SINGAPORE (May 6): Last week, Chinese President Xi Jinping did some fine-tuning to the Belt and Road Initiative (BRI) at the global conference in Beijing. All of these changes are designed to accelerate China’s global commercial engagement by making investment activity easier and more transparent. Premier Li Keqiang earlier said that China’s “fundamental state policy” is to open up to the world.
The BRI policy has always championed cooperative involvement, but some countries have been unsure of how engagement with BRI is best achieved. This unfortunately has allowed the opponents of BRI to sow some discord at a national political level. Business sees things differently and has actively encouraged governments at all levels to create better engagement mechanisms by developing a more sophisticated understanding of BRI. Foreign policy approaches to China are to engage, exclude or enrage.
On the one hand, we cannot ignore the tactics applied by opponents of BRI, but on the other, we should be doing our best to develop mechanisms that reduce the impact of these tactics. The clearest current challenge comes from the dominance of the dollarised economy. US President Donald Trump’s threat to deny access to the SWIFT dollar-based foreign currency and trade system for countries and companies that do not comply with the US position on sanctions on Iran is a threat to the world trade order.
Business councils must work with government at all levels to neutralise this threat. Part of the neutralisation process is an acceleration of the use of the renminbi for trade settlement, investment and everyday commercial transactions. Western foreign exchange service providers such as AxiCorp provide a wide range of services that can play a key role in the rapid international acceptance of the renminbi as an alternative to the current dollarised trade environment.
Some national governments are reluctant to engage, but the next levels of government — state and provincial — have the opportunity to lead the way by entering into memorandums of understanding and cooperation agreements with BRI. Cooperation at this level of government can help to reshape the national BRI engagement policy. Often business councils have greater influence at these second-tier levels of government.
These are practical changes foreign countries and commercial business chambers need to make to improve their BRI participation and engagement. When national governments are reluctant to engage, then business chambers must lead the way. When national governments have embraced BRI, business chambers must assist them to engage BRI in more sophisticated and effective ways. What China builds depends on how we react as business chambers.
Engagement with BRI means more open and less confrontational discussion. It includes participation in policy forums. This creates a better and more nuanced understanding of the policy environment and encourages the development of more sophisticated policy responses to China. This in turn means that businesses can engage China business in a more stable and effective manner.
Engagement means acknowledgement that more is achieved through open, considered and ongoing dialogue.
Technical outlook for the Shanghai market
The Shanghai Composite Index was testing support near 3,050 ahead of the May 1 to 3 holiday in China. The rebound from support is an early indication that the retreat has paused and that a rebound rally may develop when trading resumes after the holidays.
The current retreat is consistent with the Relative Strength Indicator divergence pattern. This is a reliable bearish pattern when applied to the Shanghai Index. The RSI divergence appears when the trend line connecting peaks in the Shanghai Index moves in the opposite direction to the trend line joining the peaks on the RSI. This is shown as trend lines A. They cover the same period of time, but the trend lines move in opposite directions.
This RSI divergence shows weakness in the current uptrend, but confirmation is needed from other chart features before this trend weakness can be described as a trend change. Until other chart features develop, the RSI divergence is a treated as a temporary weakness in the trend. Uptrend strength is confirmed by these features:
- Continued wide separation in the long-term Guppy Multiple Moving Average (GMMA) group of averages;
- A rebound rally from the support level and a move above the upper edges of the longterm GMMA; and
- An increase in the RSI values and a test of the RSI trend line.
These behaviours suggest that the RSI divergence is a signal of a major trend change:
- A rapid index fall into the value of the long-term GMMA. This has developed;
- A fall below historical support near 3,040. This has not developed;
- Index dips that test the lower edge of the long-term GMMA. This has not developed;
- Fast compression in the long-term GMMA. This has not developed; and
- A fall in RSI values to below 20. This has not developed.
Traders watch carefully for confirmation of one of these groups of behaviours. The current development suggests a test of support and the potential to develop a rally rebound and trend continuation. However, more evidence is required to confirm this analysis, so traders closely watch the index behaviour when trading resumes.
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.
