Although claimed by some as a victory, Australia has made a humiliating backdown in response to Facebook's suspension of Australian news feeds.
Humiliating because the return of Facebook only came after changes were made to the proposed Australian legislation.
However, the Facebook action underlined the differences between Western e-commerce and China's model.
Whilst Facebook is not primarily a shopping platform, these differences are important when it comes to engaging in e-commerce with China.
China’s online shopping platforms combine everything in a single package.
This includes e-commerce, social media, digital payments, community buying, gaming, short videos and live-stream selling. It is an integrated environment which captures and retains an audience because it is able to meet all their needs.
Despite the oft-repeated claims that the customer comes first, the Facebook action in Australia showed that the customer was the least of concerns for its CEO Mark Zuckerberg. The news ban also took down essential Covid-19 information, government health sites and many community service boards.
Facebook's actions were an inconvenience. Similar action by a Chinese provider would be a disaster because of the higher degree of integration.
The China e-commerce model is customer led at its very core with as many functions as possible in one app.
Successful Chinese retailers go to great lengths to remove any physical barrier to online purchasing. This ease of purchase builds confidence when it comes to placing an order online.
More importantly, it ultimately favours impulsive shopping.
The success of Singles Day is perhaps the best illustration of this. Singles Day sales simply dwarf the Black Friday and Cyber Monday promotions in US markets in part because they lack the ongoing integration of sales, support and frictionless barriers found in the Chinese platforms.
The Chinese super apps combining multiple functions include Meituan — with a current market cap of US$276 billion ($364.22 billion) — which provides all kinds of lifestyle services online.
Pinduoduo, an e-commerce platform with a market cap of US$213 billion, has over 700 million active users serving consumers often considered to be at the bottom of the pyramid.
The behemoths are WeChat, with a market cap of US$868 billion, and Alipay, with a market cap US$719 billion.
These new retail models were given a massive boost with the Covid-19 lockdowns.
On the surface, they appear to be just new apps and digital channels to connect a broader base of products and consumers. The growth of live-streaming sales appears to be late night cable TV tele-sales channel redux.
However, the changes are deeper as they increasingly imply the integration of the full value chain, from factories to end users.
Western companies looking to enter or remain in the e-commerce market in China need to recognise that these changes are not just a matter of degree they are a matter of substance. The idea of adding a store-front on WeChat, linking to search results in Baidu and enabling WePay are no longer sufficient in the Chinese e-commerce environment.
Covid-19 changed the market place and Western business is playing catch up.
Technical outlook for the Shanghai market
The Shanghai Index breakout moved rapidly to hit the projected target level near 3,710 before pulling back, briefly testing the upper edge of the previous trading band before testing trading band support near 3,540.
Trading band analysis provides an effective way to set new upside targets and to identify support levels when the market retreats.
This trade band analysis does not provide insights into how quickly, or slowly, the uptrend will develop.
The framework of the trading band structure of the Shanghai index comes from the long term sideways trading pattern that dominated the last half of the 2020 trading year.
Trading bands are patterns of support and resistance that are equally spaced. The resistance levels that inhibit the market rise in a rising trend change their function and become support levels when the market retreats.
The breakout above 3,620 had a target near 3,710 and this was achieved. A rebound rally and breakout above 3,710 has an upside target near 3,800.
This is calculated by projecting the width of the trading band.
The retreat from 3,710 first tested the support strength of 3,620 and then at 3,540.
The Guppy Multiple Moving Average (GMMA) provides trend analysis. The long-term group of averages is widely separated. This group of averages is used to track the way investors are thinking about the market.
Wide separation shows investors are bullish and support the trend. It shows they are eager buyers whenever the market develops a dip.
The short-term group of averages reflects the way traders approach the market. The behaviour in this group shows traders are holding onto positions for longer periods in anticipation of larger profits.
This is confirmed by the relatively slow process of expansion and contraction. This is not a whipsaw market. Traders, like investors, have confidence in the sustainability of the uptrend.
The longer-term uptrend remains well defined with the broad separation in the long term group of averages in the GMMA indicator. This shows strong investor support for the uptrend.
If investors were also sellers then the long-term GMMA would show compression as the market pulled back..
The long-term GMMA is also used as confirmation of support levels.
Currently, the upper edge of the long term GMMA is just above the support level near 3,540. This adds strength to the support feature in any pullback. Trend strength is confirmed when the lower edge of the long-term GMMA moves above 3,540.
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 two decades. 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. The writer owns China stock and index ETFs.
