Dragon Strike -- A Novel of the Coming War with China (Future History Book 1)

by Humphrey Hawksley

  `Go on,' prompted the anchor.

  `Right now, Chinese attack aircraft are in action over civilian areas in our northern port city of Haiphong and Ho Chi Minh City, better known to many of you as Saigon. One of the Chinese missiles landed on the roof of the Rex Hotel. There were guests having breakfast. Many are dead. Residential areas in Haiphong have been attacked, mainly near the port. An apartment block, where port workers and their families live, has collapsed. Again, it was early morning. Many people were at home. Merchant ships have been sunk in Haiphong, but that appears irrelevant against the huge loss of life.'

  Kabuto-cho Financial District, Tokyo

  Local time: 0745 Monday 19 February 2001

  GMT: 2245 Sunday 18 February 2001

  It was still dark when the driver picked Kobayashi up and handed him copies of the Nihon Keizai (Nikkei) Shimbun, the financial newspaper, and the Yomiuri Shimbun, a general news broadsheet. Kobayashi was the head of strategy and trading at Nomura Securities pan's, and the world's, biggest dealer in shares and bonds. He looked first at the Yomiuri Shimbun. It was close to Prime Minister Hyashi's faction in the Democratic Party and in Japan, after all, politics was business. Hidei Kobayashi's driver took the same route every morning, and this morning was no exception. After turning into Aoyama-dori Kobayashi's car made its way east, towards the Imperial Palace and beyond that Kabuto-cho. But this morning something was different. Along the way Kobayashi could not help but notice the queues forming at gas stations. The Chinese attack on Cam Ranh Bay had dominated the television news bulletins the night before and the broadcasts that morning were already full of the naval blockade of the South China Sea and the attack on Haiphong and Ho Chi Minh City. The Japanese motorists, he reflected, were taking no chances.

  The sky was lightening with the approaching dawn as he reached the Imperial Palace and it was serene. The moat surrounding it was like a mirror reflecting perfectly the massive cedars and cypresses planted to keep prying eyes from the Imperial family. At the corner of Hakumi-dori and Hibiya-dori ill dominated by the Dai-ichi Mutual Life Insurance Company building from where the American General Douglas MacArthur ruled Japan after World War II turned north along Hibiya-dori. This is the Marunouchi district of town where `old money' corporate Japan has its headquarters. The great houses of Mitsui, Mitsubishi, and Sumitomo are headquartered here, as are some of the leading banks such as the Industrial Bank of Japan. Since the seventeenth century, when the Shogun Ieasu Tokugawa made Edo his capital, the commercial and financial heart of Tokyo had been to the east of and beyond the Imperial Palace. In the aftermath of the firebombing of Tokyo more than sixty years before Tokyo's owners had rebuilt the city, or at least this part, in the image of its destroyers. Marunouchi was one of the most Western-looking areas of the city. The streets were wide and regular, the buildings square and squat. On the street in some parts of Marunouchi, like the fashionable Ginza area, it felt almost Parisian. Small, immaculately manicured and boxed trees lined streets full of high-priced boutiques and smart coffee shops.

  It was a glorious winter's morning: cold and crisp. It was also clear and that meant the sun would shine today. As Kobayashi surveyed the newspapers the headlines were universally gloomy. The Nikkei's splash said it all: Minami umi shokku! it trumpeted. `South Sea shock', indeed. China's military action the day before was sure to send share prices lower on the Tokyo Stock Exchange. The yen would come under pressure and the prices of government bonds would fall, which meant that interest rates would rise. Other Asian stock markets would not be immune from this. Kobayashi's job was to profit from this mess or, at the very least, minimize the losses to his firm. A kilometre or so north his driver turned left into Eitai-dori. As they crossed Sotobori-dori Kobayashi looked up, noticing the pre-war facade of the Bank of Japan, one of the few surviving buildings of the American firebombing. The Bank would have its work cut out for it today, he thought. The car turned north into Chuo-dori and drove toward Nihonbashi, the graceful old two-arched bridge from where all distances from Tokyo are measured, and the headquarters of Nomura nearby. An item in the Yomiuri caught his eye. It was a commentary by Professor Hiroshi Sato, a foreign policy adviser to Prime Minister Hyashi. Professor Sato said he thought Japan could build something new from the current adversity. `For too long we have been prepared to hide behind others' skirts. We have legitimate national interests and we should assert them with whatever means we have at our disposal.'

  Briefing

  Oil (I)

  At the morning meeting of Kobayashi's strategy and trading team the only topic of discussion was the Chinese seizure of the South China Sea. Few could see any good coming from it for Japan. The nation's dependency on foreign energy supplies had been well canvassed in the press. Only 14 per cent of Japan's total electricity supply was generated by facilities totally within the nation's control clear and hydroelectric power. The remaining 86 per cent was from oil-, coal-, or gas-fired power stations whose raw-material inputs were imported. The vast majority of those imports re than 90 per cent had to transit the South China Sea. The discussion turned to the effect a possible interruption to supply or a prolonged oil-price rise would have on Japan. An interruption to supply was not seen as likely. If international shipping was barred from the South China Sea then the ships from the Persian Gulf and from Australia could travel up the east coast of the Philippine islands. This would add four to five days' extra sailing time which, while unsettling, was well within acceptable limits given the country's stockpiles of oil. It would, however, raise the price of oil on a c.i.f. (cost, insurance, and freight) basis. That would impact on domestic gasoline prices. The bigger price effect, however, was judged to come from the reaction of international oil markets to the incidents in the South China Sea.

  Oil was not the only factor. Many Japanese companies were involved in the Chinese economy. In the early years of China's opening the Beijing authorities, suspicious of outside influences, had encouraged foreign investors to seek local partners and with them form joint venture companies. Latterly however China had allowed foreign companies to set up businesses on their own, without local partners. In general, the companies more knowledgeable about doing business in China preferred these `stand-alone' arrangements. Going it alone was not cost-free but it was a risk many took because management control rested firmly in the hands of the investor and profits did not have to be shared with local investors. A good, and now vulnerable, example of this was Matsushita Electric Company, best known for its National range of consumer electronics. It had invested heavily in China, especially in the north-east which was once called Manchuria or, when the Japanese controlled it, Manchuko. It was the north-east port of Dalian where Matsushita made its biggest investment $180 million to produce video recorders. For the Chinese, the Japanese investment was rich with a bitter-sweet significance. This was the trading region which Japan invaded and seized from the crippled Nationalist government in the 1930s. Earlier, however, the Japanese had defeated the Russian Pacific fleet, and showed the world that Asians could fight and win against a European superpower. But Matsushita's managers also knew that China was a country of regions where local priorities often overrode national aspirations. So it spread its largesse up and down the country. In Canton (now called Guangzhou) it had invested $35 million in a plant to manufacture electric shavers, and $28 million in electrical appliances like rice cookers; in Beijing, it invested $28 million in telephone exchange relays. The not wholly unsurprising view of the meeting was that Matsushita was sure to be hit. Kobayashi observed that Matsushita was a little like Boeing, the US aerospace company. Both had made large investments in China and both had hitched their fortunes to the success of China's modernization programme.

  Even more vulnerable to selling pressure would be some large firms, like Nippon Oil, which had big investments in the South China Sea itself and was a 30 per cent shareholder of the Discovery 1 oilfield in the Paracels. This placed Nomura in a tricky position. As Nippon Oil's broker, it was honour bound
not to sell the company's shares. Years ago it had floated Nippon Oil's shares on the Tokyo Stock Exchange and was the company's agent in all dealings. And the relationship, now spanning thirty years, went deeper. Whenever Nippon Oil wanted to raise fresh capital for expansion Nomura advised on the best form of financing. Indeed, Nomura arranged the billion loan which Nippon Oil issued to fund its share of Discovery 1's development. Nomura was the biggest securities company in Japan, with a 40 per cent share of turnover on the Tokyo Stock Exchange. But only 25 per cent was executed in Nomura's name. The rest was handled by subsidiary firms which traded under different names. Despite the high-tech facade, Tokyo was not like London and Wall Street. Honour, loyalty, and stamina created the Shoguns of Kabuto-cho. This was capitalism, Japanese-style. It worked. It had created the undisputed economic leader of Asia in less than a generation. But there was no way Kobayashi could be seen to be selling Nippon Oil's shares. To do so would be to tear the soul out of Japan's banking tradition. He also had to act within the best interests of his own noble institution. Kobayashi instructed a Nomura subsidiary to handle the Nomura sell orders, while Nomura in its own name would execute any buy orders that might come the firm's way. This way Nomura would be seen to be supporting Nippon Oil.

  And who might these sellers be? They fell into two groups: retail and professional. `Retail' was market jargon for household investors. These were the same people Kobayashi had seen queuing for petrol on his way to work and they were invariably women and they were powerful. Retail investors were responsible for 23 per cent of the Tokyo market's turnover. The Japanese housewife was every bit as determined as her `salariman' husband. She managed the household finances, as is customary in East Asia, and was an experienced stock market investor. Having filled up the family car with petrol the next thing the formidable Mrs Suzukis of Japan would do was call their broker with a view to selling. Bitter experience had taught Kobayashi that the firm could not stand in the way of these women. It was best to redirect their funds elsewhere. With the yen under pressure, the dollar was the place to be.

  Then there were the professionals. These were the big Japanese trust and investment companies that managed pension funds. They were huge and powerful but paradoxically impotent. They were so big that changing investment direction was akin to the difficulties the captain of a supertanker faced in attempting a U-turn. It could be done, but it required time and a lot of sea to execute. The professionals were to a large extent locked in. They could adjust their holdings at the margin, but not overall. They were at the mercy of the `hedge funds'. These were the money managers who moved hundreds of millions of dollars in an instant from one end of the world to the other and back again. They placed big bets on shares, commodities, bonds, and currencies, and often won, and lost, spectacularly. But Kobayashi's real concern was the US mutual funds. Their power had become awesome. During the 1990s they became the preferred means for US citizens to save. By the end of 1995 their total value was $1.25 trillion. Since then they had grown, on average, by 10 per cent a year, and on the eve of Dragonstrike US mutual-fund managers controlled some $2.6 trillion of assets. Their asset base was staggering and they had a portion of it invested in Asia. But this was mobile money. Mutual-fund managers were notorious for being driven by the requirement to make short-term gains. Here today, gone tomorrow, their presence in Asia's stock markets had added considerably to volatility in share prices. A telephone call and an investor in Kansas could sell Hong Kong and buy US Treasury bills; sell Europe and buy Australia. Individual transactions, however, did not count when compared to the decisions of investment managers. Kobayashi knew from the business Nomura had seen coming in overnight that the mutuals — for all their belief in the Pacific Century — are about to repatriate their funds. And the decision the managers had taken on the Sunday was to sell.

  Malacangang Presidential Palace, Manila

  Local time: 0700 Monday 19 February 2001

  GMT: 2300 Sunday 18 February 2001

  The Private Secretary to the Philippine President, Miguel Luzong, opened the high teak double doors to the conference room without knocking. As he walked across the room the President's concentration was distracted towards the news he was about to receive. The conversation around the table faded, then quietened while the man who used to command the Philippine Armed Forces was told about Mischief Reef.

  `This has just happened, sir,' said the Private Secretary.

  Luzong addressed the meeting of ministers and businessmen. `Gentlemen, our troops have met resistance in their attempt to recover Mischief Reef and we have lost contact. We are sending reinforcements.'

  The powerful Mayor of Manila, Hernesto Lim, a Chinese-Filipino, replied quickly. `Don't, Mr President. Speaking for the overseas Chinese community, we ask you to back off. If we send reinforcements, they'll send reinforcements. We cannot hold that territory, nor for any reason except national pride do we want to.'

  `National pride is not an unimportant sentiment, Hernesto,' Luzong countered.

  `It is a disease which is afflicting the Chinese government at the moment and might well destroy it. This country suffered from the disease of dictatorship for twenty years. It made us the sick man of Asia. While Korea, Taiwan, Malaysia, and Thailand became rich, the Philippines became a joke. Mr President, this South China Sea conflict is not one for us. It is for America, China, and Japan. If we take sides, like we did during the Cold War, our national morale will be destroyed again. We will be accused of being an American puppet. Let us take a lead from Malaysia. They have abandoned the Mariveles, Ardasier, and Swallow Reefs, even their airbase at Terumbi Layang-layang. Forget about Mischief Reef. We rid ourselves of the Americans in 1992. We restored democracy. We are building the foundations of a Philippine heritage of which we can be proud. Our economy, much of which is interlinked to the Chinese communities throughout the world, is growing strong. We fought the Cold War while our ASEAN neighbours kept a low profile and became rich. If another global conflict is approaching, let us not get involved. Let us concentrate on building hospitals, roads, airports, ports, power stations, schools, and houses for our people. That, sir, is where our duty as leaders of the country lies.'

  `And we let China take over the South China Sea?' prompted Luzong.

  `What does it matter? They will allow trade.'

  `My generals are restless.'

  `Then they should pick a battle that they can win. If they can't defeat the Muslim terrorists in the south, they shouldn't pick a fight with the People's Liberation Army.' Without calling for a vote, the President looked at each man around the room, then nodded to his Private Secretary to call off the recovery of Mischief Reef.

  The White House, Washington, DC

  Local time: 1845 Sunday 18 February 2001

  GMT: 2345 Sunday 18 February 2001

  Twenty-four hours after their first meeting, James Bradlay, the American President, was alone with Martin Weinstein, his National Security Adviser. The first pictures of the bombing of Ho Chi Minh City were being broadcast on CNN. The correspondent speculated that it had been targeted because it was a favourite winter retreat for the Vietnamese cabinet.

  `It's to prove their long-range attack capability,' Weinstein said quietly. `Saigon is 500 kilometres from Yulin, their southernmost airbase. It's evidence of their in-flight refuelling capabilities, which gives them at least thirty minutes to attack, turn, and go back. We call it loiter time.'

  The appeal by Nguyen Van Tai, dubbed and translated, was run over the scenes of devastation on the roof of the Rex Hotel. An American woman, with blood streaming down her side, carried a child wrapped in a tablecloth away from the debris.

  `So what have you got for me, Marty?'

  The NSA outlined America's immediate military capability.

  The 100,000 tonne nuclear-powered aircraft carrier USS Harry S. Truman had been redirected from the Sea of Japan towards the Chinese blockade. No public announcement would be made yet. She could be on the edge of the South China Sea with
in twenty-four hours. She was carrying 20 F-14 Tomcat fighters, 36 F/A-18 Hornet fighter-bombers, 4 EA-6B Prowler electronics countermeasures aircraft, 4 E-2C Hawkeye early warning aircraft, 6 S-3A Viking submarine hunters, and 8 SH-3 Seahawk rescue helicopters.

  She led a formidable battle group which once within the South China Sea could project power throughout. It comprised the brand-new 9,217 ton Arleigh Burke class guided-missile destroyer USS Oscar Austin, commissioned only a year earlier, carrying Harpoon anti-ship missiles, anti-submarine missile torpedoes (ASROC), and Mk50 torpedoes; the 4,100 ton Oliver Hazard Perry class guided-missile frigate USS Ford, with similar weaponry; the 8,040 ton Spruance class destroyer USS Hayler, whose armaments included Tomahawk long-range land-attack and anti-ship cruise missiles and Sea Sparrow anti-aircraft missiles; the Kilauea class ammunition ship USS Shasta; the Jumboized Cimarron class oiler USS Willamette; and the 9,466 ton Ticonderoga class guided-missile Aegis cruisers USS Port Royal and USS Vella Gulf. They carried Tomahawks, Harpoons, standard surface-to-air missiles, ASROC, and Mk32, Mk46, and Mk50 torpedoes. Three submarines accompanied the group, the Los Angeles class USS Cheyenne, Columbia, and Boise.

  Another American battle group was led by the aircraft carrier USS Nimitz, which because of her age was confined to the East Asia region. Joining her was the Tarawa class amphibious assault ship USS Peleliu. With 1,600 Marines on board, she had been on joint training exercise for international disaster relief with Philippine Marines, and was heading back to Hawaii when ordered to stay with the Nimitz. The battle group was holding its position in the Sulu Sea near the Cagayan Islands between Negros and Palawan. It was only eight hours' sailing time from the South China Sea.