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Import expo in Shanghai underlines importance of China to its trade partners

Daryl Guppy
Daryl Guppy • 5 min read
Import expo in Shanghai underlines importance of China to its trade partners
SINGAPORE (Nov 12): For many people, the China International Import Expo (CIIE) in Shanghai was all about showcasing goods and services imported by China. The numbers were impressive, with major companies taking space to show off their wares. Many, many m
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SINGAPORE (Nov 12): For many people, the China International Import Expo (CIIE) in Shanghai was all about showcasing goods and services imported by China. The numbers were impressive, with major companies taking space to show off their wares. Many, many more companies were unsuccessful in getting stand space in the massive National Exhibition and Convention Center in Hongqiao.

There are two ways to consider the participation. The first, and most commonly used, is a breakdown of the category of imports into China. Minerals and energy make up about 20% of Chinese imports, and food and agriculture-related products contribute another 10%. Manufactured goods, including electrical machinery, computers and cars, make up the biggest portion of imports at about 65%. China is also the world’s third-largest buyer of services, including education and tourism.

The second way to break down the figures was less commonly used perhaps because it appears so obvious. At least 58 countries visited CIIE. For every one of those countries, China represented their largest trade partner. It is a fair bet that, for the more than 1,000 companies exhibiting at the expo, China represented their largest trade partner and the single-largest country source of their profits.

So, what was the point of CIIE? A reaffirmation that China is engaged with the world of international trade? A demonstration of China’s reliance on imports? Remember, this was not China showcasing its exports to the world. This was 58 foreign countries vying with each other to show how engaged they are with China.

The most significant point of CIIE was to bring home just how important China is to the continued prosperity of the 58 countries that participated. Without free and open trade with China, their economies would collapse. This was a superb demonstration of co-dependency.

In a single foreign policy-driven event, President Xi Jinping demonstrated what is at risk in a trade war. He demonstrated why it is essential to support the existing structure of the global rules-based trade order embodied in the World Trade Organization. Through the CIIE, he demonstrated why the threat to free trade posed by tariffs and poison pill strategies is a threat not just to China but also to every one of the economies that count China as their largest trading partner.

Increasingly, US policy advisers are suggesting that, “When it comes to China, it is either us or them.” It is not hard to imagine the US pressuring trade partners to more closely follow US policy on trade with China. The template is already in place, with unilateral sanctions imposed on Iran and prohibitions on new trade deals with China for signatories of the revised North American Free Trade Agreement.

CIIE is the counterpoint. In a week of dazzling displays, side events and speeches reaffirming the importance of exports into China, the expo has eloquently highlighted the genuine risks of US President Donald Trump’s trade war with China. It is a classic approach drawn from the 36 strategies and designed to remind participants, and investors, on which side their bread is buttered.

Technical outlook for the Shanghai market

The Shanghai Index rally has stabilised and developed consolidation behaviour just under the 2,700 level. This is a bullish development because, unlike previous rallies, the index has not rapidly retreated from a test of the 2,700 resistance level. It is far too soon to call for the beginning of a new uptrend, but this index behaviour is the most bullish seen since September. There is the potential for this to develop into a 1-2-3 GMMA breakout pattern.

This Guppy Multiple Moving Average indicator breakout pattern has three, or sometimes four, components. The first is a rally that tests the strength of resistance offered by the group of long-term averages. This rally moves to this level and then retreats. This is shown as Point 1 on the chart.

The second rally is stronger, and succeeds in a breakout above the upper edge of the long-term GMMA before the rally collapses. This is shown as Point 2 on the chart.

The third part of the pattern is a new rally breakout that clearly and strongly moves above the upper edge of the long-term GMMA. The inevitable retreat uses the long-term GMMA as a support level and then base for a new rally rebound. This sets the conditions for a new uptrend.

Few patterns are perfect in real life, and the current potential 1-2-3 pattern is no exception. Usually, in the 1-2-3 pattern, the series of retreat lows becomes less extreme with each new pattern segment. This has not happened with the Shanghai Index. The most recent low between Points 2 and 3 has been an extreme low. This is unusual. It does not invalidate the 1-2-3 pattern, but it does suggest we need to apply the analysis with caution.

It may appear that we are relentlessly bullish, even in a falling trend. There is a reason for this. The Shanghai market can only be traded from the long side. Traders can only buy low and sell high. No short selling is permitted. This adds a specific bullish feature to the behaviour of the Shanghai market and the index. Traders are constantly on the alert for signals of a bullish rally or a bullish reversal. This means that traders, and the market, will act more quickly on what they perceive to be bullish signals. Typically, Western markets are slower to react because they have shorting options available to them.

The rally continuation and breakout above 2,700 might not be swift. Traders watch for the behaviour in the consolidation area. The index may develop more retreat activity before a resumption of the rally move above the upper edge of the long-term GMMA.

Daryl Guppy is an international financial technical analysis expert and special consultant to Axi Corp. 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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