Am I still on track on China?

 It has really been a long while since my last entry. Certainly a long while with my last up-date on China.

I recall the last time I wrote a piece on China was some time in 2016. I was contemplating China to follow the foot step of Japan in the 80s and Asean in the 90s. Like in the principle of Taichi, Ying is born out of the extremity of Yang, yang is born at extremity of Ying. 

At that point of time, China was at its strongest, a robust economy leveraged on being the manufacturing centre of the world. All businesses kowtow to China's demand just to entitled to a spoonful of its benefits.

Yet in the midst of such flourishing environment, cracks started appearing. I was on regular pilgrimages to China until 2017 due to my involvement in LED lighting business. every year, I went to its Guang Zhou Lighting show, it was interesting to note the slow and gradual pull out of foreign entities. 

By the time of my final visit in 2016, only local suppliers were left. The number of exhibitors with entry level lighting system were abundance. Very few China makers were innovative and everyone copied from others. In a word, there was no innovation.  There was no more point to visit China as it was just a price war.

The strange thing is that while manufacturers in huge supply, none of them saw the potential threat ahead, and more were pouring in.

What followed were more bad news, a search through youtube.com shown disturbing canvas of factory failings one by one. Staffs were  retrenched and huge unemployment resulted. Then the story ghost cities appeared. The local governments were building cities after cities devoid of people. The reason was to maintain their KPI for GDP. Now doesn't that sound familiar? The bridge to no where from Japan, mega malls of Asean.

Then China pushed out the one belt one road project to link the north to south, east to west. They started working with third world countries to "help with their modernize". Countries were involved in projects that they did not need, something they could not afford leading to borrowing money from China's bank, then went on to pay China's companies involved and supported the Chinese workers. No locals benefited in the projects.  

What happen then if the country could not pay the bank? Sri Lanka signed over the deed of the port to China.  Venezuela paid China with its oil, and when the price fell, they even contemplating cutting an island to China. 

It seems to me that China is in desperate need of cash and started tapping from its neighbors.

I have not been looking at Shanghai Composite Index for a while, it was heavily regulated by the Chinese Government. However in recent years, another market was heavily doused with Chinese companies, that is the Hang Seng. It is possible to use Hang Seng to estimate the health of Chinese economy as a result.

Fig 1 Hang Seng weekly Chart

It seems like Hang Seng made its last climb between 2016 till 2018 and the index started its decline since then. Looking at the wave pattern, it is working on a counter wave, completed A and B and now working on C. It certainly has not completed its descent. By theory, if this is the C wave, we should be looking at a 5 wave pattern. from the looks of it, it contained a complex ii and probably just completed a simple iv. 

Switching to Fibonacci,, the level that I would watch out for is between 23,164 to 23,337. If it manage to break through this level, next level I will be looking at is between 15,136 to 18,544.

Is there any up-side? Yes there is always an up-side, Assuming that Hang Seng is not ready to die yet and alreaady reversed, its first level of resistance should be 28,560 to 29528. Breaking through this, its next resistance point is 31621 to 33,834 base on projection. 

At the moment, I find the later to be less likely as THERE ARE a few resistance level to stop it from reaching that level. There are less resistance to go downward.

Potentially, Hang Seng is forming a major reversal with its neck line at 21,003, double top. If this is the case, China probably is about to braze for a long winter ahead. Its fall is not going to limit to the 2 levels mentioned above.