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

In September 1997, the summer heat lingered in Hong Kong, and the skyscrapers of Central gleamed with a cold, metallic sheen under the sunlight. Zhou Jin, dressed in a dark gray suit, entered the office of the Economic Division of the Liaison Office in Hong Kong. The calendar on the desk had just turned to the "two months since the handover." In the office area, the sounds of documents being turned and telephones ringing mingled, a fast pace that left no room for complacency—a stark contrast to the work atmosphere in Kyoto.

"Deputy Director Zhou, this is Li Jianguo. We'll be working together from now on." A middle-aged man with slightly dark skin, speaking fluent Cantonese, stood up and extended his hand, his smile hearty. He was a native of Hong Kong and had worked in the Liaison Department for fifteen years. The corners of his work badge were worn. "Since you're new here, feel free to ask me anything you don't understand about Hong Kong's business rules or the intricacies of the financial market."

Zhou Jin grasped his hand, feeling the solidity of his palm: "Thank you, Brother Li. I'll need your help a lot in the future." For the next two weeks, Li Jianguo became Zhou Jin's "guide"—familiarizing him with the document circulation process of the liaison department, explaining everything in detail, from conveying mainland policies and responding to public opinion in Hong Kong to cross-departmental coordination. During lunch breaks, the two would go to a nearby tea restaurant, order a plate of char siu rice with iced lemon tea, and Li Jianguo would take the opportunity to outline the network of connections in the Hong Kong business community for him: "Mr. Li Ka-shing's Cheung Kong Holdings focuses on real estate and ports, while Mr. Lee Shau-kee's Henderson Land Development is deeply rooted in the New Territories. When dealing with them, be careful; they value both profit and, more importantly, discretion and respect."

While adapting to the work pace, Zhou Jin's schedule was also packed with visits. At the end of September, he entered the Hong Kong Monetary Authority building for the first time and met with its CEO, Joseph Yam. In the office, with floor-to-ceiling windows overlooking the busy shipping lanes of Victoria Harbour, Yam's fingertip traced the exchange rate chart, his tone grave: "Mr. Zhou, the storm in Southeast Asia has begun. The Thai baht and Indonesian rupiah have successively fallen, and the Hong Kong dollar's linked exchange rate system is facing unprecedented pressure." He pointed to the suddenly enlarged foreign exchange trading volume on the chart, "Recently, the amount of Hong Kong dollar borrowing in the offshore market has surged abnormally, which is most likely due to international speculators like Quantum Fund accumulating shares."

Zhou Jin took out her notebook and carefully took notes: "President Ren, the State Council of China is highly concerned about the financial stability of Hong Kong. The mainland's foreign exchange reserves are Hong Kong's strongest backing. Can we establish a regular communication mechanism to share data on capital flows in a timely manner?"

A hint of approval flashed in Joseph Yam's eyes as he reached out and shook hands with him: "I couldn't be happier. The Hong Kong Monetary Authority needs a clear understanding of the level of support from the mainland in order to be more confident in dealing with speculative shocks."

In mid-October, Zhou Jin met with Financial Secretary Donald Tsang, and the topic directly touched upon countermeasures. A thick stack of economic reports lay on Tsang's desk, the cover labeled "Analysis of Recent Fluctuations in the Hang Seng Index." "Maintaining the linked exchange rate is the bottom line, but the cost is considerable," he said firmly, rubbing his temples. "If speculators massively sell off Hong Kong dollars, we can only retaliate by raising interest rates, but this will severely damage the stock and property markets." Zhou Jin followed his lead and suggested, "Perhaps we could coordinate with local conglomerates in advance to stabilize their positions, while simultaneously monitoring changes in short positions in Hang Seng Index futures to anticipate the speculators' attack rhythm." Tsang nodded in agreement and immediately arranged for his subordinates to coordinate data sharing with the liaison department.

Communication with local conglomerates was more amicable and strategic. One afternoon in November, Zhou Jin met Li Ka-shing at the Cheung Kong Group headquarters. The elderly man, dressed in a light-colored Tang suit, spoke gently yet eloquently: "Mr. Zhou, Hong Kong's prosperity cannot be separated from stability, and the support from the mainland is key. Cheung Kong has informed its subsidiaries that it will not reduce its holdings of blue-chip stocks in the near future." Zhou Jin stood up to express his gratitude: "Mr. Li is very understanding. Huayao Capital also plans to invest in some high-quality real assets. There may be opportunities for cooperation in the future to jointly resist market risks." Li Jianguo, standing nearby, added a few words of greeting in Cantonese, making the atmosphere even more harmonious.

That same month, when Zhou Jin met Li Shau-kee at a Henderson Land development project site, he was reviewing urban renewal plans for the New Territories. "The Hong Kong property market is in a bubble; speculators will inevitably target this area sooner or later," Li Shau-kee said bluntly, pointing to the distant buildings. "If Mr. Zhou is interested, Henderson can share some financial data on the property industry to help mitigate risks in advance." Zhou Jin then asked to learn about the external debt situation of Hong Kong property companies, to which Li Shau-kee readily agreed, immediately instructing his assistant to prepare the data.

Beyond the visits, Zhou Jin focused more on monitoring international capital. In the liaison department's makeshift analysis room, several whiteboards were covered with data on foreign exchange trading volume, stock market top traders, and derivatives positions. Li Jianguo and his team marked abnormal transactions one by one: "Director Zhou, look, in the past week, short positions in Hang Seng Index futures have surged by 30%. The trading seats of several offshore institutions are very suspicious, and we can vaguely trace the connection between Quantum Fund and Tiger Fund."

Zhou Jin stared at the fund flow chart on the whiteboard, his fingertip tracing the name "Soros": "These speculators' methods are very covert. They operate through multiple layers of offshore accounts, ostensibly attacking the foreign exchange market, but actually targeting the linkage between the stock and futures markets." He instructed his team to focus on tracking the correlation between the Hong Kong dollar interbank lending rate and Hang Seng Index futures, generating a weekly monitoring report, which was simultaneously sent to the Hong Kong Monetary Authority and Huayao Capital. In March 1998, the monitoring team discovered that Quantum Fund, through three Singaporean banks, had secretly absorbed nearly HK$3 billion in short positions, while simultaneously reducing its holdings in several blue-chip stocks. Zhou Jin immediately reported this situation to the State Council and notified Huayao Capital to prepare for a response.

In the midst of his busy schedule, contacting Chen Panpan was Zhou Jin's warmest comfort. Every Sunday evening, he would make the overseas call on time, and the voice coming through the receiver always dispelled his fatigue: "Brother Jin, it's getting colder in Kyoto. Remember to wear more clothes when you're in Hong Kong, and don't stay up all night looking at documents." Zhou Jin would share some everyday anecdotes with a smile: "The char siu rice at the tea restaurants here is pretty good, and the iced lemon tea is very refreshing. When you come over, I'll take you to try it." When it came to work, he only mentioned it lightly: "Everything is going smoothly. Huayao Capital's funds have been allocated, and we've found several high-quality investment opportunities. Don't worry."

The letters were even more delicate. He would describe the night view of Victoria Harbour, mention that the phoenix trees downstairs in the liaison office were in full bloom, and occasionally mention the fun he had with colleagues like Li Jianguo, but he never mentioned the threat or potential risks of international speculators. In Chen Panpan's replies, she would include a specimen of maple leaves from Kyoto and write down her hopes for the future: "Once things calm down in Hong Kong, we'll go to the beach and watch the sunrise again." Zhou Jin carefully kept these letters in a tucked compartment of his briefcase, and every time he read them, he could feel the strength to move forward.

Meanwhile, the financial arrangements were also quietly underway. In October 1997, Zhou Jin deposited 8 million yuan of personal funds into three banks in Hong Kong, opening stock and futures accounts respectively. He conducted only small-scale exploratory transactions to familiarize himself with market rules while avoiding attracting attention. At the same time, Huayao Capital's 15 billion yuan was diversified through multiple offshore accounts—part of it was used to buy a small number of shares of blue-chip stocks such as HSBC and Cheung Kong, part of it was allocated to hedging contracts for Hang Seng Index futures, and part of it was invested in high-quality bonds in Hong Kong, waiting for the crisis to erupt.

In June 1998, the weather in Hong Kong grew increasingly sweltering, and the atmosphere in the financial markets became increasingly tense. The Hang Seng Index had fallen from a high of 16497 points in August 1997 to around 8000 points, and property prices had also dropped by 20%. Zhou Jin stood by the window of the liaison office, overlooking the bustling traffic of Central, the Qingtian stone seal in his pocket slightly warm. He knew that the all-out attack by international speculators was imminent, and he and Huayao Capital were ready.

The monitoring report on the table showed that Quantum Fund, in conjunction with Tiger Fund, had amassed over HK$500 billion in short positions. A war without gunpowder was about to begin. Zhou Jin picked up his phone and sent Chen Panpan a text message: "All is well, waiting for the flowers to bloom." Then, he turned and walked into the analysis room, saying to his team in a deep voice: "Notify Huayao Capital, everyone to stand by, prepare to meet the challenge."