THE CHINA FORMULA

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Chapter Two

February, 2012

On open ground do not try to block the enemy’s way. On the ground of intersecting highways, join hands with your allies.

Guo Hong Yu entered the private conference room, sat down and looked around. He removed the obligatory paper smog filter and stuffed it in his inside suit pocket. It wasn’t a bad smog day for Beijing but at his age any Beijing day was pretty bad. He was probably one of the few people left alive who remembered when the capital had some of the freshest urban air on the planet. Now anyone working near Tiananmen and Zhongnanhai, the Chinese Kremlin, should receive hazardous duty pay for the air quality alone.

An oversized picture of the great helmsman dominated the room, looming large over everything. These reminders of the great cult of personality made him a little uncomfortable these days but for better or for worse there was no denying Mao’s presence; even in this new prosperous China. When Hong Yu saw the portraits of Mao he usually thought of the hard years and the harm one man’s ego could wreck on an unsuspecting nation. He wondered if an equally tumultuous period lay ahead for his people and the thought troubled him.

Never again, not if he could help it, but sometimes matters moved beyond the control of any one man. He pulled a worn copy of his favorite book from his pocket then read and reread the passage from Sun Tzu’s The Art of War. The rare edition was a treasured gift from his long dead mentor, killed when Hong Yu and other young acolytes from Military Intelligence had denounced him so many years ago. He carried it and a matching copy of Chairman Mao’s Little Red Book with him everywhere he went. Old habits die hard, much harder than old men. He studied both books daily and carried a small personal journal to record his thoughts and interpretations as to what each passage meant. Often a passage from either book could be interpreted several different ways and studying his journal over the years he saw that he interpreted passages to fit his needs at the time.

Hong Yu considered himself a General in a new type of warfare, hybrid warfare, an undeclared war that took place on many fronts. The concept was new to some but not the inner circle where Hong Yu operated.

Sun Tzu’s advice and principles applied more than ever there.

The United States of America was drowning in debt and China was her newest and largest creditor but instead of being grateful and cooperative, the U.S. grew belligerent and bellicose as China moved to take her rightful place here in Asia.

Westerners didn’t know how the new game was played, but even worse, Hong Yu saw it as a symptom, a small but important sign of a lingering disrespect.

America was slowly but surely losing its hegemony. There were a lot of reasons for this. One of the most overlooked ones was the fact that many nations were simply catching up to her after the huge head start she had acquired at the end of World War II. For the most part it wasn’t a problem for America when former enemies like Japan and Germany displayed increasing clout on the world stage. After all, they were allies now and had U.S. Troops stationed on their soil to prove it. Germany and Japan were small and despite the impressive martial prowess both had displayed in the past, America simply did not fear them. China was another story.

Part of America’s perceived loss of influence might be a matter of other countries catching up but there were also definite signs of decline, while Chinese power and influence increased every day. To be sure, China had her problems too but at some point in the near future the two superpowers economic and military might would be perceived as equal, with one on the way up and one on the way down the illusion of equality wouldn’t last long. Her huge population and roaring economic engine made it inevitable that China take her rightful place in a new hegemony. America, and to be fair maybe the rest of the world, wasn’t ready for that. When the same thing had happened last century and a young restless, upwardly mobile Germany, had challenged a declining Great Britain, the result had been world war, …twice. The world couldn’t afford that result this time around.

Hong Yu considered it his duty to guide his leaders and thus the nation through this treacherous period without inflicting the horror of another global war on an already traumatized planet. He sought to help steer China through this period of uncertainty into a new era as the clear dominant power on Earth.

Some in the Party insisted on power and respect now. They wanted it no matter the price. This was dangerous thinking. In his opinion the single most valuable talent for a General or any other leader was the singular ability to determine the true nature of the conflict and the exact disposition of his own, and enemy forces. The next crucial talent was knowing exactly when to move.

This was where the intelligence community and Guo Hong Yu, Intelligence Minister Without Portfolio contributed most. China had to be extraordinarily careful in dealing with the United States. One false step could result in another hundred years of humiliation. Guo’s reminiscing was abruptly interrupted when the new General Secretary of the Communist Party burst into the room with an aid in tow. The aid placed a nondescript white box on the table and left.

“I need your help.” He announced without preliminary and motioned Hong Yu to take a seat. Wang Lijun has entered the American Consulate in Chengdu. We need to retrieve him before the situation explodes.”

Hong Yu was elated. To his dismay, there was no guanxi, that complex balance of favors and debts that is all important at all levels of Chinese society, between himself and the new General Secretary. This was a serious misstep on his own part but it looked like his luck was about to change.

There was a war of Princes going on in China and though Xi Jinping was on top right now, things were still far from certain. Xi had not needed the services of China’s premier spymaster, a man that many people considered a fabricated myth…until now.

Bo Xilai, the charismatic former mayor of Dalian, son of one of the original eight elders of the Communist party in China was determined to grab the brass ring, his only obstacle, the man sitting at the head of this table. Bo and his allies were down but weren’t completely out of the game yet.

Xi Xinping was relatively young to come into this position. He was a big man by the standards of his generation and to the untrained eye looked simple, maybe even stupid and mild mannered. He was anything but. Hong Yu reminded himself that this was a man who had attempted to poison his teacher back in the chaotic days of the Cultural Revolution when Hong Yu had been filled with guilt as he denounced his own mentor.

Ruthless and smart described Xi best. He maintained a competent but low key demeanor until he sensed the chance to make his move then acted in a decisive and ruthless manner. He wanted to be the most powerful leader since Deng Xiaoping. But no matter. Today Hong Yu would get the opportunity to build powerful guanxi with Xi Jinping. That should protect him through the purge that was surely coming.

“What do you need me to do?”

Unlike so many of the old guard in power in China, Xi refused to waste time on useless rituals and symbolism.

“Two things; one, get Wang Lijun back and find out exactly what he told the Americans, and two, prevent Bo Xilai from preventing a coup. You can do this. Maybe only you can do this in the manner I require. I have complete faith in you.”

Xi nodded at the portrait of Mao. “I need his power. And you are going to help me get it. We are going to consolidate and secure my power then we are going to lead China to the most prosperous time in her 5000 years of illustrious history. We will do this or die trying.”

Hong Yu nodded. He had never heard the situation stated so bluntly. It was frightening and exhilarating.

May you live in interesting times… Don’t forget that is a curse Hong Yu reminded himself.

“I’ll take care of it.” Hong Yu said with casual confidence. This is a dangerous time but this is only the beginning. I have another project that will be essential in the economic crisis that will follow this political one.”

The General Secretary shrugged. He was concerned about the hungry tiger at the door now, not the one coming up the road. But he knew the value of looking ahead. He motioned for Hong Yu to explain further.

“One of our people in Canada has come across something interesting and unusual. If it is in fact true, the potential for gain or loss is immeasurable.”

The General Secretary raised his eyebrows, a signal that such statements should not be tossed around lightly.

“Canada? What do we have going on there that is so important” The implication was that he should have some idea as to what this was about.

Hong Yu shook his head negatively. “It’s not something we are doing. A young Canadian working independently has discovered something that has international implications, particularly for us and the United States. Hong Yu watched the leader become more alert. One thing the new leader had in common with the old leader was that anything to do with America got his undivided attention.

“What kind of implications?”

“Financial.”

“Show me what you have.”

Hong Yu stood and carried a folder to the other end of the conference table and placed it respectfully before the leader. He sat down in the seat at the President’s right hand and opened his own folder which held identical contents. A large photo of a Caucasian man lay on top of the folders documents. The General Secretary picked up the photo and studied it carefully.

“The man you are looking at is Leonitas Lambros. He is a Canadian of Greek extraction. Right now, he is a graduate student at The University of Toronto.”

“A graduate student?” There was the slightest hint of testiness in the President’s voice, as if maybe Hong Yu was wasting his time after all. Hong Yu continued unfazed.

“Yes. His area of expertise is international finance, particularly the flow of money in the international market. If you look through the folder you can see that he is an excellent student, maybe even a financial genius. He has been studying money for years. While working on his post graduate thesis he claimed to have stumbled across a way to determine accurately, almost to the minute, when a given currency will lose and gain value.”

Xi carefully lay the picture down. He took off his glasses and ignoring Hong Yu for the moment he massaged his temples to alleviate a slight headache that had been building since a meeting earlier in the morning with the American Ambassador. He centered his chi and thought about the implications of Hong Yu’s statement. Finally, his headache gone, his thoughts ordered and clear, he put his glasses back on and once again turned his attention to the picture of Lambros.

Except for the piercing blue eyes, there didn’t seem to be anything remarkable about the way the man looked. Wavy brown hair and a slightly prominent nose were the only physical clues of his Greek origins, that and his name, Leonitas Lambros.

“How did this…Lambros come to your attention?”

“A low-level sleeper in Canada, a professor of economics at the University of Toronto noticed young Lambros his freshman year. The boy showed signs of brilliance and focus from the very beginning. Our man befriended him and became a mentor of sorts. He had a feeling about Lambros and considered the relationship a good way to keep tabs on a potentially useful individual.

Because Lambros showed such promise our man assumed he would take one of the usual routes to success and land a prominent position in the government or with a private firm, someone in such a position could prove useful later on but it seems the young man is something of a rogue with a flair for independent research.”

The two men looked at each other and Hong Yu shrugged.

“It’s a Western thing. For most of his time at university he intensely studied the foreign exchange market. He started with the original Bretton Woods Agreement and studied every change and addition that has come since. Our man could see no rhyme or reason to the research but at some point Lambros got a sense that there is a complex pattern guiding the market, something akin to Adam Smith’s “invisible hand”, an unknown connection between seemingly unrelated data and events. He began an intense quest to unravel and decipher the esoteric language and formulas of international exchange. It became an obsession with him. Last month he called our contact bubbling with the excitement of success. He had the formula. He was sure of it and wanted our man to help him set up and be a witness to his first serious documented test.”

“What kind of test?”

“They took out a Forex contract and placed five thousand dollars, the minimum allowed, in the account balance. They wanted to track the accuracy of their predictions and at the same time see how much profit they could generate in one month. There are twenty-two trading days per month. They made one trade a day. The account doubled, trebled, and kept growing almost exponentially, over the course of the experiment. At the end of the month they had a balance of over fifty thousand dollars. They stopped there. The money is still in the account.

“Why stop? Why not make as much money as possible?”

“There are several reasons. One being that they didn’t want to tip their hand too soon. Another is Lambros himself. Apparently, he’s ambivalent about the money itself. It’s the knowledge that he has done something that no one else can do that seems to drive him. He thrives on the recognition of his peers and the people around him. His desire seems to focus on being honored for accomplishing what people said couldn’t be done. The wealth doesn’t seem to excite him. He craves glory.

The account he set up was an experiment, a month-long test. When the test was over he simply left the money in the account as proof of what he could do.”

Xi shook his head. He wouldn’t even pretend to understand a man like this but he knew they existed. Their often-impractical mixture of altruism, ego, and brilliance could prove extremely dangerous. He continued his perusal of the file, father, mother, a brother he apparently was close to, but shared little in common with except the bonds of family, and a few equally quirky friends. An obvious omission jumped out at the President.

“There’s no mention of a wife or girlfriend.”

“That’s because there isn’t one. His mother is sick and he’s completely dedicated to taking care of her. That and seeking his financial Holy Grail takes up most of his time. A young man like this isn’t usually very socially savvy anyway.”

“Yet most men need love, or what passes for it these days. That’s a proven and it may be our ticket to getting to this man.”

“Then you agree this is a priority?”

Xi looked his subordinate straight in the eye. “If the information before me is exactly as you have presented it then you have done the Party, the nation, and myself, a great service. You are one of the few men who know the true economic picture here in China. That picture will only get bleaker soon. Imagine what we could do with this formula. We trade in thousands of contracts involving billions of dollars every day. With this formula, not only could we make billions of dollars out of thin air but we could control liquidity and eventually bring America and anyone else who opposed us to their economic knees. But that would be an extreme and very short sighted use of this tool. I would much rather quietly gather wealth and keep global economic conditions favorable to our continued growth as we take our place of leadership in the world”

“What do you think Lambros next move will be?”

“That’s easy. He will try to convince American and Canadian authorities that he does indeed have this ability. He plans to make secret phone calls to selected officials and mention that say for examples sake that GPD/USD pairing will drop 20 points from 1.6558 to 1.6538 in the next twenty minutes. The phone call consists of the current rate, the forthcoming rate, and the exact time he expects it to change. When he is consistently correct in his predictions you can bet alarm bells will go off in North American government finance centers.”

The General Secretary nodded and absently took a Panda from inside the white box on the table. He offered one to Hong Yu and the two men lit up.

There is ritual and a coalescing of social hierarchy involved when powerful men smoke in China. Nothing captures the texture of guanxi better than smoking together. Cigarettes act as a kind of semaphore and in a culture where many important things are left unsaid, every gesture with a cigarette means something.

There are more than four hundred different types of Chinese cigarettes, each with its own distinct meaning, identity, and patrons. In Beijing peasants smoke Red Plum Blossom Whites. Red Pagoda Mountain is the brand of the average city person, while middle class entrepreneurs like Zhongnanhai Lights. Businessmen, especially those whose business involves the import and export of goods, smoke State Express 555, while the nouveau rich like Chunghwa.

Pandas are the rarest cigarette of them all. Only a certain number are manufactured each year and they are quickly scooped up and hoarded. They had been the favorites of several Presidents including the illustrious Deng Xiaping. The relevance of the Xi offering to smoke Pandas with him was not lost on a seasoned veteran of China’s political infighting like Hong Yu. It told him here was his chance to create powerful guanxi. In fact, he felt the guanxi between himself and the new leader grow with every puff.

“This is a great opportunity.” Xi Jinping solemnly intoned.

Hong Yu correctly interpreted this to mean that if handled the wrong way this could easily lead to crisis. Was not the same hanzi symbol used for both words?

“How do you suggest we proceed?”

There it was. The General Secretary of the Communist Party was willing to follow his lead on this, give him the glory and the rewards if he could navigate them through this safely and profitably.

“This is too important to leave in the hands of the professor. He is vital to this but he’s an amateur. I have an agent who needs to study for an advanced degree in the West. She wanted to study in America but I will send her to The University of Toronto.

The professor can make sure she meets Lambros. She can take it from there. She can make sure the “phone test” is ignored. This will no doubt discourage, maybe even anger Lambros, possibly making him amenable to whatever we decide to propose. She will get him to divulge the formula to her. Maybe she can even lure him here to China. That would be ideal and it has happened before.”

“You have a lot of faith in this young agent. Is she that good? Will she be reliable even when she’s in the West?”

Hong Yu shrugged and took a long drag from the Panda. He considered his answer carefully.

“I trust her with my life. She’s the best agent I have and succeeding is in her blood. After all, She’s my granddaughter.”

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