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

On the morning of August 1, 1998, the air in the analysis room of the Hong Kong Liaison Department seemed to freeze on the exchange rate figure of 7.80. On the electronic screen, the Hong Kong dollar to US dollar exchange rate curve was like a taut bowstring, just touching the key level of 7.80, only a step away from the bottom line of the linked exchange rate system of 7.85. Li Jianguo stared at the real-time trading data, his voice hoarse: "Director Zhou, short sellers have launched a new round of selling in the offshore market, with the largest single transaction reaching HK$1 billion. Quantum Fund's related accounts are still continuously adding to their short positions!"

Zhou Jin's fingertips traced the selling pressure curve on the screen, the Qingtian stone seal in his pocket digging into his palm, bringing a sharp, sobering pain. "Notify the Hong Kong Monetary Authority that our funds are ready and can be deployed to the market at any time." He picked up the encrypted phone and dialed the dedicated line to Kyoto. Shen Mingyuan's image immediately appeared on the screen, with the emergency command center of the Financial Stability and Development Committee of the State Council in the background.

"Xiao Jin, the 1000 billion yuan special foreign exchange reserve has been allocated and you are in full charge of its deployment on the front lines." Shen Mingyuan's voice came through the loudspeaker, steady and firm. "Remember, the key is to hold the 7.80 level and prevent the exchange rate from approaching the bottom line. I have already spoken to the local financial groups, and they will cooperate."

"Understood!" Zhou Jin hung up the phone and immediately connected to Joseph Yam, Chief Executive of the Hong Kong Monetary Authority. "Chief Executive, the special fund has been activated. Please open the trading channel so we can absorb Hong Kong dollars in batches within the 7.78-7.80 range."

"Received!" Joseph Yam replied crisply. "The Hong Kong Monetary Authority has prepared HK$500 billion in foreign exchange reserves to operate in tandem with you, forming a pincer movement."

At 9:00 AM, the Hong Kong foreign exchange market opened with fierce fighting. Short sellers flooded in like a tidal wave, instantly pushing the Hong Kong dollar exchange rate to the warning level of 7.80. Zhou Jin stared at the trading terminal and said in a deep voice, "The first batch of funds, 30 billion, all invested at the 7.80 price level!"

Billions of Hong Kong dollars in buy orders flooded the market instantly, causing the exchange rate curve to briefly rebound to 7.79. However, short sellers immediately followed suit by covering their positions, pushing the exchange rate back down to 7.80. "These people are determined to break through the defenses," Li Jianguo clenched his fist. "Should we inject the second batch of funds ahead of schedule?"

"Wait a little longer." Zhou Jin's eyes were sharp. "Although the short sellers have a large amount of funds, they are spread across dozens of offshore accounts. We need to target their weak points precisely." He had his team analyze the trading rhythm of the short sellers' accounts and found that the Quantum Fund's core account would concentrate on selling at the top of each hour, while the rest of the time it was mostly follow-the-trend trading.

At 10:00 AM, when another wave of sell orders totaling HK$15 billion appeared, Zhou Jin immediately ordered: "The second batch of HK$40 billion will be injected in 10 consecutive transactions, with a 3-minute interval between each transaction. At the same time, local consortia should be notified to enter the market."

On the other end of the phone, Li Ka-shing responded swiftly and firmly: "Mr. Zhou, rest assured, Cheung Kong has already mobilized HK$200 billion to immediately enter the market and absorb the shares." Consortiums such as Sun Hung Kai Properties and Henderson Land Development also responded simultaneously, with billions of Hong Kong dollars continuously flowing into the market. With the combined force of these multiple funds, the Hong Kong dollar exchange rate rebounded like a spring that had hit rock bottom, rising all the way to 7.77.

At the same time, Zhou Jin opened his personal stock account and used 800 million of his 500 million yuan funds to buy 3-month Hong Kong dollar forward contracts. "Locking in the current exchange rate can not only help stabilize the market, but also avoid the risk of subsequent fluctuations," he explained to Li Jianguo beside him, his tone calm but confident—this was an "unconventional" move based on his judgment of the market trend.

Huayao Capital's operations were more strategically in-depth. Lin Yue sent a real-time update via encrypted channel: "Mr. Zhou, the offshore account has purchased HK$150 billion, and at the same time completed the sale of shares in a Thai rubber company, recovering HK$8 million and making a profit of HK$2 million." Zhou Jin replied: "All funds have been transferred to the Hong Kong dollar reserve account, ready to deal with any short-selling counterattack. At the same time, we are screening high-quality real estate and physical enterprises in Hong Kong to prepare for bottom-fishing."

Over the next three days, the game intensified. The short sellers, unwilling to accept defeat, joined forces with more hedge funds to sell, causing the Hong Kong dollar exchange rate to fluctuate repeatedly between 7.75 and 7.80. Based on fund flow data provided by the Hong Kong Monetary Authority, Zhou Jin adjusted the pace of fund injections: whenever the short sellers concentrated their selling, she would join forces with financial groups to launch a strong counterattack; when the market stabilized, she would slow down fund injections to avoid excessive depletion of foreign exchange reserves.

On August 3, short sellers attempted to create panic by raising Hong Kong dollar interbank lending rates, with the overnight rate surging to 18%. Zhou Jin immediately coordinated with the State Council to inject HK$10 billion in liquidity into the Hong Kong market through Chinese banks, while simultaneously having Huayao Capital borrow HK$5 billion through offshore banks to stabilize market interest rates. "The short sellers wanted to force companies to sell Hong Kong dollars through high interest rates, but we thwarted their plan with ample liquidity," Zhou Jin said at the daily analysis meeting.

On August 5th, the five-day battle to defend the Hong Kong dollar reached a turning point. After days of attrition, the short sellers' funding chains gradually came under pressure, while the backing of China's foreign exchange reserves and the firm stance of local conglomerates allowed market confidence to continue to recover. At the close of trading that day, the Hong Kong dollar exchange rate against the US dollar stabilized at 7.73, recovering 0.07 from its lowest point and successfully escaping the danger zone.

Monitoring data shows that short positions held by Quantum Fund and other short sellers have decreased by 60%, and the remaining funds are beginning to withdraw from the Hong Kong dollar market and flow into the Hang Seng Index futures market—clearly, they have shifted their focus to the stock market. In the liaison department's analysis room, the team members finally showed tired smiles. Li Jianguo handed them a cup of hot coffee: "Director Zhou, we won the first round! Huayao Capital profited 2 million, and your personal account also earned 50."

Zhou Jin took the coffee, his fingertips tracing the stamp in his pocket, the four characters "Upholding Integrity and Seeking Innovation" seeming to grow clearer. He looked at the stable exchange rate curve on the screen, but his mind remained uneasy: "This is just the beginning. The short sellers, having suffered setbacks in the Hong Kong dollar market, will inevitably launch a more ferocious attack on the stock market. Notify Huayao Capital to compile a list of high-quality blue-chip stocks and real assets in Hong Kong. Our bottom-fishing plan should begin."

Outside the window, the sunlight pierced through the clouds, illuminating the skyscrapers of Central. This first round of the silent battle ended with the Hong Kong dollar's defenses held firm, but Zhou Jin knew the real battle was yet to come. He picked up his phone and sent Chen Panpan a text message: "The storm has subsided, all is well, the meaning of perseverance is becoming apparent." Then, he turned and walked towards the conference room, where a new battle plan was about to be formulated.