China’s changing digital economy includes market saturation for higher end products and services, the erosion of foreign premium and the explosive growth of live-streaming. 

There are two additional areas of change which foreign businesses need to consider both for existing businesses and new ventures in China. 

A Tmall store front, a WeChat and QR code link and product promotion based on market success and consumer demand in a foreign country is no longer enough for any competitive advantage in the China market. 

The fourth of the major changes that took place during the pandemic in China is the growth of algorithmic analysis, or big data analysis, to understand the evolving demands of the new retail models. 

This is essentially real-time analysis and strategy adjustment, and a return to the ‘push’ approach so beloved of advertisers and marketing firms. 

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The idea is that you push out the information to customers, but you use big data analytics to precisely target your audience. 

SEE:China and the RCEP

It is not a new idea, but the effective application of the idea in the Chinese market is ground breaking. 

The collection of big data combined with machine learning and sophisticated algorithms means that the individual consumer can be targeted with material directly relevant to their interests. 

This information is scrapped from other services in much the same way that information is scrapped from Facebook and Google interactions. 

Chinese news and information content platform Toutiao, Pinduodu and short video sharing apps like Douyin and Kuaishou are very successful services which apply these techniques, pushing “relevant” news and short videos to — in many cases — unsuspecting users. 

It is claimed that these recommendation algorithms help people make better decisions, minimising the search time. 

But this is a self-serving because the objective is to sell more to the customer. 

With more data and more understanding of user preferences available, the recommendations deployed are becoming more accurate. 

Foreign businesses in China are largely excluded from these homegrown apps so the challenge is to develop methods to integrate and infiltrate these consumer models. 

These digital relationships are more important now than in the pre-Covid-19 period. 

The final significant change is in logistics. China has long been at the forefront of rapid delivery with SF Express and other such services. 

The army of SF delivery bikes took a hit during Covid-19 at a time when the demand for home delivery skyrocketed. The result was a rapid growth of autonomous delivery methods. 

This growth went hand in hand with the emerging new retail models. 

Much to the chagrin of SF drivers, the Covid-19 lockdowns and movement restrictions accelerated the development of autonomous and contactless delivery. 

Drones and robots were the solutions to the sudden and massive need for contactless delivery in Beijing, Shanghai, Wuhan, Changsha and essentially every other Tier-1 and Tier2 cities in China. The need also exists in other areas, but has not been so easily met yet. 

Alibaba, JD, SF Express and Meituan quickly adjusted their models to deploy autonomous vehicles to provide contact-free delivery solutions. 

Autonomous vehicles then evolved rapidly. When a driverless vehicle leaves for a delivery, a message is sent to the customer who then also receives a message when the vehicle arrives. 

By entering the order number on the vehicle screen, the customer can take their order from the vehicle. 

In time, this may lead to a standardisation of packaging. 

Just how compatible your product is with autonomous delivery requirements will play a part in China’s business success. 

One thing is clear — returning to China for retail business in 2021 is not the same environment as it was in pre-Covid-19 times. 

Technical outlook for the Shanghai market 

The long-term resistance feature on the Shanghai Index near 3,450 continues to exert a strong influence on the behaviour of the index. 

It has made several attempts to break out above this level but each attempt has been rebuffed. 

This suggests there is a high probability that the index will continue to develop a consolidation pattern between the support near 3,360 and the resistance level near 3,450. 

This behaviour is a return to the long-term oscillation behaviour of the index that was a characteristic of the second half of 2020. 

This was index movement confined within the broad trading band that dominated the Shanghai index from July 2020 until January 2021. 

This trading band has three features. The first feature is the strong resistance level near 3,450. 

This was tested many times during the last six months of 2020 so there was a good expectation that the breakout above this level would use 3,450 as a strong support level in any marker retreat. This did not happen. 

However, there is a high probability this will continue as a strong resistance level for any market recovery. 

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The index is testing this level as resistance following the rebound in the last two days. 

The second feature is the support level near 3,360. 

This level has been successfully tested. The rally has developed from this level and continues to test resistance at 3,450. 

The third feature is the strong long-term support level near 3,240. 

This acted as a major support level during the last six months of 2020. This represents an extreme downside target for the current index activity. 

The fourth feature is the midpoint of this broad trading band. This is located near 3,360. 

This is an important feature because the index oscillated around this level during the last six months of 2020. 

The market was bullish when it remained between 3,360 and 3,450 but the index was bearish when it was between 3,240 and 3,360. 

The key behaviour feature investors are waiting for is to see how the index develops consolidation and breakout behaviour after the recent rapid fall. 

The successful rebound rally from 3,360 is testing resistance near 3,450. A breakout above this level has an upside target near 3,340. 

It is clear that the longer-term uptrend which rested on broad separation in the long-term group of averages has been broken. 

Investors have become significant sellers as shown by the compression in the long-term Guppy Multiple Moving Average (GMMA). 

Any rally rebounds in the near future will be limited by strong resistance near 3,450.

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.


Shanghai Composite Index- THE EDGE SINGAPORE