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Busting myths on Belt and Road Initiative

Daryl Guppy
Daryl Guppy • 5 min read
Busting myths on Belt and Road Initiative
(Oct 30): Anyone who had doubted the commitment to and the longevity of the New Silk Road policy has had those doubts removed with China President Xi Jinping’s remarks at the meeting of the Communist Party of China Central Committee. This is not a rheto
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(Oct 30): Anyone who had doubted the commitment to and the longevity of the New Silk Road policy has had those doubts removed with China President Xi Jinping’s remarks at the meeting of the Communist Party of China Central Committee. This is not a rhetorical centrepiece of his policy; it is a genuine cornerstone of his vision for China’s future involvement with the rest of the world.

Still, there are some who see the New Silk Road policy as a set of empty commitments, which have already lost steam. There are five myths, or misconceptions, that surround this policy.

The first myth is that progress on the Belt and Road Initiative (BRI) has stalled or slowed down. So far, the Asia Infrastructure Investment Bank has approved 18 infrastructure projects. Committed funding is around US$3 billion ($4.1 billion). The Silk Road Fund has approved 15 projects with a total funding of around US$6 billion. An additional US$2 billion has been allocated to cooperation with Kazakhstan.

These are just the large-scale headline figures. There are countless BRI projects at the regional and provincial levels.

The second myth is that BRI is all about infrastructure. BRI encompasses a much wider range of trade and economic development. This includes trade, financial cooperation, policy and regulatory coordination, along with increased cultural and tourism exchanges. There are a multitude of business opportunities.

The third myth is that BRI is used to challenge regional trade pacts, such as the now defunct Trans-Pacific Partnership. It is true that the collapse of the TPP has made BRI more attractive, but BRI complements regional free trade pacts and helps to make these more effective. This reduction of real, regulatory and behind-the-border barriers is one of BRI’s key objectives. China is now the world champion of free trade and BRI is the flagship for this.

The fourth myth is that China is using BRI to export its excess industrial capacity. China will use BRI to increase exports, but these projects also offer the opportunity for other businesses to do the same. This is no different to the outcome that the Obama administration expected from the TPP. BRI is not primarily a substitute export market. This complex of policies is a coordinated response to China’s growing influence within the global economy.

The fifth myth is that there are few opportunities for non-BRI countries. China has made it clear that BRI is an open-ended policy and that all countries are invited to participate. It has grown beyond the more narrow confines of the original New Silk Road concept. The BRI is a strategic concept, not a trade pact.

Countries that are not directly signed up for BRI can participate via investment into BRI projects and the provision of expertise and services. These opportunities include technology, consultancy services, financial services and supply train integration.

The challenge for businesses and the government is not only to avoid believing these myths, but to develop effective methods to engage and manage BRI involvement. This is where the future investment opportunities lie.

The Shanghai Index continues to move in a narrow trading band, with support near 3,340 and resistance near 3,390. The index is oscillating around long-term historical resistance near 3,360. This week, the index used the centre-point level of 3,360 as a support level for the steady rebound. This is not a rebound rally. It is a slower-moving, steady continuation of the longer-term uptrend, and this is very bullish.

The index has rebounded from two support features. The first is the centre line of the consolidation trading band near 3,360. The second is the upper edge of the long-term Guppy Multiple Moving Average. This is a type of consolidation behaviour, but it is also part of a well-established and well-supported uptrend.

The continued wide separation in the long-term GMMA shows strong investor confidence in the continuation of the uptrend.

This separation remains around 36 points, which is the same as the 36-point separation for the past two weeks. The consistency in the degree of separation confirms steady, good trend strength. This shows investors remain very confident about the future of the uptrend and also suggests they will be strong buyers when the index rebound moves above 3,390. The rebound from the long-term GMMA is strong and consistent. This strong move has also moved quickly above the long-term resistance level near 3,360 and has remained above this level.

The 3,390 level has developed as a new and temporary resistance level and a sustained breakout above this level is very bullish.

There are five aspects to the bullish GMMA analysis and trend rebound. The first feature is the steady degree of wide separation in the longterm GMMA. The current degree of separation indicates a steady and sustainable uptrend.

The second feature is the way the upper edge of the long-term GMMA has moved slightly above the historical resistance near 3,360.

The third feature is the continued rise of the lower edge of the longterm GMMA above the resistance level near 3,290.

The fourth feature is the recent steady separation between the shortterm and long-term groups of moving averages. Steady separation between the groups confirms trend strength.

The fifth feature is the low degree of expansion and compression in the short-term GMMA. This shows a decrease in trading activity. It indi cates traders are becoming more confident about the strength of the trend, so they are not taking short-term rally profits.

The longer-term upside target is near 3,640. This is a previous longterm resistance level created in November 2015 and January 2016.

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.

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