This was not lost on China's neighbours, least of all Vietnam. Since 1987, when it pulled its door ajar and allowed in foreign investment, Vietnam made the development of its offshore oil and gas industry its top priority. Fully one quarter of all foreign investment was channelled into the industry. Hanoi had big plans. It set a target of annual production of 20,000,000 tonnes of oil by 2000 target which it met with ease. It now set its sights higher and was aiming to extract 25,000,000 tonnes a year by 2005. This was not to say that to find oil in the South China Sea all one had to do was sink a well and hook it up to a tanker. Environmentally, the South China Sea was a difficult area to work in. Typhoons made drilling hazardous while strong currents led to the loss of many unmanned underwater vehicles. Adding to oilmen's difficulties the geology of the terrain under the sea was also complex and difficult to assess. Indeed the reserves for an early find at Dai Hung, in waters adjacent to the Spratlys, had been downgraded to around 200,000,000 barrels from more than 500,000,000 barrels. However, the Vietnamese authorities had encouraged the world's leading oil explorers to try their luck in the region, and it had paid off. British Petroleum had made major gas discoveries some 360 kilometres off the south coast of Vietnam, sufficient to power Ho Chi Minh City for twenty-five years, at least. BP was also a partner with Nippon Oil in a major oil-production facility in the Paracel Islands.
The Japanese interest in the South China Sea was two-fold. There were companies like Nippon Oil, Mitsubishi, and Mitsui, which were exploring for oil. Their investments were sizeable. But the greater interest was in the South China Sea's role as a thoroughfare for trade with Europe and the Middle East. The South China Sea was arguably the most important stretch of water for Japan, bar none. It was the lifeline along which travelled more than 90 per cent of the oil and liquefied natural gas (LNG) together with at least 70 per cent of the coal it used. The trade in oil was a $500 billion a year business. Asia accounted for more than a third of it and Japan in turn accounted for half of Asia's consumption. Virtually all of the trade passed through the South China Sea. The economic significance of the South China Sea was not just confined to the trade in energy, important as that was. There were other cargoes to consider — agriculture and manufactured goods — and when these were added to the equation it became apparent that more than a quarter of the world's seaborne trade passed through this waterway.
Kobayashi reported to the meeting that the price of oil had risen $5 a barrel on Monday. With the South China Sea fields shut down and Brunei and Indonesia out of the supply chain, he said the price of oil in the short term was bound to rise further. Although Japan had ample stockpiles currently there was no telling what damage could be done to production facilities now under Chinese control. He reminded directors that Saddam's retreating armies had put every oil well in Kuwait to the torch. Against such an uncertain background he said he thought the yen and the Tokyo stock market had nowhere to go but down. It had opened down 1,267 points at 38,033. US funds were big sellers of the market, as were Japanese investors who were switching into the US dollar en masse. The yen had continued to come under speculative attack as well. It had fallen 10 per cent on Monday and had lost a further (5 per cent) to .2 in early Tokyo trading.
Kobayashi concluded gloomily. The big expansion in markets was over. Inflation was on a rising trend before the Chinese took their action. If the price of oil stayed high for long enough it would feed through to prices throughout the world economy. Stock markets were at their most vulnerable since 1987. New York, London, and Tokyo had all set all-time highs in January. Interest rates would be sure to rise as central banks sought to dampen the inflationary impulse from oil with dearer money. Already the Bank of Japan was tightening money to try to support the yen, though to little avail. `In times of such uncertainty, gentlemen, it is hard to escape the conclusion that "cash is king",' he said.
Jamie Song had pleaded genuine ignorance of the attack on the Haiphong convoy during the CNN interview, but he noticed the red light on the studio camera go out as his voice was run over the graphic video of the cannon fire slamming into the vehicles by the river. It would not make his job at Zhongnanhai any easier. The Chinese President had little interest in the nuances of international relations unless they had a direct influence on his stature within the country. The issue he faced was the strength of the AmericanJapanese security treaty and whether China had the nerve and military strength to stand up to it. If Dragonstrike was to be a propaganda success, Song would have to persuade the generals to rein in their troops' excesses against civilians.
The new spending policy had been in place for enough years for its effects to be felt. The sudden switch of funding from development to the military had created a confident and more streamlined fighting machine. China's missile capability and submarine force gave her a power projection which would have been unimaginable ten years earlier. This was one of the most guarded secrets of China's long-term planning. After President Clinton sent two carrier groups to protect Taiwan in March 1996, the PLA high command insisted that they be allowed to defend China's sovereignty and dignity.
`If we continue to chase blindly the dollar ideology,' concluded the then President, Jiang Zemin, `we will become no better than the corrupt governments of the nineteenthcentury. We will be beholden to foreign trading companies and bullied by imperialist powers. Never again will the motherland exchange her freedom for wealth.'
The ravaging effects of the policy were kept away from public scrutiny. The suffering, the starvation, the riots, the mutinies, the summary executions, the hoarding of grain, were confined as much as possible to the remote areas, where access was difficult and the Communist Party could use force without repercussions. Money which should have gone towards irrigation had been spent on submarine training. A road was forfeited for thermal-imagery research. A province was short of medical supplies because the money was needed for aviation fuel.
China may end up with nothing except the divisions of its own pride, shared between warlords, Jamie Song jotted in his diary. On the way to meet the Central Committee in Zhongnanhai, he read cuttings from the Western press to remind him of the fragmentation within modern China.
For hundreds of kilometres, the arid brown wastelands stretched in an inhospitable vista of hills and sky. Occasionally, there were clusters of peasants. Their grubby but colourful red or blue scarves stood out against the back-drop of the barren environment. The fields had been carved out of the hillsides by hand and sloped down the hills in terraces. The earth crumbled under the plough. Sometimes when rain fell it was too much. The land was parched and unprepared for moisture and the crops were washed away. But on most days the sky was cloudless. The sun drew up all life and the crops slowly died. For years the peasants had kept ploughing. Their faith lay in the motherland, the Chinese Communist Party, and its founding father Mao Zedong. Mao had made them the heroes of his Chinese revolution, and here, 3,000 kilometres away from Beijing, they believed it.