Riding the wind of rebirth

"The cost is the combined effect of rising unemployment and inflation. Wage earners' incomes have fallen by 60 percent, inflation once soared to 50 percent, and 35 percent of the population has fallen into extreme poverty," Li Laosan said.

"This is nothing!" Zhou Zhi scoffed. "In the future, there might be someone who claims to be Hayek's successor, who will cause the country's inflation rate to soar by one or two hundred percent, raise the national poverty rate from thirty percent to forty percent, and finally abandon the local currency and use the US dollar directly. Oh, and one more thing, the domestic stock market will rise steadily, becoming the prey of foreign capital. Such a person will be regarded as a 'sage' by many people with good intentions."

"Shouldn't he be shot?" Old Li was dumbfounded.

“Not only will they not be executed, but they will also receive countless praises and adoration.” Zhou Zhi laughed: “The brilliance lies in the words ‘liberalism’ and ‘free market capitalism’.”

“Then I wish them all the best.” Li Laosan also made the gesture of putting his hands together in a gesture of respect. “In order to comply with the rules of the North American Free Trade Agreement, Mexico amended its constitution and allowed the free sale of land. Since the crops they originally grew could not be profitable, a large number of farmers chose to cooperate with drug cartels. Mexico gradually transformed from a drug transit route into a drug production center in the world. The resulting security problems became a malignant tumor hindering Mexico’s development. This is the disaster brought about by the ‘Hassan Line’.”

"Furthermore, this crisis quickly spread to South American countries, as well as European markets and some emerging Asian markets. On the day the crisis broke out, stock indices in Latin American countries collectively declined, such as Brazil's stock index falling by 11.8%, Argentina's by 5.0%, and Chile's by 3.4%. In January 1995, European stock indices fell by 1%, Far East indices fell by 6.5%, and world stock indices fell by 1.7%."

"Third Brother, have you figured out a solution to this crisis in Mexico?"

"The solution is simple. The $50 billion loan from the WTO was the antidote. As long as the foreign exchange reserves are sufficient, we can naturally withstand any run on the bank," Li Laosan laughed. "However, we cannot be forced to sell everything in the country at a low price after losing everything, leaving foreign financial forces to reap all our wealth while we are powerless to do anything about it."

“That’s not what I meant.” Zhou Zhi waved his hand: “If you don’t turn into a mess, you won’t attract others to come and pick up bargains at low prices. Third Brother, don’t go too far.”

"The 50 billion dollar loan aid might have been prepared long ago, just waiting for Mexico to be smashed to pieces before it was given out."

“What you said makes a lot of sense.” Li Laosan nodded. “Then we have no choice but to take precautions, strengthen our defenses, build up our strength, and earnestly pursue healthy economic growth to prevent the formation of bubbles.”

"Through the calculations of the model, I am increasingly convinced that Mexico's biggest problem lies precisely in its blind pursuit of the US economic system and neoliberalism, which has caused its economy to lose its own path of development and ultimately fall into the trap of trade and investment liberalization set by others!"

"What's even more disheartening is that after collecting information on Southeast Asian countries, we discovered that many countries, and even Hong Kong today, are experiencing situations similar to Mexico... Perhaps, this really is just human nature."

"What about our country?" Zhou Zhi asked worriedly.

“The situation in China is a bit more complicated, but it’s mostly a problem within the economic system,” Li Laosan said. “Although China has been reforming and opening up for more than a decade, it has not yet joined the WTO. In other words, there is still a natural barrier between this economy and the world.”

"In addition, China's foreign exchange reserves have now exceeded the 100 billion US dollar mark. Although it is a poor country, it is a very poor country. If its strength is concentrated on one point, it is still very considerable, far beyond what a country like Mexico can compare with."

"So you're saying the country isn't actually in any danger?" Zhou Zhi breathed a sigh of relief. "No, I mean..." Li Laosan swallowed hard, "I mean... the country might have the resources to help Hong Kong."

"What the heck?" Zhou Zhi was startled. "What's wrong with Hong Kong Island? Aren't the property and stock markets already at a low point? Even if there was a bubble, it's probably been squeezed out long ago, right?"

"Don't you pay much attention to the Hong Kong stock market?" Li Laosan looked at Zhou Zhi as if he were a fool: "Have you paid any attention to the Hong Kong stock market in the past year or so?"

“Uh…” Zhou Zhi was trying to figure out how to defend himself: “Do you think someone who has to graduate with a master’s degree in a year and manage so many big projects has time to care about the Hong Kong stock market?”

“Cough cough…” Li Laosan choked on Zhou Zhi’s self-praise: “In 94, Hong Kong began to pilot the short selling system. Coupled with the Federal Reserve’s six consecutive interest rate hikes, the wave of middle-class emigration, and the structural adjustment of the financial and real estate sectors, multiple factors combined to trigger a sharp drop in Hong Kong stocks.”

"But a sharp drop means opportunity. At that time, we had just reaped a wave of profits from the international market and completed our basic layout. We were just in time to get involved in the great cause of maintaining the stability of Hong Kong stocks and the property market."

"Make money is fine, don't confuse me with value." Zhou Zhi cupped his hands in a wry smile: "Last year, it was all thanks to Third Brother leading me to make a fortune..."

The judgment on Hong Kong stocks was entirely based on Li Laosan's own decision, probably in concert with several other parties. This round of adjustment saw the index fall from over 12,000 points in 1994 to 6,900 points in 1995. Li Laosan took advantage of the newly opened short-selling system and used the method of borrowing shares to enter the market with an empty position for more than half a year, which allowed AXA to make a 30% profit on its investment in the Hong Kong stock market.

"Congratulations, congratulations," Li Laosan rolled his eyes at Zhou Zhi with the same sarcastic tone, "I turned to long positions before the New Year, and the Hang Seng Index has risen to 13,000 points since then, almost doubling again."

"Huh?" Regarding fund management, aside from the portion he personally managed, Zhou Zhi usually only glanced at the previous year's annual report at the beginning of the year. He'd been incredibly busy from the second half of last year to the first half of this year, and hadn't really paid attention to the Hong Kong stock market. So, hearing this news suddenly startled him: "It's...it's doubled again?! The resilience of Hong Kong stocks is really similar to the character of Hong Kong people—they're like chewing gum..."

"It's all your fault! You wouldn't let me use Xiaozhi for quantitative trading in the Hong Kong stock market." Li Laosan was still a bit indignant: "Otherwise, the returns would have been more than double?"

"No way, even rabbits don't eat the grass near their burrows. Quantitative tools can be saved for harvesting profits in other stock markets." Zhou Zhi emphasized again: "Even twenty years from now, I will still say that this thing is a gray area. If it's loose, it's legal and legitimate; if it's tight, it's illegal and criminal. It can only be used in places where the laws are relatively free and lax."

"Fine, if they won't let us play, then we won't play," Li Laosan said. "Let's get back to the crisis. Hong Kong's foreign exchange reserves are currently the third largest in the world, over 90 billion US dollars... I'm afraid that's still a bit insufficient."

"Are you sure?" Zhou Zhizhen was startled. "If Mexico hadn't lost those 15 billion US dollars, they might have recovered by now. Are you sure Hong Kong's 90 billion US dollars aren't enough?" (End of Chapter)