`Are you telling me, Marty, we could just go in there and take back the South China Sea and the islands?' asked Bradlay.
`Yes and no, Mr President,' Weinstein replied. `The Chinese might have a lousy army, navy, and air force. But when it comes to missiles you could say they are getting close to us. You only need one missile to get through the net to reap destruction. The Bunker Hill is there to help our own IMINT operations. She can watch any missile from its launch up through the atmosphere and down again to target. So the Chinese could up the stakes and threaten to send a missile into Vietnam or something if we move against them.'
`And we couldn't shoot it down?'
`There would be no guarantee. And there's one other thing.'
`Go on.'
`We have the same problem as China. We could take the South China Sea, but we couldn't hold it. The best damn navy in the world is simply not powerful enough. Our armed forces are suffering from the Base Plan implemented in 1992 by the then Chairman of the Joint Chiefs of Staff General Colin Powell. Our navy ships have been cut from 443 to 340; our carrier battle groups from 14 to 12; our air force fighter wings from 16 to 13. The armed forces have been cut and cut, yet our commitments are increasing.'
`But we can still send four more carrier groups to the South China Sea.'
`Again, Mr President, yes and no. We maintain 35 operational deployments around the world. There's 160,000 American service personnel out there in jobs ranging from the 35,000 on the Korean Peninsula to 2,000 in Burundi. They're costing money. Burundi is $120 million. The processing of Caribbean refugees at the Guantanamo base in Cuba by 1,100 soldiers is costing $250 million a year. Unforeseen flare-ups with Iraq and Libya amounted to $550 million. It's little bits here and there which mount up and get noticed by Congress. We have to go cap in hand every time we want to set up another operation.
`The current configuration of our armed forces is precisely for these multilateral operations and has been since the 1990s, when we went into post-Cold War deployment. But the reduction has meant that we are incapable of fighting two regional conflicts at once. One example is the new C-17 transport plane. Our operations mean the airlifting of thousands of troops very quickly. In this crisis, they would probably go to Vietnam or we could persuade the Philippines to let us back in. Our C-17 airlift fleet is thirty aircraft short because they haven't come off the production line yet. America's ability to fight two major regional conflicts will remain sharply limited until 2006.'
`I'm hearing you, Marty, but we've only got one conflict right now, in the South China Sea.'
`That's this week, Mr President.'
The two men were silent for a moment, watching the pictures of the bombing in Haiphong. Fire and black smoke leapt out from an apartment block. Ships listed, ablaze, in the harbour.
`Who's on our side, then?' Bradlay asked.
`Western Europe. Most of them will pontificate. But we can rely on France and Britain. Japan's an ally. But do we want it to get militarily involved? Shades of World War II and all that. India will stay neutral and privately back us. India's wary of China and of Pakistan. They like us around. Don't count on Pakistan. They've been thick with China. Their Karakoram-8 jet trainer, Khalid tank, HJ-8 anti-tank missiles, and Anza-2 surface-to-air missile are all based on Chinese design and technology. Burma's military is kitted out and bankrolled by the PLA. The rest of South-East Asia wants to make money. If America looks like jeopardizing that, they won't support us. Africa doesn't matter.'
`What about the Russians?' asked the President.
`They have teams of engineers right now down on Hainan Island, working on the Su-27s at Yulin, the Kilos at the Sanya submarine base next door, and whatever else they've sold to China at Zhanjiang, the headquarters of the South Sea Fleet. On top of that, their scientists are helping with Chinese missile programmes. Without Russian cooperation, sir, we should be a lot better placed to go to war with the Chinese.'
The Tokyo Stock Exchange
Local time: 0900 Monday 19 February
GMT: 2400 Sunday 18 February 2001
The morning trading session, which in Tokyo lasts from 9.00 until 11.00, was overactive, with 200 million shares trading. But what was worrying was the scale of the fall in share prices in the Nikkei index of 225 leading Japanese stocks led by Matsushita, Nippon Oil, and a raft of blue-chip Japanese companies. The index had only sailed through the 40,000 barrier at the end of January, and it ended the morning more than 400 points, or more than 1 per cent, lower, at 39,700. More worrying still was the behaviour of the yen. It had been trading in a narrow band of to to the US dollar, but in the Tokyo morning session it had fallen to .6 4 per cent depreciation. The Bank of Japan was frantically selling dollars for yen, but dollars were what the market wanted to buy . . . except First China. As investors dumped the yen it began to calculate the value of its short-yen position. First China, with General Zhao's backing, had borrowed billion and immediately sold it forward. For the bet to pay off, the spot yen rate against the dollar e rate at which people deal minute to minute during the day would have to weaken from the average rate at which First China borrowed. The collapse in the yen was just what Phillips and Zhao had predicted. Trading through the day in Tokyo it managed to achieve an overall profit for General Zhao of 10.8 per cent or the equivalent of $181.95 million. But Damian Phillips was only a keen spectator on Monday. He knew the yen had far further to fall.
Briefing
Hong Kong
In 2001 the countries of South-East Asia possessed sizeable minorities of ethnic Chinese. Tens of millions had fled their country's civil wars, tumults, and famines to far-flung corners of the Earth. They built the railways in Canada, America, and Australia and stayed on to pan for gold and set up restaurants and business, but most emigrated to the countries bordering the South China Sea. In these countries their business acumen enabled them to build formidable money empires which dwarfed those of the generally less entrepreneurial native populations. Small in number, these overseas Chinese possessed great financial power. In Indonesia just 3.5 per cent of the population were ethnic Chinese yet they controlled 80 per cent of the assets of the top 300 companies. This pattern of economic dominance was repeated throughout the region. In the Philippines the ethnic Chinese represented 2 per cent of the population and controlled up to 60 per cent of the stock market; in Thailand, about 10 per cent of the population and 80 per cent of the stock market. Hong Kong was the point at which the overseas Chinese met the mainlanders. While they loathed the Communist system which had compelled many of them to flee China, their adherence to the teachings of the ancient Chinese sage Confucius and their yearning for China had not diminished. Importantly, neither were their links to the ancestral villages of their ancestors' birth completely severed. Chinese businessmen from Indonesia, Malaysia, Singapore, and the Philippines had traditionally used Hong Kong as the base for the `offshore' wealth. Now it had become the beachhead for their commercial thrust into China and the place where they felt most comfortable wining and dining their mainland business partners and contacts.
Since the mainland takeover of Hong Kong on 1 July 1997 little appeared to have changed. Hong Kong still retained its astonishingly modern skyline. Towers of glass and steel, designed by some of the world's leading monument builders to the rich, were set dramatically against the steeply rising north face of Victoria Peak. To the tourist who stopped over for three days on his way to Australia, or before or after visiting China, Hong Kong appeared to be business as usual. The Stanley market still offered value with its cheap T-shirts and fake Ming porcelain, the jade market in Kowloon still did a lively trade, and, to the amazement of many (especially given China's tough laws on the export of antiquities) it was still possible to buy a horse from the Tang Dynasty (ad 618) in the antique shops along Hollywood Road in Central. But below the surface, the new tougher sovereign exercised power in place of its benign and neglectful predecessor. China observed the outward forms of civic life bequeathed by the British. B
eijing had no need to send down officials from the capital to rule Hong Kong; through inducement they saw to it that their chosen people found success in elections to the local parliament, or in appointments to the top jobs in government, academe, and the media. The worst time for the local administrators was the winter. Since the takeover Hong Kong had become a popular place for the more elderly military and Party leaders to spend the harshest months of the northern Chinese winter. A vast estate on the south-east of the island at Chum Hum Kok which the British had used to spy on China had been converted into a resort for the leadership. The local Cantonese referred to the place as the `retirement village'. But it was a whispered joke. A telephone call from any of the thirty or so senior leaders ensconced at the resort and a livelihood, though rarely a life, could be lost. Outside the random interventions of the elderly, Beijing's control was exercised at a weekly meeting between Hong Kong's Chief Executive, as the post-colonial governor was styled, and Beijing's senior representative in the `Special Administrative Region', as the colony was now known. A curl of the Beijing representative's lip or a flicker of his eyebrow was sufficient to indicate to the Chief Executive whether his choice for, say, the chairman of the hospital authority or monetary authority was likely to find favour in Beijing.
The media marched to the beat of the same drum. The Communist Party had been assiduous in infiltrating trusted agents into the main Chinese language and English-language newspapers and broadcast organizations. Together with the Party's stranglehold on the universities, the takeover of the media was one of the most successful of its operations in Hong Kong, all the more for being largely unnoticed. The people who rose to the top in Hong Kong's news media after 1997 were well-educated and articulate presenters of China's point of view. They ensured media gave full and positive coverage to the Chinese government's plans for the country's economic development. That morning the newspapers carried in full China's reasons for seizing the South China Sea. China was simply making de jure what had always been its de facto sovereignty over the South China Sea. Its pre-emptive strike against Vietnam was prudent, though the consequent casualties on both sides were regrettable. The newspapers recounted how generous Hong Kong had been in giving refuge to the Vietnamese boat people during the 1980s and 1990s. The only section of the media which remained relatively immune from interference was the financial pages. Yet even there care was taken not to offend any of the `Better Hong Kongers' group of Chinese tycoons who joined forces towards the end of 1995 to promote the view that it would be `business as usual' in Hong Kong after the China resumed sovereignty. This was an astute move as most of the tycoons who wanted an active public life were allowed one.
Hong Kong was a HK$500 billion, or about US$65 billion, stock market: the region's biggest after Tokyo. Such a concentration of wealth was like honey to the world's investment-banker bees. They swarmed there. But the problem for Hong Kong was that the US mutual funds owned nearly 40 per cent of the market.
Exchange Square, Hong Kong
Local time: 0900 Monday 19 February 2001
GMT: 0100 Monday 19 February 2001
On the first trading morning of the crisis the position of the overseas Chinese was far from the minds of traders in Hong Kong. Confidence had taken a serious knock. The Hang Seng Index of the top 33 stocks opened 120 points, or half a percentage point, lower. Then, as the pressure of selling by the US mutual funds gathered pace and brokers, in a process known as `bottom fishing', continued to cut prices to see if investors would be tempted to buy, the index continued lower. Citic Pacific, China's flagship enterprise in Hong Kong, lost nearly 10 per cent of its value in the morning session alone. The pattern was repeated for other Hong Kong stocks, both blue-chip stocks and the `red'-chip stocks of the mainland Chinese companies listed there. Foreign companies listed in Hong Kong fared marginally better, with the notable exception of Boeing, the US aerospace group. It had recently acceded to a Chinese government request to list its shares on a Chinese bourse and had chosen Hong Kong.
As share trading got into full swing the Hong Kong market was less concerned with elegant justifications for China's actions than it was with rumours that some of the selling pressure was emanating from Beijing. This was not as strange as it first seemed. The military and party leaders in Beijing were some of the biggest speculators on the Hong Kong exchange. Hong Kong was a perfect place for them. It was China yet in some mysterious way it was also not China, it was foreign. It was a place where the delights of the West could be experienced in total safety but without the trouble of actually having to deal with foreigners. The banks were still relatively confidential and knew how to be discreet about money transfers, but most senior officials preferred an alternative to the local banks. They put themselves beyond the prying eyes of the secret police by dealing through nominee companies registered in the British Virgin Islands. The association with an outpost of Britain colonialism was painful but far from terminal. These companies required no audited company accounts to be submitted to the authorities, and allowed incorporation with just one company director, rather than the usual two directors in most other `offshore' financial centres. This was as close to total financial secrecy as one could get. The gossip around Exchange Square was about which senior official in Zhongnanhai was liquidating such large positions. It didn't say a lot about the leadership's belief in success in the South China Sea operation for one of them to be so conspicuously on the sell side of the market.
Damian Phillips, Chairman of First China Securities, dismissed the rumour as idle speculation when rung up by a reporter from the South China Morning Post. Lunching that afternoon with a partner of Li & Li, a respected firm of mainly Cantonese brokers, in the Red Room of the Hong Kong club, his guest was heard to say: `Then again, Damian, they are probably just forcing the market lower so they buy back at a cheaper level. It would be amusing if he was a PLA man, wouldn't it?'
`Indeed it would, Peter,' he said, betraying no more than civility.
Bundeskanzlerant, Berlin
Local time: 1100 Monday 19 February 2001
GMT: 1000 Monday 19 February 2001
The German Chancellor waited for the last member of the cabinet to leave the room, then told his Private Secretary that he was not to be disturbed for at least fifteen minutes. There had been surprising agreement among his ministers about the need to show neutrality in the South China Sea dispute. He had expected some token objections.
For weeks the Chancellor had dismissed the opposition's prediction that Germany was foundering and would soon go into an inevitable decline. But even the 1815 quotation by Goethe framed above the wall behind his desk reminded him of the challenge ahead: `Anything in the world can be endured except a succession of prosperous days.'
Unemployment was at 4,000,000. Unofficial estimates put it at 6,000,000. The last time so many Germans were destitute and humiliated was in 1945 after the fall of the Third Reich. Welfare costs were rising. The Mittelstand the small and medium-sized private firms that were the foundation of German manufacturing might re losing their edge.
The German economic model was disintegrating as a result of high wages, low morale, a cradle-to-grave attitude among workers, bickering politics, and a changing global market which the Grossmacht had been too proud to respect. There was a brain drain of the best and brightest to Harvard and Stanford. The German universities were not good enough: yet before the Second World War Germany had been the world centre for medicine, chemistry, and physics. Research and development, the foundations of a strong economy, had become a joke. A similar tale of woe could be told about Germany's position in computers, office technology, and lasers.
Then there was the bureaucracy. While Britain had cut through red tape and attracted foreign investment, Germany had not. Investors had to wait on average three months in Britain, six months in France, and twenty-two months in Germany to get their investment plans approved. `The Americans invent, the Japanese produce, while the Germans dither.' The words from the Hanover C
hamber of Commerce echoed silently around the room. How many billions of Deutschmarks had been lost in business which had gone to the cheaper labour markets in Poland, Hungary, and the Czech Republic? A German worker charged $25 an hour. A Czech worker cost just $2. There could be no competition.
There was no guarantee that the wealth of the Far East would solve the problems. But the opportunity was too great to risk by being drawn into a regional conflict. The consumer market was growing so fast that each Chinese province would soon represent the buying power of a European country.
But today a spectre of morality had been cast across trade with China and the Far East. France, without consultation, was moving its warships and fighting men to protect a former colony in Asia. The Chancellor had no doubt that the British navy would get involved in a day or two.
He flicked on his television set to see France announce the deployment of warships from its base in Tahiti. He hoped, in the spirit of economic competition, that when the crisis had blown over he could announce new joint-venture deals worth billions of Deutschmarks, with Daimler-Benz moving into Chinese provinces once earmarked for Citroen.
Palais d'Elyse´e, Paris
Local time: 1200 Monday 19 February 2001
GMT: 1100 Monday 19 February 2001
After the television broadcast, in the car back to his official residence, the French President flicked through the cue cards to which he had referred. He knew the statistics intimately, knowing that his policies would be applauded in the cafe´s and tabacs throughout France. There were two unquestionable assets in French political life: a mistress and overseas troop deployment.
The President suffered no less from economic problems than his friend the German Chancellor. France was undergoing painful reforms to wean it off subsidy and welfare. Clawing back benefits had caused the worst riots since the 1960s. But the President had no doubt that both rioters and government ministers would agree on the announcement he had just made. Over the years, the statistics had been unchanged.
Dragon Strike -- A Novel of the Coming War with China (Future History Book 1) Page 9
