Already smart cities, transportation, energy, employment, medical health, commodity anti-counterfeiting and food safety are all actively using blockchain or have solutions in the works.
Xi also spoke of the need for transparent regulations, including the analysis of blockchain security risks and a “safety guarantee system” for developers. This is an invitation that looks like being turned down by the US and some of its allies as they are fearful of the potential for dual-use technology development.
That poses an investment dilemma. Do we back Western blockchain applications that may be incompatible with the standards applied to the more-advanced China implementation? The answer is the difference between a profitable investment and a loss.
Technical outlook for the Shanghai market
The Shanghai Index rally rebound does not signal a change in the direction of the trend. The index is clustering around the support and resistance level near 2,920. The rally is a temporary one in the environment of a developing downtrend.
This conclusion is supported by the relationships shown in the Guppy Multiple Moving Average indicator. For the first time in three months, the short-term group of averages is below the long-term group of averages. This is a significant change in the GMMA relationships and shows that the bullish pressure in the market has disappeared.
The long-term group of averages has compressed and turned down. This shows the beginning of a change in market sentiment, but it is not strongly bearish. In a strong bear situation, the long-term GMMA would start to separate very quickly and move to a wide separation. The current relationship shows that bullish support for the market has disappeared. The market is cautious, but not yet bearish.
The three rally peaks starting from September act as anchor points for a downtrend line. The value of this downtrend line now acts as the first resistance level for any rally from the 2,920 level. The current trend line value is near 2,980. A new sustained uptrend can only resume if the index is able to move above the value of the downtrend line.
The combination of the downtrend line and the horizontal support level creates a down-sloping triangle pattern. This is not a well-defined pattern because the base of the pattern takes 10 days to develop. However, the pattern analysis conclusions can be applied with caution. This chart pattern sets a downside target near 2,800. This is calculated by measuring the height of the base of the triangle and projecting this value downwards.
The 2,800 target level is below the value of the lower edge of the long-term support level near 2,830. This suggests that in any strong market fall, the Shanghai Index may dip to the 2,800 level before rebounding and developing a consolidation near 2,830. Currently, there is no evidence of a strong downwards pressure. The index is moving sideways in a consolidation pattern and oscillating around the value of the support resistance level near 2,920.
This confirms the continuation of the longer sideways consolidation pattern. The broad sideways band started in May. The base support of this trading band is near 2,830 and the upper resistance level is near 3,040.
Bullish traders watch for a sustained rally above the value of the downtrend line.
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
