Yet by the same token, Knowles didn’t understand why Zhang hadn’t done something to save Fidelian already. For all the lip service Chinese officials paid to the transparency of their financial system, it was still an economy where, if the government told a bank to lend, it would lend. If it told its own investment fund to put money into an entity that it owned, or accept a sale, it would do so. The Chinese president couldn’t possibly be unaware of the crisis that was unfolding on the American markets. Markets around the world had fallen in synch. Tom Knowles had had calls from a whole clutch of national leaders asking anxiously whether he thought the US was on the brink of significant economic problems, and Susan Opitz had had calls from an even larger number of finance ministers. The whole world was watching.
Maybe Zhang didn’t know. Or maybe he didn’t know the role his own investment fund was playing. Or maybe he was being told that the offer would keep getting better the longer he waited. The purpose of the call was to make sure he knew the truth about these things. To make absolutely sure the Chinese president knew that the PIC held the cards in this particular deal, that the offer the PIC was about to receive was the last best offer they would get, and to confront him with the prospect that if his investment fund wasn’t prepared either to support Fidelian or to sell it, it would set off an economic storm that would quickly find its way across the Pacific from one shore to the other.
THEY EXCHANGED INTRODUCTORY pleasantries through their interpreters. Zhang’s tone was as formal as ever.
Trying to strike a positive note from the start, Knowles initiated a brief discussion of the nuclear decontamination mission in the former North Korea, in which the US and China were participating side by side as members of the UN oversight panel. Bob Livingstone, informed of the possibility of an upcoming call to Zhang, had given Knowles a list of other issues to raise with the Chinese president and a series of talking points on each one, but Gary Rose, after vetting them, had ruled them out. Almost all involved some degree of conflict between the two countries and discussing them would have set the wrong tone for the conversation, or given Zhang the impression that Knowles was proposing a trade on one of them in exchange for help with Fidelian.
‘Mr President,’ said Knowles after a couple of minutes, ‘I would like to turn to a matter in which I think there may be an opportunity for further cooperation between us.’
‘Perhaps we should discuss the situation in South Africa,’ came back the reply. ‘We must find a more effective way of encouraging a restoration of the constitutional position in the country without being seen to impose our wills as foreign powers.’
‘That’s true, President Zhang, we must not impose our will. On the other hand the people of South Africa have a constitution and they deserve to be able to live under its terms.’
‘There are different ways to do this,’ said Zhang.
Knowles glanced at Rose. The national security advisor shook his head.
‘There is another issue which I would like to discuss with you,’ said Knowles. ‘An urgent matter. This relates to a bank in the United States that is currently in a position of some trouble.’
‘Yes. I have heard of it. That is Fidelian Bank, isn’t it?’
‘That’s right. When I say it’s an American bank, it has global operations.’
‘Yes,’ said Zhang. ‘I am aware of this. I believe it has a banking license in China.’
Knowles raised an eyebrow. Not only had Zhang been briefed, he was happy to let Knowles know it.
‘There is a very large ownership in this bank by one of your state investment funds,’ said Knowles.
‘Our investment funds have many holdings.’
‘I would like to be completely frank with you, President Zhang. This is a very confidential and delicate matter. Fidelian Bank is on the verge of bankruptcy. My understanding is that its shareholders, led by your investment fund, are unwilling to put more money into the bank.’
‘This would be a commercial decision,’ said Zhang. ‘I have no knowledge of the commercial decisions made by any of our state funds.’
‘I understand that. Our understanding is that this fund is not willing to put more capital into the bank – which is its legitimate commercial decision, as you say – but is also not prepared to receive a reasonable price from other parties who are prepared to take on the business with its liabilities and run it in an orderly fashion.’
‘I have no knowledge of the commercial decisions you are describing.’
‘I’m not suggesting–’
‘If they have not accepted the price–’ Zhang’s interpreter paused. The two interpreters had talked over each other.
‘Please, go ahead, Mr President,’ said Knowles.
The Chinese leader invited Knowles to speak.
‘No, please go ahead,’ said Knowles again.
There was silence. Knowles waited impatiently. He disliked these four-way phone conversations with two principals and two interpreters. Half the time you either had two people speaking together or no one saying anything.
‘I was saying that if they have not accepted the price,’ began Zhang again, ‘then I must assume there is a good reason for this which I would not question. The managers for our state funds are very competent people. The funds are mandated to make the best investments on behalf of the Chinese people. That is their obligation. President Knowles, let me assure you there is nothing else that we ask them to do.’
‘I understand that,’ said Knowles. ‘It is possible, however, that managing this fund from such a distance means they do not see all of the issues and implications of their decisions. The decision they seem to be making over Fidelian Bank has a number of very significant implications. These go far beyond the normal implications of such a decision.’
‘I repeat, President Knowles, this would be a commercial decision.’
Knowles paused for a moment. He knew this was the line the Chinese president would take, but he wondered if he was getting through at all.
‘President Zhang,’ he said, ‘I want you to know there is an offer to buy Fidelian Bank. Mr Rabin, who is the head of our Federal Reserve Bank in New York, has helped put together a deal from three other banks to buy the operation. This deal was put together last night and I believe it has not yet been put to the management of Fidelian Bank, but will be within the next hour. Fidelian Bank is aware that an offer will be coming and the CEO has arranged to speak with members of the board. I would strongly urge Fidelian Bank’s board to accept it.’
‘I am sure they will consider it.’
‘President Zhang, it is not as much as they have asked for. In fact, it’s quite a lot lower. In our view what they have asked for, to be perfectly honest, is unrealistic. What this deal offers is the very, very best that they will get. I personally intervened to make sure that this offer was at the very top of the range. Above it, in fact. When anyone looks at this deal, they should be aware it isn’t a bargaining position. It’s the full and final offer and there’s nothing more available.’
‘President Knowles, thank you for this information.’
There was silence. Knowles looked at Rose. Rose shrugged slightly.
‘President Zhang, can I ask you to pass that message on to the responsible people within the investment fund? I believe they have two seats on the board. This is an urgent need. The deal will be communicated within the hour. Fidelian Bank is required to make an announcement about its position. This deal must be done before the announcement is made. It needs to be done this morning, before the market opens here in New York.’
‘I understand from what you say that the offer will be communicated through the normal channels of the bank. If this is a final offer I would encourage your officials to make sure that Fidelian Bank understands this,’ replied Zhang.
‘They will do that, but I am concerned that the officials within your investment funds will not see this offer for what it is. I am very concerned that they understand how important it is to treat this
offer seriously. This is a final offer. Mr President, would it be possible for you to ensure that they understand this?’
Knowles waited, listening closely. Everyone in the room gazed at the speakerphone.
‘President Knowles, I do not interfere with the commercial decisions of the state funds.’
Knowles closed his eyes.
‘However, the state funds must consider the realities of the world.’
Knowles glanced at Rose and Abrahams. They were both frowning, trying to decipher what Zhang meant.
‘Mr President,’ said Knowles, ‘that is very helpful. There are important realities to consider. Let me say this as clearly as I can. The failure of this bank will lead to considerable uncertainty and disruption within not only our markets, but in global markets. I think this would have a severe effect not only on America but on China as well. We are all interconnected.’
‘We are interconnected. That’s true.’
‘I am concerned that this might be the start of a serious loss of confidence and we only have to look back a few years to see where that got us.’
There was silence. Knowles suddenly wondered whether Zhang thought he was referring to the Chinese troubles of 2014. He had meant 2008.
‘As I said,’ said Zhang, ‘we must all consider the realities.’
What exactly did Zhang mean by that? What was he referring to? Did he want to come back to the discussion about South Africa? Knowles glanced at Rose. The national security advisor shook his head.
Knowles decided to pretend he didn’t apprehend anything but the most obvious inference. ‘Again, I can only stress that both our countries will suffer badly if the board of Fidelian Bank doesn’t accept this offer. Much of the progress we have made in the last few years will be reversed. Can I take it, Mr President, that you will make sure your officials understand the seriousness of the offer?’
‘They will understand.’
‘And can I stress the urgency of this?’
‘The urgency is understood.’
‘And the fact that this is a final offer. There will not be another opportunity. This is the last one.’
‘I understand.’
‘Thank you, Mr President.’
‘President Knowles, is there anything else you wish to talk about?’
‘Not today, President Zhang. Is there anything else you wish to talk about?’
‘This phone call was at your request.’
Knowles was silent for a moment, wondering whether he had done enough. This was his last chance. But he had said what he had meant to say. Saying it again wouldn’t help.
‘Thank you, President Zhang. Thank you for your time. I hope that you will be able to help in this matter. It’s important to talk when we can help each other.’
‘I agree. I look forward to talking with you again soon.’
‘Thank you, President Zhang. Good night.’
‘And good morning to you, President Knowles.’
Knowles put down the phone.
He looked around. Ed Abrahams took a deep breath and blew it out slowly.
‘Well, that’s done,’ said Knowles. ‘I hope he understood that this was the absolute, final offer.’
‘You told him,’ said Abrahams. ‘What else can you do?’
‘What happens now?’
‘I’ll call Susan and let her know you had the conversation,’ said Roberta Devlin. ‘She’ll call Custler to release the offer.’
‘And then?’
‘The Stock Exchange knows there’s an announcement coming. We’ve vetted the statements the three banks are going to release. Josh is working on a last draft of your statement.’
‘When do I make it?’
‘As soon as we know Fidelian accepts.’
25
PRESIDENT ZHANG PUT down the phone. His advisor, Qin Jiwei, who had been present at the conversation, looked over his notes as the interpreter left the room.
‘President Knowles is a worried man,’ said Zhang.
‘Yes,’ said Qin. ‘The question is, what is he really worried about?’
Zhang nodded. ‘Go and get Bai.’
Qin got up to get the finance minister, who was waiting in an adjacent office.
Zhang waited, going over the conversation in his mind. He had no desire to help President Knowles with any domestic political difficulties he might be having. The way the American leader had unilaterally launched his initiative in Uganda had angered him, and for that reason alone he would not have been predisposed to help. Then there was the situation in South Africa, which was an issue of wholly different magnitude. In South Africa, if China was able to get its way, it would show its ability to step into disputes outside its own region as the Americans had done for so long, the mark of a true world power. Internationally, this would create a new context for negotiations on the great global issues of the world, a context in which China would have immeasurably more weight, the kind of influence that had been promised after the western downturn of 2008 and ’09 but which had never materialized. At home, it would show that the true source of China’s strength in the world was its economic influence – the reason the South African government was listening to China – and not its military force.
This was important to Zhang. Four years on from the disturbances of 2014, the three men who emerged in power retained their positions. Zhang himself had the loyalty of the internal security forces that he had led during the crackdown. Much of the army, Zhang knew, would side with General Fan if it came to a showdown. Defense Minister Xu drew support from parts of the military that did not back Fan, in particular elite units within the air force and certain naval elements. In this triangle, Xu was the waverer. The weakest of the three, the defense minister had no prospect of overcoming the other two, but could swing the outcome decisively one way or the other depending on where he chose to place his support. For four years he had played a game of sitting on the fence, holding on to his own position by keeping the two other men competing for his backing.
This couldn’t go on. For the first couple of years after the disturbances it had been possible. But by now, Zhang was thinking about the group of leaders who would succeed him, and so was Fan. To put their own men in place and give them time to prepare for power, they must first have undivided power themselves. It was obvious that Fan was no more ready to tolerate the situation than he was. The attitude of Fan’s loyalists in the army was becoming almost unbearably arrogant. Incidents took place when they confronted men from the security forces. The struggle was coming to a head.
Each man was battling for loyalty from groups in the regime outside their own core of supporters. Fan had no concept of China’s strategy to offer but the idea of greater and greater military strength. For Zhang, the failure of Fidelian Bank came at a fortuitous time. The supplication of the US president to save the bank gave him another way – like the South Africa situation – of showing that his way was the more promising, that economic strength gave China the ability to exercise power, even against the United States, in a way that military force could never match. But this opportunity created its own pressure. If Zhang gave in now to the American president and did as he asked, Fan would use the episode to show that China’s economic power was illusory or that he, Zhang, was too weak to wield it.
But he would not put China’s economic stability at risk. If it was necessary to help the American president in order to protect China’s economy, he would do it. He would have to find a way to deal with whatever Fan threw at him.
Qin came back with Bai.
‘There will be an offer,’ Zhang said to the finance minister.
Bai nodded.
‘It will not be as much as Hu asked for.’
‘How much will it be?’
‘Lower,’ said Qin. ‘Much lower.’
‘President Knowles said there will not be a higher offer,’ added Zhang. ‘This is the final offer.’
‘Minister Bai,’ said Qin, ‘would you believe that?’
Qin shrugged. ‘Knowles is so concerned that he rings himself, and yet he cannot find a few more billions to meet our request? President Zhang, put yourself in his place. Would you call and have nothing in reserve? If he is really so worried, he will still find a way. As long as he gives them enough money, the Wall Street banks will do what he says. He will sit them down and they will come up with a deal. It is in their own interest.’
Zhang frowned. His understanding of the way the economy functioned in the United States was almost non-existent. He had worked in the security apparatus for his entire career. If it had not been for the 2014 disturbances, a man such as him would never have become president. He relied almost totally on Qin and Ambassador Zhu for his understanding of the United States.
‘The more worried he is, the more certain it is,’ said Qin. ‘If he had not called you, then I would say he has no alternative. If we give in to him now, all we are doing is saving his face with Wall Street. We lose the extra money that Wall Street would pay.’
The money at stake wasn’t the issue, as all three men knew.
‘So we should say no?’ said Zhang.
‘Of course. Let him go back to Wall Street and lose his face there.’
‘How does that help us?’
‘Then he is weaker. He will rescue the bank at a high price and everyone will say he has spent money to save his friends on Wall Street. This will not help him in the elections. He is weaker if the Republicans do badly.’
Zhang nodded.
End Game Page 19