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

On August 21, 1998, Hong Kong's financial markets were gripped by an unprecedented panic. International short sellers made a desperate gamble, mobilizing an estimated $100 billion to launch a full-scale attack on the Hong Kong dollar and Hong Kong stocks. In the offshore market, billions of Hong Kong dollars in sell orders flooded in like a tidal wave, putting renewed pressure on the Hong Kong dollar exchange rate against the US dollar, which fell to 7.79, just a step away from the 7.85 bottom line of the linked exchange rate. The stock market opened with a precipitous drop, with the Hang Seng Index plummeting from 12800 points, a single-day plunge of 1300 points, closing at 11500 points. Blue-chip stocks such as HSBC Holdings and CK Asset Holdings were forced to their daily limit down, and trading volume hit a record high.

The atmosphere in the liaison department's analysis room was so heavy it was suffocating. Li Jianguo held the latest liquidity monitoring report, his voice trembling: "Director Zhou, three small and medium-sized local banks are experiencing a run on their banks, and several securities firms are facing the risk of bankruptcy due to client margin calls. If the decline cannot be stopped, Hong Kong's financial market may really collapse!" On the screen, short-selling trading seats continued to increase their positions, with the funds of core short sellers such as Quantum Fund and Tiger Fund far exceeding previous estimates, clearly indicating a last-ditch effort.

Zhou Jin's eyes were bloodshot; a month of intense combat had left him thin, but his gaze was as resolute as tempered steel. He clutched the Qingtian stone seal in his pocket; the inscription "Upholding the Righteous Path, Employing the Unconventional" seemed embedded in his palm, conveying a steady strength. "They're betting that our foreign exchange reserves won't hold up, betting that the central government will abandon the linked exchange rate system," Zhou Jin said, pointing to the capital flow chart on the screen. "But they've miscalculated. China's bottom line cannot be crossed."

Late that night, an emergency encrypted video conference was convened. Behind Shen Mingyuan on the screen, all members of the Financial Stability and Development Committee of the State Council were present, the atmosphere solemn. "According to monitoring, the short sellers have used all their funds; this is their final blow," Shen Mingyuan's voice carried a resolute determination. "The State Council has decided to use the remaining 1200 billion Hong Kong dollars of special foreign exchange reserves to fight the short sellers to the death! The core directive is: uphold the Hong Kong dollar's peg to the mainland exchange rate system and hold the 11000-point stock market floor; Huayao Capital will simultaneously launch a full-scale offensive, buying up high-quality assets amidst the liquidity crisis to completely dismantle the short sellers' remaining strength."

"Professor Shen, I'm confident." Zhou Jin's voice was clear and firm. "We've calculated that the short sellers' financing rate is as high as 15%, with a daily funding cost exceeding $400 million. If we can hold out for three days, their funding chain will inevitably break, forcing them to liquidate their positions." He paused, then outlined his specific tactics: "The 120 billion will be used in two parts: 80 billion will be injected into the Hong Kong Monetary Authority to absorb Hong Kong dollars and defend the 7.78 exchange rate level; the remaining 40 billion will be used in conjunction with the mainland social security fund and state-owned banks to buy Hong Kong blue-chip stocks in batches, focusing on boosting financial and real estate stocks to stabilize the index."

Shen Mingyuan nodded emphatically: "We will proceed according to your plan! The State Council will fully support you. If necessary, the country's $1400 billion in foreign exchange reserves can be used for Hong Kong."

Immediately after the meeting, Zhou Jin took action. He first called Joseph Yam, Chief Executive of the Hong Kong Monetary Authority, and issued the order to allocate funds: "The HK$800 billion special foreign exchange reserve is in place. Prioritize absorbing Hong Kong dollar sell orders in the offshore market and ensure the exchange rate remains stable above 7.78." Then, he contacted Lin Yue of Huayao Capital, his tone authoritative and leaving no room for doubt: "Initiate the ultimate bottom-fishing plan, targeting the Hong Kong National Bank, Hang Lung Properties, and the Hong Kong branch of South China Minerals, all of which are facing liquidity crises. Use all available funds to acquire core stakes!"

At the same time, Zhou Jin opened his personal securities account and invested all of his previous profits of 1500 million yuan, along with his initial principal of 800 million yuan, totaling 2300 million yuan, into the market—half of which he bought Hong Kong dollar forward contracts, and the other half he increased his holdings in stocks such as HSBC Holdings and Tencent. He also increased his long positions in Hang Seng Index futures. "This is a do-or-die battle. My personal interests and the national interests are already intertwined," he murmured to himself, a resolute glint in his eyes.

From August 22nd to 24th, the decisive battle entered its most brutal tug-of-war. Short sellers launched fierce attacks every day during the opening hours, causing the Hong Kong dollar exchange rate to fluctuate between 7.78 and 7.79, and the Hang Seng Index repeatedly approaching the critical 11000-point mark. The liquidity crisis at several local financial institutions worsened, with long lines forming on the streets at National Bank, and Hang Lung Properties' bond prices plummeting by 30%, teetering on the brink of default. Zhou Jin barely slept, adjusting her investment strategy every hour based on market data: when the Hong Kong dollar exchange rate was under pressure, she increased the absorption of foreign exchange reserves; when the stock market fell, she joined forces with local consortia to collectively boost blue-chip stocks.

Late on the 24th, Li Jianguo, carrying a report on the cost of short selling funds, wearily walked into the analysis room: "Director Zhou, the short sellers' funding chain has cracked! Their financing channels are starting to tighten, and some hedge funds are already quietly reducing their short positions." Zhou Jin's spirits lifted, and he immediately ordered: "Notify Huayao Capital to accelerate the bottom-fishing process! Acquire a 20% stake in National Bank for 10 billion yuan and demand that they immediately stop the run on the bank; acquire a 15% stake in Hang Lung Properties for 8 million yuan to help it repay its maturing debts; acquire a 30% stake in Nanhua Mining's Hong Kong branch for 5 million yuan to control its mineral trading channels."

On August 25, the short sellers' offensive noticeably weakened, but they continued to put up a stubborn resistance. At this critical moment, the State Council, through its Liaison Office in Hong Kong, released a major announcement, which was published on the front page of both *Ta Kung Pao* and *Wen Wei Po*: "The Central Government of the People's Republic of China will provide unlimited support for Hong Kong's financial stability, and if necessary, can utilize all of the country's foreign exchange reserves (currently valued at US$140 billion) to resolutely crack down on any malicious short-selling activities and safeguard national financial sovereignty and Hong Kong's prosperity and stability."

This news came like a thunderbolt, completely shattering the short sellers' psychological defenses. In the international market, a split emerged within the short-selling camp—some hedge funds realized that going head-to-head with China's foreign exchange reserves was tantamount to throwing an egg against a rock, and began to liquidate their positions on a large scale and withdraw; Quantum Fund tried to persist, but soaring financing costs and the break in its capital chain rendered it powerless to launch an effective attack.

On August 26, the Hong Kong dollar exchange rate stabilized and rebounded to 7.75; the Hang Seng Index began to rebound, recovering the 12000-point mark. Zhou Jin seized the opportunity and ordered the remaining market-stabilizing funds to be concentrated on severely undervalued quality blue-chip stocks, further expanding the rebound momentum. Huayao Capital's bottom-fishing operation also came to a successful conclusion. The run on National Bank was contained, Hang Lung Properties' debt crisis was resolved, and the equity transfer of Nan Wah Minerals was completed. The valuations of the three major assets have begun to recover.

August 28th marked a decisive day for Hong Kong's financial markets. After the opening bell, short sellers launched only a symbolic attack before collapsing en masse and liquidating their positions on a massive scale. The Hang Seng Index surged, ultimately closing at 13500 points, a 2000-point increase from its lowest point; the Hong Kong dollar stabilized at 7.72 against the US dollar, well above the safe zone of the linked exchange rate system. Monitoring data showed that short sellers suffered heavy losses in this final showdown, accumulating losses exceeding US$20 billion. Key short sellers, including Quantum Fund, completely withdrew from the Hong Kong market, no longer able to launch an attack.

The moment the closing bell rang, thunderous cheers erupted in the liaison department's analysis room. Li Jianguo, clutching the report, was moved to tears: "Director Zhou, we won! We won completely!" Team members hugged each other, releasing all the fatigue and pressure of the past few days. Zhou Jin stood there, staring at the stable exchange rate and index curve on the screen, her tense nerves finally relaxing, and her eyes involuntarily welled up with tears.

Huayao Capital's latest report quickly followed: the bank, real estate, and mining equity stakes acquired at bargain prices, combined with previously acquired assets, had a total valuation increase of 40% compared to the initial investment, accumulating a huge amount of strategic assets for the country; Zhou Jin's personal funds, after multiple rounds of speculation, had increased from the initial 800 million yuan to 3800 million yuan, achieving a nearly fivefold return. But these figures seemed less important in the face of "victory."

The encrypted phone rang again, and Shen Mingyuan's voice was filled with barely suppressed excitement: "Xiao Jin, the State Council congratulates you and your team! The victory in this financial war not only safeguarded Hong Kong's financial stability but also defended the nation's sovereignty and dignity. After learning the news, your grandfather, Mr. Zhou Jianguo, specifically asked me to tell you—you have not failed the entrustment of 'upholding the right path while seeking innovation,' nor have you betrayed the nation's trust."

Zhou Jin held the phone, her voice choked with emotion: "Thank you, Professor Shen, thank you, State Council. This is the result of everyone's joint efforts."

After hanging up the phone, he walked to the window. Morning light bathed every corner of Hong Kong, the surface of Victoria Harbour shimmered, and the skyscrapers of Central gleamed in the sunlight. This financial war, which had lasted for over a month, had finally ended in a complete victory for China. He took Chen Panpan's notebook from his pocket, turned to the latest page, and wrote a line in fervent handwriting: "Victory in the decisive battle, the land is safe and sound. Upholding righteousness while employing unconventional tactics, we ultimately protected our nation. Wait for me, I will return home immediately."

The Qingtian stone seal in his pocket seemed to glow with a warm light. Zhou Jin knew he was about to leave this city that had witnessed blood and fire, to return to the Kyoto he so longed for, to Chen Panpan's side. But his time in Hong Kong, this war without gunpowder, would forever be etched into his life, becoming his most precious memory.