SINGAPORE (Dec 17): Innovation is a key driver of development in China, with some areas, such as Shenzhen’s Qianhai, identified as key leaders. Regional cooperation and innovation among small and medium-sized enterprises (SMEs) assists in spreading the benefits of this growth area.

Cooperation often starts at industry level but, as I discussed at the Asia-Pacific Economic Cooperation SME forum in Shenzhen last week, times have changed. As the Belt and Road Initiative (BRI) develops, the promotion of regional cooperation is very much the responsibility of industry association bodies and regional organisations such as Apec. Innovation cannot thrive without regional cooperation.

Business councils must show how BRI is compatible with national development policies and they must encourage government and business to engage with BRI policy.

Their first task is to help their members and governments understand the foundation of BRI so that they can counterbalance the anti-trade narrative from the US that is distorting good policymaking in other economies. The Singapore Business Federation is committed to this task, but some other regional bodies are less proactive.

We should not make the mistake of thinking that the attack by President Donald Trump on the World Trade Organization (WTO) and global rules does not concern us. The undermining of this international order stifles innovation because it reduces the opportunity for international cooperation. If you cannot trade freely, then the exchange of ideas is also limited.

The second task is to accurately recognise the barriers that are being created and work towards overturning them by promoting policy discussion with business and government leaders.

It is essential that business members understand the trade infrastructure and soft infrastructure aspects of BRI. These include developing the regulatory environment with regulatory harmonisation, supporting the WTO processes and advancing trade settlement processes. This covers, among others, payments systems, standards and protocols in everything from 5G to blockchain certification.

If regional cooperation structures such as Apec are undermined, then it becomes more difficult to develop a common framework for innovation. Apec is essential for promoting regional cooperation through trade and regulatory frameworks. Business organisations are a key mechanism for supporting this framework and environment, which encourages both innovation and the adoption of innovation solutions in the regional environment.

There are three barriers that we must recognise. They are tariffs and trade barriers; the false use of security concerns and using these as a method of destroying business competition; and processes and regulations that frustrate the smooth operation of cross-border trade.

The task of business organisations is to help their members overcome problems created by these barriers. The BRI complements the Apec and WTO structures and creates an added environment for innovation and cooperation.

<strong>Technical outlook for the Shanghai market </strong>

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The Shanghai Index rally rebound stalled near the resistance level created by the upper edge of the long-term Guppy Multiple Moving Average (GMMA). However, the retreat has been modest and appears to be consistent with a consolidation band. The band has support near 2,570 and resistance near 2,690.

The Shanghai Index chart has three possible patterns and it is too early to know which one will emerge as the most dominant.

However, all of the patterns have a bullish bias. Three patterns make for a confusing chart.

The first pattern is the GMMA 1-2-3-4-style trend breakout pattern. The current retreat remains consistent with the 1-2-3-4 pattern behaviour, with the potential for another rally and breakout above the long-term GMMA.

The GMMA 1-2-3-4 breakout pattern has four components. The first part of the pattern is a rally that tests the strength of resistance from the group of long-term averages. This is as shown as Point 1 on the chart.

The second section of the pattern is a stronger rally with a breakout above the upper edge of the long-term GMMA. This is Point 2 on the chart.

The third part is a new rally breakout that clearly and strongly moves above the upper edge of the long-term GMMA. This failed, and is shown as Point 3 on the chart. The fourth part of the extended breakout pattern is a new move above the upper edge of the long-term GMMA.

The second pattern is the development of a consolidation area between 2,570 and 2,690. This is an extended sideways pattern that has continued for several months. This type of consolidation sideways movement is often associated with a change in trend direction. The consolidation activity shows selling pressure is reducing. The pattern is often used as a base for a new, strong rally breakout.

The third pattern is an inverted head-and-shoulders pattern. Once verified, this trend reversal pattern is powerful and reliable. The upside targets are achieved in more than 80% of examples.

The left shoulder of the pattern is shown as Point A. The inverted head is Point B. The potential right shoulder in area C develops with a rebound from near 2,570.

The inverted head-and-shoulders pattern is confirmed when the index moves above the value of the neckline, shown as Line D. The current value is near 2,650, but traders will look for a move above 2,690 for confirmation of the inverted head-and-shoulders pattern. The long-term target for this trend reversal pattern is near 3,100.

All of these patterns are invalidated by a sustained fall below 2,570. A fall below 2,560 has the first downside support target near 2,450. Long-term historical support is near 2,400.

<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 Man’. He is a national board member of the Australia China Business Council.</i>

Regional innovation and cooperation essential

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