Located outside Hangzhou in the Xihu district, Cloud City is designed to foster hi-tech development. Purpose-built as a community, my tour covered various projects under development, spanning familiar tech to unexpected ventures in agriculture and space.
Cloud City has counterparts across China — including Beijing’s tech hub, Zhongguancun, where JD.com is headquartered.
In November, I met with their strategic planning director to discuss the role of AI in the logistics chain. Addressing 400 post-graduate students at Wenzhou University, I explored how fintech impacts funding risk capital in the tech industry through crowd-sourced funding. This alternative funding method triggers alterations to the IPO process and establishes a new secondary trading market, challenging Shenzhen and Shanghai stock exchanges.
This is no isolated Silicon Valley — these three examples represent a country with a determined drive towards technical advancement. The US, lagging in various fields, believes this is a drive towards technological supremacy and acts accordingly against what it sees as a threat to its success.
The Chinese drive is not so much about supremacy but survival. In recent years, China has transformed from a manufacturing-based economy to a powerhouse of technological innovation. This shift is a story of economic development purposely designed to help China avoid the so-called middle-income trap.
The middle-income trap is where a middle-income country can no longer compete internationally in standardised, labour-intensive goods because wages are too high. This happens as people move out of poverty into the middle class of common prosperity.
See also: China tightens securities lending rule to support stock market
This also means the country cannot compete in higher value-added activities on a broad enough scale because productivity is relatively too low. Escape from the trap comes with increased productivity. For modern China, that comes from the digital economy.
How China avoids this trap impacts how we do business with the country and the types of opportunities that emerge. Despite American pressure to ignore or avoid engagement with China in these areas, businesses cannot afford to give in to this pressure. The developments are often best in class and set the standards. It is a reality that redefines global trade and international relations rules.
It is no accident that BYD has overtaken Tesla in terms of sales of electric vehicles. It is not just a function of manufacturing and market size. The range of choice of BYD vehicles and other electric vehicles produced by BYD competitors in China overwhelms the approach to these products in the US. European manufacturers are working closely with Chinese electric vehicle development to inform their processes better.
See also: Eight reasons why I am still in favour of China stocks
This technological revolution is transforming China and impacting global trade dynamics. China’s tech innovations provide emerging markets with unprecedented access to global markets.
For Western economies, this shift presents both challenges and opportunities. Businesses need to adapt to these new technologies to remain competitive, and that is the challenge for 2024.
Technical outlook for the Shanghai market
The Shanghai index chart poses a single question: Is the rebound part of a valid double bottom or “W” pattern?
A perfect double bottom pattern has two low points separated by several weeks. The first low of the Shanghai Index was near 2,924 on Oct 23. The second low in a perfect pattern would be near 2,924 around the end of December 2023. This did not develop because the index dipped below this level to a new low of 2,882 before rebounding.
However, the index clustered around the 2,920 level for six days before developing a rapid rebound rally that moved above 2,924. The strong rally continued.
For more stories about where money flows, click here for Capital Section
This is not a perfect double bottom nor a complete invalidation of a double bottom because the rebound developed strongly.
So what are the consequences if this is a double bottom or ‘W’ pattern? This is a powerful trend reversal pattern with two upside targets. The first target is the middle peak of the “W”. This is near 3,080. This is also a historical support level, which would now act as a resistance level.
The second target for the “W” pattern takes the depth of the pattern and projects this upwards to set a new breakout target. This calculation sets a new target near 3,240. This is a long-term target that may take several months to reach.
If this rebound develops as part of a double bottom or “W” pattern rebound, it is very bullish for the coming year.
The results are different if this is not a genuine double-bottom pattern. The rally is considered part of a rebound within the longer-term downtrend environment. This means the resistance features become more important. The first resistance feature is the value of the long-term group of averages in the Guppy Multiple Moving Average (GMMA) indicator. The upper edge of this is near 3,000. This is the first resistance feature for any rally.
The second resistance feature is the value of the downtrend line. This is near 3,020. The index may rise to this level and then consolidate between the upper edge of the long-term GMMA and the value of the resistance level. Investors will watch for future developments to decide if this signals a continuation of the downtrend or a potential breakout.
A breakout has the next resistance feature near 3,080. Reaching this level suggests the rally breakout is part of a double-bottom pattern rebound.
Until the rally proves it can move above the lower resistance features, the index activity is treated as a rally rather than the beginning of a new uptrend. These developments are bullish.
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
