Zhang knew that he had backed himself into a corner, unable to make concessions in the outside world because of the need to shore up his power at home. But at some point, that was always going to be the case. A final reckoning with Fan was inevitable. Now it seemed to have begun, so he must take his chances. Half measures would be fatal. Whatever he did, he would have to do with all his conviction.
Appearances were crucial. It was no longer enough for China to look like the victim of American browbeating, the posture with which the Chinese government had so often been satisfied in the past. With all eyes in the regime on the developing confrontation between him and Fan, China under his leadership needed to show a new strength. The more President Knowles made demands on him, the more he would be forced to resist them. Only if Knowles backed down on something, then he would be able to help him.
Qin understood all of this well, more so than Bai, whose political cunning was only slowly emerging from under the weight of his technocratic training.
‘Qin,’ he said, ‘let them give us something. Let them back down on South Africa. We must get something from this.’
Qin nodded.
‘What if he calls you?’ said Bai.
‘He should stop these calls!’ said Qin. ‘He should understand this does not help. We look as if we must do what the American president says. Soon we will hear about this one in the press like we heard about the other one.’
‘Then what should I do?’
‘Perhaps he will not call.’
Zhang turned to Bai. ‘You should be telling me to make the statement they want. You should be telling me to calm the markets.’
Bai nodded.
‘Well?’
‘I am also aware of all the other things, President Zhang.’
Zhang watched him. Bai, he knew, wanted to prove his political credentials. He wanted Zhang to see that he was more than an economist.
‘You told me at the start it would be a panic of a few days. Now it is weeks. Then it will be more.’
‘That is the price for showing our strength,’ said Bai. ‘Both outside and inside.’
Zhang shook his head. ‘That is too high a price.’
‘President Zhang, this is not like it was in 2008. The panic will go. We will not need to put in the stimulus we put in 2008. For a few more days, for a few weeks, perhaps, the panic will continue. But it will pass.’
‘Are you sure of that?’
Bai nodded.
Zhang looked into his bowl. The congee was finished. He took a piece of pickle with his chopsticks.
There was a knock on the door. Zhang’s private secretary entered.
‘President Zhang, the office of President Knowles has rung to schedule a telephone conversation with you.’
41
HE HAD REFUSED to take the call. Twice. Roberta Devlin had contacted the Chinese president’s office personally and both times she had been told that Zhang was unavailable.
So they waited on him to make a statement. But the silence out of Beijing was deafening. A week after Peskarov had stood up in St Petersburg and made his remarks, nothing had been heard. Everywhere else there was noise. The markets were sliding, the press was shouting and pressure groups all over the country were demanding action to protect their own pet interests. The White House was being assailed by foreign leaders wanting to talk with the president.
His approval ratings were in territory they had never been to before. Sandy Ruiz-Kellerman’s latest numbers were truly awful and there were plenty of polls by other organizations to confirm them. A president whose approval hadn’t been below fifty before, he was now struggling to hit forty.
It was four weeks to the day since Harley Gauss had died and Dewy and Montez were captured. It was supposed to be the holiday season. He had turned on the lights in the tree behind the White House with the press demanding to know if Dewy and Montez would be home for Christmas. Every time anyone in the administration remotely connected with security or defense spoke to the press, there was a journalist who asked that question. They talked as if he had promised it.
Things were slipping out of control. The markets were in a self-fueling cycle of panic where each fresh fall drove the next one. Ron Strickland and Susan Opitz announced one new measure after the next and each one just seemed to make things worse, driving the markets further into what appeared to be an unstoppable suicide dive.
He got together the people whose advice he valued most. Ed Abrahams, Roberta Devlin, Gary Rose, Marty Perez, John Oakley. He wanted to know how this could be controlled. The measures Strickland and Opitz had taken should have been more than enough to deal with the failure of one bad bank, including its secondary effects. It was irrational.
Marty Perez disagreed. ‘What the markets are doing isn’t irrational nor is it disproportionate. Mr President, we have a bank whose owner – a foreign government – let it fail. For no reason we can understand. With that, right now, no sense of panic in the market is disproportionate. They can’t panic enough.’
‘That was the case the day Fidelian failed,’ said the president.
‘Yes, and something’s changed. The foreign owner refuses to exonerate himself. All he has to say is he didn’t do it on purpose – and he won’t. We’ve crossed a line with this.’ Perez paused. ‘The implication of the fact that Zhang refuses to talk – after everything that’s happened – is that this was done on purpose, and the implications of that, of a foreign government manipulating the failure of a publicly held corporation – and a bank, at that – are incalculable.’
‘Come on, Marty,’ said Oakley. ‘That’s a little extreme, isn’t it? Incalculable?’
Perez was almost tearing his hair out. All week long he had been fighting a battle against people in the White House who were telling the president that the markets were responding irrationally, that the actions taken by the Fed and the Treasury should have been enough whether Zhang had spoken or not. ‘John, believe me, it’s not extreme. Everyone knows that Chinese sovereign wealth funds and Russian sovereign wealth funds and Arab wealth funds and any other wealth fund out there are up to their necks in ownership of US stocks. Banking, mining, construction, utilities … You name it, they own it. Now, after Fidelian, everyone’s looking around asking which is the next one that one of these funds is going to manipulate.’
‘And which would that be?’ said Oakley.
‘I don’t know! No one knows. That’s exactly the point. People are looking around trying to figure out who owns what and dumping anything they think is in danger. And that is not disproportionate.’ He turned back to Knowles. ‘Mr President, the market is reacting exactly as it should. A market runs on the belief that participants will act rationally in an economic sense. It’s an unwritten law that underlies everything that happens in our economy. I buy a stock or a bond a company issues because I believe the other people who are buying stocks and bonds and the people running the companies all want the same thing. Profit. Value. Now you get a bunch of owners who don’t want those things, who aren’t acting rationally in an economic sense – but they don’t identify themselves, and they don’t tell you what’s driving their behavior – and that’s not a market you want to be in. It’s not a market – it’s a casino. Invest in that and you’re playing Russian roulette with your money.’
‘Marty,’ said Ed Abrahams, ‘how long can this go on?’
‘How long? Do you know what would happen if the PIC and a few other similar funds decided to dump all their stocks on the market tomorrow? Dump all their bonds? Those instruments wouldn’t have a value.’
‘But how much would they lose?’
‘Trillions. But they don’t have to do that. They don’t have to take those losses. Even if they just said they were going to sell. It’s the threat. It’s not knowing where they’re going to go next. It’s like you’ve got a bunch of things in front of you and some of them have a bomb ticking inside them. Which of them do you want to own? None, because you don’t know which one
s have the bombs. None of them have to go off – you still don’t want to hold them. And even if you knew which ones have the bombs, you don’t want to own the others either, because if the one next to them blows up, chances are they’re going to get damaged as well. Mr President, we’ve had this conversation already. We’re looking at something unprecedented. This literally could bring our economy to a complete halt. No investment. No trust. The market’s response is a hundred per cent rational. Anyone who’s telling you that is wrong.’
‘Okay, Marty,’ said the president. ‘You’ve made your point.’
‘This crisis is not the same as the last. Last time, it was only our entire financial system that was about to fall over. This is way scarier. Our economic system has been infected by the political. That’s not the American system. The fear we’re seeing is because of a recognition that the two have become combined. You have that fear and there’s nothing Ron and Susan can do to stop it.’
‘Okay, Marty. I understand.’
No matter how stridently he said it, Perez felt, he couldn’t say it strongly enough. ‘This is the endgame. This is the door to Armageddon and it’s starting to open.’
‘Marty,’ said Oakley, ‘when I hear you put it like that, I think what you’re describing is a form of war.’
‘Yes! I think that’s a perfectly legitimate comparison.’
‘Well, if what you say is true, I don’t know how else you could look at it. If an act of war is anything that strikes consciously and severely and with destructive intent at a vital interest of our country, then that’s what this is. I can’t think of anything more vital than our economy. And what you’ve just said here, Marty, is that these actions destroy our economy. That’s as much a form of war as if they sent over a bunch of bombers and knocked out our electricity transmission grid. Except if they sent over a bunch of bombers we’d know it for what it is.’
‘It’s Pearl Harbor for the twenty-first century,’ said Ed Abrahams.
‘And cheap, too. How much did we spend in Iraq? Upwards of one and a half trillion before we made it out of there. How much did these guys lose on Fidelian? They only owned twenty-five per cent. A few tens of billions? And like you said, Marty, these guys hardly need to make any more losses. Just make the threat, and every so often maybe set off one of those bombs you were talking about.’
‘And the only person who can tell us it’s not what you’re talking about, John, that it isn’t some premeditated act of aggression, is Zhang.’
‘Exactly. It’s like I said to Livingstone. If they don’t come out with a statement, then we’ll know they’ve caused it.’
Gary Rose frowned. ‘Let’s not go too fast here. I don’t know if I’ve ever heard of a country being accused of starting a war by failing to say something. Let’s not talk ourselves into anything. We should be careful with the terminology.’
‘Mr President,’ said Devlin, ‘can I play devil’s advocate here? Like Gary said, we’re talking ourselves into a position where we’re seeing the Chinese silence as an act of aggression. I think we need to ask ourselves how they see it.’
Oakley laughed. ‘Right. Bob may not be here, but Mrs Livingstone is in the building.’
‘John, this is important. Go on, Roberta.’
‘Let’s say they didn’t do anything,’ said Devlin. ‘Let’s say there was no political interference in the process of Fidelian going bust.’
‘Why not just say it?’
‘Because why should they? I guess it is like Bob Livingstone said. It’s our problem, not theirs.’
Knowles shook his head. That might have been acceptable first time around, but with what was happening in the markets, and after Peskarov’s statement, that was no longer acceptable. ‘I agree with John, it’s an aggressive stance. And with due respect to what Gary said – because he’s right, we need to be careful with the words – by an aggressive act I mean one that’s not the act of a friendly nation. It’s the act of a hostile nation. I’m saying not even neutral. Hostile.’
‘What if it’s an internal thing?’ said Devlin. ‘What if it’s something we can’t see that’s motivating him?’
The president looked questioningly at Rose.
‘It’s always possible. When it comes to the big issues in the regime, you can never be sure if it’s the party or the army that’s in charge. Their head of the army holds as much implicit power as anyone in the regime. Could he have constrained Zhang from acting to save Fidelian? Depending on the dynamics of the day, and other events that were happening, you’d have to say yes.’
‘So it could be the army driving this?’ said Oakley. ‘That makes it even more of a war.’
Rose didn’t respond to that. But he repeated the argument he had made to the National Security Council almost a month earlier. ‘The dynamics of what’s happening within the Chinese regime, as far as this goes, are irrelevant. They have to be irrelevant. We can’t ever get into a position where we tolerate this kind of action, with this kind of impact, for the domestic purposes of a foreign leader. Bottom line, whether it’s Fan or whether it’s Zhang, or someone else in there, they don’t fight turf wars with our economy. Period.’
‘So what do we do?’ said the president.
‘They need to understand that whatever they think, for whatever reason they’re doing this, we’re under attack here. They need to understand very clearly that whether intentionally or not, they’re the ones who are attacking us. Now what they choose to do about that is up to them.’
‘And by the way,’ added Oakley, ‘there are two of our guys in Sudan they’d better help us to get out.’
‘If they’ve done this to send us a signal that they’ve got some kind of power over us because of their ownership of stock in our companies, then they need to understand this is not a form of power they can safely exercise. And if they haven’t done it, and they just think they can make us twist a little by staying silent, then they need to understand that right there is a hostile act. And if they didn’t do anything to Fidelian on purpose, but they’ve simply seen the effect now and they think they can use the threat whenever they want, then like Marty said, they’ve got to understand they can’t do that either. They need to know they’re playing with fire.’
‘Roberta,’ said the president, ‘you were playing devil’s advocate. Do you want to keep playing it or do you agree with that?’
Devlin shook her head. ‘I’m with Gary. Whatever motivated Zhang at the start, I agree this has gone too far now for him to stay quiet.’
‘We can’t afford to show any weakness here,’ said Rose. ‘We can’t give the slightest hint we’re going to back down on anything because of this. We need to get a lot tougher. The world needs to see us coming right back at them so no one goes away with the idea that this is a trick they can pull on us again. Before you know it you’ll get Peskarov turning around and doing the same kind of thing.’
‘What do you propose?’
‘First, there’s Sudan. It’s time to come out and announce publicly that we know our guys are in Sudan, who have no right to be holding them, and we expect the Chinese government to help get them released. We can’t hold them technically accountable but in effect that’s what we’ll be doing. A friendly nation would exercise its influence in that regard. And then there’s the South Africa resolution. The Brits are going to get that on the table before Christmas and we need to back it. If we don’t, it’s like we’ll trade democracy in a country of fifty million people for our two guys.’
‘That’s what I’ve been saying all the time,’ said Oakley. ‘It’s blackmail.’
‘Exactly. We don’t do that. We get our two guys and we back democracy in South Africa. Neither of those things is negotiable. Now, we do this publicly so we send a strong message to everyone who’s watching that the United States won’t back down on its people and on its principles. In private, we need a letter to Zhang. We state very clearly the gravity of what’s happening and what we need from him, the kind of publi
c statement that we need, and our expectation that he’ll do it. This isn’t a matter of negotiation. This is what has to happen.’
‘I like that,’ said the president, glancing at Ed Abrahams.
‘This is straight down the line,’ said Rose. ‘You’ve brought us to the edge, here’s what you’ve got to do to bring us back. We expect to see you do it. Period. Now, the other thing is, could we also talk about taking steps to restrict ownership by sovereign investment funds? Could we reclassify them as some kind of foreign-government-owned entities and put some kind of restrictions on them from a national security perspective?’
‘I’d be very cautious before we do anything like that,’ said Marty Perez.
‘Well, Marty,’ said the president, ‘I think we need to think about things like that. What if we don’t resolve this quickly? What if we can’t take the political out of the economic as quick as we’d like, if that fear you’re talking about continues? What measures do we take?’
Perez’s expression was troubled. ‘I don’t know what that would look like. It would be extreme.’
‘You’re the one who said the market can’t panic enough. If we’re going to stop that, we may have to do things we’ve never thought about before. Talk to Susan and Ron. Figure it out.’
Perez nodded silently, his brow furrowed, his mind already working. The president watched him for a moment, then turned back to the others. ‘Okay, so we make a public statement on Sudan and our expectations that our friends in Beijing are going to help us get our guys out. We give the go-ahead to the Brits on their resolution. And in private we send a letter to Zhang laying out what we’re expecting in terms of calming the markets. Is that right?’
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