Sharpening the Blade Against the Red Wall: From Hong Kong to Handong

After the Cold Dew solar term, the autumn chill in Kyoto deepened. However, in the courtyard of the "Economic Strategy Research Office" in the western suburbs, there was no sign of desolation; instead, a tense atmosphere permeated the air. The first plenary meeting of the Hong Kong Financial Stability Emergency Response Team was being held here. Shen Mingyuan sat at the head of the table, his fingertips lightly tapping the documents before him, his voice steady and powerful: "From today onwards, proactive defenses will be fully activated. We must weave an impenetrable net before international capital can act."

On the other side of the conference table, Zhou Jin pushed a "Special Foreign Exchange Fund Allocation Plan" in front of everyone: "With the approval of the People's Bank of China, the 3000 billion yuan special foreign exchange intervention fund has been allocated and deposited in three batches into the offshore account designated by the Hong Kong Monetary Authority. This fund will serve as the ballast for Hong Kong's linked exchange rate system, and can intervene in the market at any time should the exchange rate fluctuate abnormally." As soon as she finished speaking, the Director of the Financial Markets Department of the People's Bank of China added: "The cross-border financial regulatory cooperation mechanism has also been established. Foreign exchange transaction data, stock market holding changes, and international capital flows between the mainland and Hong Kong are shared in real time. Every cross-border capital flow exceeding 500 million US dollars will trigger an early warning immediately."

Over the next few months, a low-key yet high-profile operation quietly unfolded in the Hong Kong stock market. The emergency response team, in conjunction with the mainland's social security fund and the four major state-owned banks, used dozens of anonymous offshore accounts to gradually acquire blue-chip stocks from the Hang Seng Index constituents—HSBC Holdings, Cheung Kong Holdings, and Hong Kong Telecom, among others—all included in the initial investment plan. Zhou Jin, stationed in Beijing, directed the operation, monitoring the real-time position data daily and repeatedly instructing the traders: "Slow down, very slow down. Daily purchases must not exceed 0.5% of the circulating shares. We absolutely cannot attract the attention of international capital." Simultaneously, he led his team through three sleepless nights, designing a complex derivatives hedging strategy: locking in exchange rate volatility by buying forward contracts for Hong Kong dollars against the US dollar; and simultaneously establishing short positions in the Hang Seng Index futures market to hedge against downward pressure on the stock market. Through this buying and selling, potential risks were effectively eliminated.

While the emergency response team was busily constructing defensive fortifications, Huayao Capital's overseas bargain-hunting operation had quietly begun. In October 1996, Zhou Jin led a five-person investment team on a flight to Singapore. The trip was publicly ostensibly an "academic research trip to investigate the investment environment in Southeast Asia," but in reality, it carried the heavy responsibility of acquiring strategic assets for the country. The team's footprints covered Singapore, Thailand, Malaysia, and Indonesia. During the day, they traveled between mines, ports, and factories; at night, they analyzed data in their hotel rooms, often with the lights on until the early hours of the morning.

They soon discovered that the economies of Southeast Asian countries were trapped in a bubble of false prosperity—real estate prices were soaring, stock market indices were hitting record highs, and the valuations of core assets such as mines and ports were being driven to astronomical levels. But beneath this clamor lay many undervalued quality assets. A container terminal company under the Port of Singapore Authority was facing a cash flow crisis due to management missteps, and its stock price had been declining for three consecutive months; a long-established rubber company in Thailand, owning tens of thousands of acres of rubber plantations, was on the verge of bankruptcy due to low international rubber prices; and a tin mining company in Malaysia, with abundant mineral reserves, was forced to sell its shares at a loss to survive due to a broken cash flow.

"These are the ones." Zhou Jin pointed to the three targets on the report, a sharp glint in his eyes. "These are all solid assets. The current downturn is only temporary. Once the crisis is over, their value will definitely double."

Huayao Capital's acquisitions were as quiet as spring rain. Through multi-layered offshore structures in the Cayman Islands and the Virgin Islands, funds were laundered layer by layer, ultimately allowing them to negotiate with target companies as "overseas strategic investors." There were no grand signing ceremonies, no media coverage; everything was conducted in secrecy. In just six months, Huayao Capital spent 8 million yuan to acquire a 20% stake in a Singapore container terminal company; 5 million yuan to acquire a 30% stake in a Thai rubber company; and 7 million yuan to acquire a 15% stake in a Malaysian tin mining company. Each transaction precisely targeted undervalued opportunities, and every signing was meticulously executed.

While expanding its presence in Southeast Asia, Huayao Capital also seized the opportunity in the Hong Kong market. In March 1997, a Grade A office building in Central, Hong Kong, was put up for sale due to the owner's financial difficulties. Upon learning of this, Zhou Jin immediately instructed his team to act. After several rounds of negotiations, they acquired it for 3 billion yuan—a price 10% lower than the market value. Two months later, they acquired a 5% stake in a small-to-medium-sized Hong Kong bank for 3 million yuan, becoming its seventh-largest shareholder. By this time, Huayao Capital had already used 33 billion yuan of its initial 50 billion yuan capital, holding only high-quality assets with both strategic value and appreciation potential.

For the past six months, Shen Mingyuan has been a frequent presence in Hong Kong's government halls and financial institutions. Leveraging his prestige in the international financial community and his deep connections with senior officials of the Hong Kong Financial Secretary and the Hong Kong Monetary Authority, he cleared obstacles for the emergency response team's various measures—the sharing of cross-border regulatory data, the compliant approval of social security funds entering the market, and the opening of special foreign exchange accounts—each required his coordination. Zhou Jin, on the other hand, became a frequent flyer, traveling between Beijing and Hong Kong an average of twice a month. On one hand, he met with officials from the Hong Kong Monetary Authority to analyze the latest market trends and adjust response plans; on the other hand, he held discussions with representatives of local Hong Kong conglomerates to listen to their demands and garnered the covert support of a group of patriotic businessmen.

On June 30, 1997, the streets of Hong Kong were adorned with Bauhinia flags, and the air was filled with an atmosphere of celebration and anticipation. Only one day remained until Hong Kong's return to China.

Standing on the shore of Victoria Harbour, Zhou Jin gazed at the five-star red flag fluttering in the wind, his heart filled with mixed emotions. Behind him lay the brightly lit Central district and the office building that Huayao Capital had bought; before him stretched the turbulent sea and the impending financial storm.

Shen Mingyuan walked over to him and patted him on the shoulder: "Xiao Jin, we've done everything we can. Now, let's see if those international speculative funds dare to come."

Zhou Jin clenched her fists, gazing into the distance: "Teacher, they will definitely come. We must win this battle."

As night deepened, abnormal fluctuations began to appear in the international capital flow data on the emergency response team's monitoring screens. Hedge funds, led by Soros' Quantum Fund, had quietly established short positions in the Hong Kong foreign exchange and stock markets.

A storm is brewing. A decisive financial battle concerning the fate of Hong Kong and the dignity of the nation is about to begin.