That matters because it shifts the negotiating balance to China, as evidenced by the changes to rare earth export conditions. That has significant implications for US-China relations, but it also affects the wider economic community outside of China.
As one senior Malaysian businessman lamented to me during a meeting last week: “Mainland Chinese are super smart and their quality is so good la.”
The US may not be China’s primary export market, but the redirection of exports poses a substantial competitive threat to established business activities in our region.
The breakdown of figures from the National Bureau of Statistics provides the evidence.
See also: China set to stick with export-driven growth as it shakes off tariff scare
Consumer electronics is the largest category of exports from China. It was an estimated US$800 billion ($1 trillion) export industry last year. However, only US$110 billion of this goes to the US. That’s not even 14% of total exports. In contrast, around US$1.3 trillion is absorbed by domestic demand.
The next largest item is electrical equipment. Some US$250 billion is exported, of which US$10 billion is to the US. This makes up 4% of total exports. Domestic consumption accounts for US$1.4 trillion.
These are roughly estimated figures, but multiplying the US market share for each industry in China’s trade data by total export revenues reported in the National Bureau of Statistics industrial survey, reflects gross revenues.
See also: China's risky shadow banks back in spotlight after Xi's debt crackdown — Bloomberg
What is important in these approximate figures is the overall low percentage of exports to US markets in terms of total China exports and domestic demand.
For all other industries, exports to the US are so negligible as to be hardly worth counting. This includes automobiles, textiles, iron and steel, food and beverages, rubber, and plastics, chemicals and furniture.
Individual companies may rely heavily on US markets, but as a percentage of China’s export economy to the US, the contribution of these industries is negligible compared to consumer electronics and electrical equipment.
Domestic demand is the primary driver of the Chinese economy and this reflects a policy decision to reduce China’s dependence on exports for economic growth. This was introduced as the dual circulation strategy. It was a policy roundly dismissed by many Western analysts, but last year’s trade figures show that the role of exports has been reduced and that, in particular, the significance of the US market has been dramatically reduced.
That makes for a very weak negotiating hand when it comes to the sit-down between Trump and Xi. The position is further weakened by China’s voluntary reclassification of its WTO economic status away from that of a developing country.
Technical outlook of the Shanghai market
The Shanghai index dipped on the news of Trump’s latest tariff tantrum, but it quickly recovered to move above the short-term resistance level near 3,888. The index is struggling to move above this resistance feature. There is no indication of growing weakness in the long-term trend.
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The long-term group of averages in the Guppy Multiple Moving Average (GMMA) indicator are not compressing. This suggests that investor support for the trend remains strong. This does not eliminate the potential for temporary, sharp and sudden retreats. However, the trend behaviour remains bullish.
A breakout above 3,888 is bullish, as it represents the second important line that helps set the upside target near 4,050.
Although broken by a lower open, the long-term uptrend line A remains an effective indication of the long-term uptrend. The open below the line was followed by a close above the line on the same day. From January to April, this line acted as a support feature for the rising trend line. It has remained on the chart, acting as a new support feature since August.
Upsloping trend lines and horizontal resistance lines combine to create an upsloping triangle pattern. Projecting the value of the base of the triangle upwards above the resistance line gives the target of around 4,050.
Trendline C defines the market rise starting from June. It has a sharper slope than the long-term trend line A. The market dipped below this line but then closed above it on the same day. The dip the following day used the line as a support feature. Traders continue to look for this line to provide support for a rally breakout above resistance near 3,888, which could facilitate the move towards 4,050.
The long-term group of moving averages in the GMMA indicator are widely separated. The upper edges are around the same value as trend line A, suggesting that this is a confirmation of longer-term trend strength. As shown during the week, any pullback below trend line C or A found additional support in the wide separation of the long-term GMMA.
These features continue to confirm a bullish outlook for the Shanghai Index.
Daryl Guppy is an international financial technical analysis expert. 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 former national board member of the Australia China Business Council
