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

In July 1998, the Asian financial crisis swept across the Hong Kong coast. Currency exchange rates in Bangkok were in disarray; the Thai baht had depreciated by over 30% since the beginning of the year, and the Malaysian ringgit had also plummeted to a record low due to international capital outflows. The financial systems of many Southeast Asian countries teetered on the brink of collapse. This chill swept across the South China Sea, casting a cold shadow over Hong Kong's summer.

On the screen in the liaison department's analysis room, the Hong Kong dollar to US dollar exchange rate curve was visibly declining. Li Jianguo pointed to the fluctuating numbers on the screen, his voice tinged with urgency: "Director Zhou, Quantum Fund, in conjunction with Tiger Fund and Long-Term Capital Management, has launched a concentrated sell-off in the offshore market! The Hong Kong dollar exchange rate has already fallen below the 7.75 warning line, and is currently at 7.762, and it's still going down!"

Zhou Jin slammed his fingertips on the table, his gaze fixed on the data terminal. On the screen, each large sell order was like a hammer blow to the foundation of Hong Kong's linked exchange rate system. "Has the Hong Kong Monetary Authority taken any action?" he asked in a deep voice.

"President Ren has ordered the use of foreign exchange reserves to absorb Hong Kong dollars, while simultaneously raising interbank lending rates. The overnight rate has already soared to 12%!" Li Jianguo quickly flipped through the real-time news. "But the selling pressure from the short sellers is too intense. They are spreading their transactions through dozens of offshore accounts, and it's impossible to stop them all!"

The turmoil in the currency market quickly spread to the stock market. The Hang Seng Index opened sharply lower, plummeting from the 15000-point mark and triggering several trading halts during the day, ultimately closing below 13000 points, a single-day drop of over 13%. In brokerage offices in Central, retail investors crowded around trading machines, anxiously selling their stocks, their cries and curses mingling together. An elderly man with white hair slumped in a chair, clutching his stock account certificate, now worth half its original value, muttering to himself, "A lifetime's savings, all gone..."

This panic spread through the market, with many local SMEs following suit and selling off assets to seek refuge in US dollars. Zhou Jin received an urgent message from Li Ka-shing: inquiries about several commercial properties under Henderson Land Development had plummeted, and previously negotiated overseas financing had been temporarily halted by banks. News also came from Li Ka-shing's side that Cheung Kong Holdings' blue-chip holdings had been maliciously shorted by an anonymous institution, causing the share price to fall by 8% in a single day.

"The short sellers' goal is very clear: to break through the linked exchange rate system, crash the stock market and the property market, and create a systemic crisis." Zhou Jin paced back and forth in the analysis room, the Qingtian stone seal in her pocket burning hot from being gripped so tightly. "They have calculated that the Hong Kong Monetary Authority's foreign exchange reserves are limited, and they want to force us to abandon the linked exchange rate through a war of attrition."

Just then, the encrypted video call on the desk rang, and Shen Mingyuan's image appeared on the screen. The old professor's expression was unusually solemn, with several leaders from the Financial Stability and Development Committee of the State Council sitting behind him. "Xiao Jin, the emergency meeting of the emergency response team is now beginning." Shen Mingyuan's voice came through the speaker, carrying an unquestionable authority, "Currently, many Asian currencies have collapsed, but Hong Kong's linked exchange rate system must not be broken—this is not only a financial issue, but also a political issue concerning national sovereignty and Hong Kong's stability."

On the screen, a leader from the Financial Stability and Development Committee of the State Council took over: "The State Council has approved the allocation of HK$2000 billion of foreign exchange reserves as a backing for the Hong Kong Monetary Authority. The core objectives are only three: First, to uphold the Hong Kong dollar's peg to the mainland exchange rate system and absolutely not allow the exchange rate to fall below the 7.8 floor; second, to stabilize the stock market and prevent the Hang Seng Index from further declining and triggering a chain reaction; and third, Huayao Capital should seize the opportunity to buy up high-quality real assets in Hong Kong at bargain prices, thus strengthening its foundation against risks."

Zhou Jin straightened his back and replied in a deep voice, "Understood! We have already detected that short sellers such as Quantum Fund have accumulated short positions of over HK$500 billion, mainly through offshore markets and Hang Seng Index futures. The Hong Kong Monetary Authority has launched a counterattack, but it needs the cooperation of Huayao Capital from the sidelines."

"I have already discussed the specific plan with the Huayao Capital team," Shen Mingyuan added. "The RMB 15 billion from Huayao Capital will be invested in three batches: the first batch will be used to absorb Hang Seng Index heavyweight stocks to alleviate selling pressure in the stock market; the second batch will be used to buy the counterparty of Hong Kong dollar short positions through offshore accounts to reduce the hedging pressure on the Hong Kong Monetary Authority; and the third batch will be reserved to buy high-quality real estate projects and equity of real enterprises after the stock market and property market stabilize."

Zhou Jin immediately nodded: "I will now coordinate with the Hong Kong Monetary Authority to share data on short-selling fund flows, making Huayao Capital's operations more precise. In addition, regarding local conglomerates, Li Ka-shing and Lee Shau-kee have pledged to stabilize their positions. We can join forces with the Hong Kong General Chamber of Commerce to organize more patriotic entrepreneurs to join the market support efforts."

"Very good." Shen Mingyuan's eyes were filled with trust. "Xiao Jin, the financial defense of Hong Kong is now in your hands. Remember your grandfather's principle of 'upholding the right path while employing unconventional tactics.' Upholding the right path means safeguarding the bottom line of the linked exchange rate and national interests, while employing unconventional tactics means using funds flexibly to fight a brilliant defensive counterattack."

After the video conference ended, Zhou Jin immediately dialed the encrypted phone number of the Huayao Capital team and issued the order for the first batch of funds to enter the market: "Immediately use 5 million yuan to buy blue-chip stocks such as HSBC, Cheung Kong, and Henderson Land in batches. The transactions should be spread across different seats to avoid the monitoring of short sellers. At the same time, quietly absorb the counterparty of the Hong Kong dollar short positions through three Singapore offshore banks, and control the price in the range of 7.75-7.78."

"Received!" Lin Yue's voice was filled with excitement on the other end of the phone.

After hanging up the phone, Li Jianguo walked in with a latest monitoring report: "Director Zhou, the short sellers seem to have noticed our moves. The short positions in Hang Seng Index futures are still increasing, and they have started attacking the stock prices of local Hong Kong banks. HSBC and Hang Seng Bank's stock prices have already fallen by 5%."

Zhou Jin's eyes sharpened: "As expected. Inform Huayao Capital to temporarily halt its purchases of bank stocks and instead allocate funds to high-quality Hong Kong local bonds. Simultaneously, contact the Hong Kong Chinese General Chamber of Commerce and have Chairman Li speak out to stabilize market confidence." He walked to the window, watching the hurried crowds on the streets of Central, knowing full well that this financial war had only just begun. The short sellers' offensive was fierce, and their counterattack had to be precise, decisive, and ruthless.

The Qingtian stone seal in his pocket seemed to be conveying strength. Zhou Jin recalled his grandfather's instructions, Chen Panpan's words in her letter, "Wait patiently for the flowers to bloom," and the trust of the State Council and the expectations of the citizens of Hong Kong. He took a deep breath, turned to his team, and said in a deep voice, "Cancel all vacations. Work in shifts, 24 hours a day, monitoring market dynamics and summarizing data every hour. We must win this battle!"

As night deepened, the lights in the liaison department's analysis room remained on all night. The exchange rates and stock index curves on the screens continued to fluctuate wildly, like the pulsating heartbeat of this war without gunfire. Zhou Jin sat before the data terminal, his fingers flying across the keyboard. Every command concerned the direction of Hong Kong's financial market and the nation's financial frontier. He knew that the days to come would be the ultimate test of will and wisdom, but he and his team were already prepared to meet any challenge.