`Well, I hear what you say, Mr Foreign Minister,' Ambassador Monroe said. `I shall report this immediately to the President.'
Half an hour later, the Chinese Ambassador walked into the room. Mr Bo Enzhu was a more ascetic diplomat, or at least liked to be seen as such. In reality he was exceedingly irritating. He had the habit of getting physically close, in a manoeuvre that suggested he was about to divulge some great truth, and then just spouting what he had read in that day's People's Daily. His cables to Beijing were colourless but accurate as to what was said to him.
`Ambassador, how kind of you to come at such short notice,' said Kimura, trying his utmost to sound solicitous.
`Not at all, Foreign Minister. It is always a pleasure to visit the Gaimusho,' Bo replied.
`We are… puzzled by your country's manoeuvres in the South China Sea. Do you have any explanation for us?' Kimura ventured.
`This need be nothing to concern your government, Foreign Minister,' Bo began. `China's sovereignty over the South China Sea is inalienable and historic. We have sought simply to make de jure what has been de facto for the past two thousand years. This represents no threat to Japan. China believes in the free passage of shipping through internationally recognized sea lanes such as the South China Sea.'
`And property rights?' Kimura asked.
`The sea and all below it and all it contains is ours. That, of course, is a statement about the future. We are not unaware of the existing facilities. I am instructed that there will be no change in ownership.'
`Tell your government that our concern is with economic security,' Kimura replied. `Virtually all our oil passes through the South China Sea. A threat to that would constitute a threat to Japan.'
On the way back to the Prime Minister's residence, Kimura noticed a queue of motorists at a service station.
General Zhao Yi was a man in his late fifties, thin, and true to his southern Chinese origins quite short. He was the Senior General in charge of the General Staff Department (GSD) and he planned to finance Dragonstrike by manipulating the world's financial markets.
He had had a remarkable career in the PLA. In an institution noted for its conservatism, his rise to eminence, after entering the services at the unusually late age of thirty-three, marked him as a special man. Like many of his generation, including President Wang Feng, he was born in Yan'an, although following Chinese tradition his official native place, his ancestral home, was given as Shunde, in the Pearl River delta of Guangdong province. His father Zhao Ping had survived the Long March and worked closely with Mao Zedong. In Beijing after the Revolution the family prospered. He was made a Marshal of the PLA; the family lived in a villa in Zhongnanhai. Zhao grew up playing and going to school with the sons and daughters of Liu Shaoqi, Peng Zhen, and Deng Xiaoping. His life of privilege came to a sudden end in 1967 as the Great Proletarian Cultural Revolution turned the world upside-down for China's 800 million subjects. Red Guard publications denounced Zhao for living a privileged life. He learned horse riding and motorcycling — past-times beyond the reach of average people. At the time of his denunciation he was studying at Beijing University. At the beginning of 1967 he lost touch with his father and mother and two younger brothers. He was not to see his mother until 1971, three years after his father's death. During these `lost years' Zhao lived the life of a fugitive. He made his way to Guangdong and, under an assumed name, worked on a ship sailing the Pearl River. His family in Shunde lent him some protection, but he was eventually caught and confined in a youth detention centre. And there he might have languished for many years but for the efforts of Zhou Enlai, the Chinese Premier and Mao's Lord Chamberlain. Zhou sought out Zhao and lent him his protection. That was in 1973.
Zhao's General Staff Department oversaw the PLA's sprawling industrial and financial enterprises, located within the GSD's Equipment Department. Since ancient Imperial times the military in China had been required to feed and clothe itself. But the PLA under late Communism had taken this tradition to extraordinary lengths. The military was in every form of industrial and financial enterprise known to man — engineering, pharmaceuticals, ship building, aviation, satellite launches, vehicle manufacture, stock broking, and banking. Profits from these companies were meant to supplement the budget of the PLA. And they did. They had proved vital in buying many of the military's most prized assets, such as the Russian Sovremenny class frigate Vazhny, and in funding the ongoing cooperation between China and Russia in military aviation. The General Staff Department was Zhao's home. He had spent all his career with it and had a reputation as being one of the cleverest financiers in the military e result, his colleagues noted, of natural Cantonese cleverness with money, honed by having to live his early life on the run.
From the outset of inner circle discussions about Dragonstrike Zhao had determined that his role would be to make money for the PLA. He knew that knowing in advance when China would strike Vietnam and seize the South China Sea gave him an enormous advantage in global financial markets. It was an operation that would need clearance from the highest level because it was not without risk. It would also need meticulous planning which would have to be kept totally secret. General Zhao's first meeting with the President took place six weeks before Dragonstrike was launched. Then he had explained to the President how financial markets were driven by information and how investors were like herds of cattle on stampede — dashing this way then that, but always staying close together. Information was the key. A correct buy or sell order placed before news of Dragonstrike broke could net an investor many millions in overnight profits.
`Your idea is an excellent one, General,' the President said. `How much do you need? $50 billion?'
`No, sir, that would be far too much. To make the money I think we are able to make we need to keep our counterparts solvent. $50 billion runs the risk of ruining too many securities companies. Remember Barings?'
`Barings?' The President frowned.
`Nearly ten years ago a pillar of the British financial establishment collapsed, after losing nearly £1 billion. There was someone else, or a group of institutions, on the other side of those transactions who made £1 billion. Financial markets are zero sum, Mr President. Someone wins, someone loses. When we win, someone will lose. But the global financial system could not survive the loss of thirty Barings. It is not part of our war aim to bring down the world's financial system. It would not be good for China. So, we have to be more modest in our aims. We also have to invest in markets where governments are most active principally the foreign exchange market. The British government lost billions — and traders made it — in 1992 when it tried to keep sterling within the European Monetary System. The amount of profit we could make is still unclear, but I think we could finance a large portion of the cost of the war through some carefully planned deals.'
The President accepted the General's explanation and instructed him to proceed with detailed preparations. He also made sure that Zhao was kept informed of all developments relating to Dragonstrike. With approval obtained Zhao moved quickly. Foremost was a visit to Mr Damian Phillips, Chairman of First China Securities, a Hong Kong investment bank. First China had come to prominence at the fag end of Britain's rule. It was founded by the son of a City of London financier and the son of a rice farmer e very model of Anglo-Chinese cooperation. Phillips had seen the likely shape of the future well before most. He cultivated the local Chinese tycoons; they liked the attentions of an upper-class Englishman. When it came time to found First China he had a supportive group of local and mainland Chinese businessmen willing to stump up the necessary capital to get the business going. That was in the late 1980s and First China had never looked back. Phillips moved deeper into the Chinese community on both sides of the border. It was on one of his many trips to Beijing before the formal 1997 handover of Hong Kong to China that he met Zhao. Phillips was making a pitch hated the term, preferring presentation Multitechnologies, the PLA's leading arms trader and emerging domestic conglomerate; Zhao was its president. Phillips was explaining how, with the judicious use of offshore business structures, efficient, and anonymous, trading of currencies could be executed. The General had been impressed enough to risk some of Multitechnologies' hard-earned money playing the markets. Phillips' stratagems proved in practice as good as they had sounded. A relationship germinated. In the ensuing years Phillips saw to it that the relationship blossomed. He paid regular calls on the General, gave lavish parties for him in Hong Kong, and was always careful to leave him with a sure-fire investment tip for himself, or his company whenever they met. Slowly business grew. When Multitechnologies decided it wanted to base its international activities in Hong Kong, First China found a Hong Kong Stock Exchange quoted company it could buy. When Multi-Tech (Hong Kong) Holdings wanted to raise capital it was First China that drew up the prospectus and introduced the company to the big pension funds, mutual funds, and unit trusts. And First China wrote research on the company for foreign investors. Soon Multi-Tech (Hong Kong) had a modest following among US and European investors.