SINGAPORE (Dec 11): Although we are aware of the concept of China’s Belt and Road Initiative (BRI), I suspect many of us are not fully aware of its progress and the implications. It was a point brought home recently as I travelled from Jinghong in southeastern Yunnan to Mohan on the border of China and Laos.

The trip involved skimming the mountain tops and weaving through the clouds, bearing out the translation of “Yunnan” — “south of the clouds”. A 200km journey that would have taken a full day or more just a few years ago was completed in a little over two hours and was a comfortable day trip. It was made on a dual expressway that carved its way through the jungle and mountains. Tunnels were often 2km to 3km long and the road a series of gentle gradients and sedate curves. Occasionally, there was a glimpse of the old road, with its switchback curves, steep descents and even steeper ascents.

Running alongside the expressway was the high-speed railway that links Kunming with Bangkok via Laos.

Already, the expressway has made a difference because it provides a reliable and efficient logistics link between these remote areas of Yunnan and the broader domestic markets of China and elsewhere. The result is an explosion of agriculture. This part of Yunnan appears to be the fruit bowl of China. In addition, the hills are knitted with neatly serried rows of rubber trees. The expressway has given unprecedented market access, and the railway will boost that access further.

In Mohan, I stood on the edge of a huge hardstand that within three years will become the central border clearing station for the railway as it crosses into Laos. It is a RMB500 billion ($102 billion) project that will be completed on time and at a high standard. The hardstand is the foundation of the marshalling yards and passenger platform.

The physical infrastructure is essential, but without a suitable metaphysical infrastructure, the full potential of the railway cannot be met. Blockchain technology is an essential part of this metaphysical infrastructure. It will provide certified digital clearance for cargo, reducing the cross-border transit times to a bare minimum. Kunming to Bangkok is estimated to be eight hours.

The expressway has transformed the economic activity of southeastern Yunnan. It allows the existing agriculture business to expand because markets can be reached more quickly. It encourages the development of new industries that were inconceivable in the past because of logistic and transport constraints.

The extension of the high-speed rail network into Laos and Thailand will have a similar transformative impact on economic activity. Although there is a natural tendency to focus on the short-term business benefits of the infrastructure build involved with the railway, this focus misses the larger economic development picture. It also misses the transformative nature of the BRI. This is a generation-changing policy. It changes the nature and structure of the trade relationships in the region. It is essential that businesses understand these longer-term implications so they can position themselves to be fully involved in this emerging economic structure. The BRI is moving much faster than many outside China realise.

The Shanghai Index smashed the trading-band support level with a low of 3,255 on Dec 6. The close is a little above the trading band near 3,294. This creates a doji dragonfly pattern. This is sometimes seen as a trend reversal pattern. However, the other bearish features remain strong, so traders watch for a temporary rebound before the downtrend continues.

The short-term Guppy Multiple Moving Average has moved well below the long-term GMMA and is now widely separated. The upper edge of the short-term GMMA is below the lower edge of the long-term GMMA. This is very bearish. This is the first time this has happened since April 2017.

The long-term group of GMMAs have turned down and begun to compress. They are close to developing a crossover and an expanded separation as the downtrend continues.

The uptrend was defined with a straight edge trend line. This trend line failed to provide strong support and this is the first time since May 2017 that the index has dropped below the trend line. This was the early confirmation of the trend change.

The key question now is to decide how far this market retreat may fall before it develops consolidation and a potential new uptrend.

The Shanghai Index chart provides two methods for this calculation. The first is the strong support and consolidation band between 3,265 and 3,290. This level is now being tested. A fall below the support band is bearish. The rapid dip and rebound suggests there is a low probability this area will act as a consolidation level.

The second method uses the head-and-shoulders chart pattern.  This pattern normally develops over several months. On the daily chart, there is a short-term head-and-shoulders pattern that developed over a period of about five weeks.

The left shoulder is formed with the rally that peaked on Oct 30. The head is formed by the next rally peak on Nov 14. The right shoulder is quickly formed with a new rally peak on Nov 22. The neckline for the pattern connects the lows on Nov 3 and 20.

The distance between the neckline and the top of the head of the pattern is measured and gives a downside target near 3,235. This is a minimum downside target because the 3,235 target is not near any established historical support level. The next support level is near 3,200.

The head-and-shoulders pattern is a bearish pattern. In this situation, it suggests the market will continue to fall below 3,265 and exceed the head-and-shoulders target to reach the next historical support level near 3,200.

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<i>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</i>

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