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.
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.
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 Chamber 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.