Chapter 1799: Darkness Approaches

Sitting in the car, Tan Kaixuan and Zhao Fusheng chatted about recent events for a while before turning to the current situation.

"How far do you plan to take down Cathay?"

Tan Kaixuan asked Zhao Fusheng.

"Cripple them, I suppose."

Zhao Fusheng thought for a moment and said casually, "To be honest, I really don't like this company. I always feel they're up to no good."

"Haha."

Tan Kaixuan laughed, then said seriously, "I did some digging, and this company seems quite interesting..."

Zhao Fusheng nodded. He knew what Tan Kaixuan meant—it was about the inclination of the Bank of East Asia. In Zhao Fusheng's eyes, that was only one reason. What he truly couldn't tolerate was the company's attitude toward the mainland.

Zhao Fusheng's principle was simple: if you don't care about mainland customers, then don't make money from the mainland.

Selling dog meat under the sign of a sheep's head, picking up the bowl and calling it daddy, then putting down the chopsticks and cursing your mother—Zhao Fusheng would never agree to such things.

"Get ready. I think we could become shareholders. What do you say?"

Zhao Fusheng said to Tan Kaixuan.

Tan Kaixuan thought for a moment: "That could work, but the stock price is a bit high right now. I plan to drive the price down and buy in cheap."

"Suit yourself."

Zhao Fusheng nodded: "As long as you don't touch the domestic stock market, do whatever you like."

"Huh?"

Tan Kaixuan was startled and looked at Zhao Fusheng in surprise: "What's wrong? The domestic stock market has been rising quite well lately. I even bought some stocks myself."

"Sell them!"

Zhao Fusheng said directly to Tan Kaixuan without hesitation: "Sell as many as you have, don't keep any."

"What, do you think the recent dip is risky? Let me tell you, it's not. It's just a temporary adjustment. I estimate it could hit 7,000 points by the end of the year."

Tan Kaixuan said confidently.

But Zhao Fusheng snorted. In his memory, he had lost quite a bit of money in this storm.

In the original history, this year, the immense appetite of China's capital market had already begun to show. A significant but often overlooked statistic was that China's IPO financing had not only far outpaced other emerging markets but had also surpassed world-class financial centers like New York and London. Since 2006, the IPO financing volume of the A-share market had even exceeded the total of the New York and London stock exchanges.

This super financing capability strongly demonstrated that the breadth of China's capital market had greatly expanded and was gradually becoming a major global capital provider. It also reminded those established financial centers that, leveraging the immense potential of its domestic market, China's capital market was no longer a traditional emerging market but a competitor that could bring them countless troubles in the future.

All this, while matching China's high-growth GDP on a high base, was indeed astonishing as it leaped from a marginal, even laughable small capital market.

Privately, some had predicted that with the completion of the split-share structure reform in China's capital market and the rapid internationalization of the A-share market, the Hong Kong market would gradually become marginalized or even A-share-ized due to the black hole-like scale of the mainland economy. But no one expected this day to come so quickly.

In 2007, the Hang Seng Index in Hong Kong almost followed the A-share market step by step. Undoubtedly, this trend was just the beginning.

For companies, the capital market is like a magical catalyst that can instantly multiply a company's value.

This year, the alchemy of the capital market played out in a series of acts in the A-share market.

After the close on July 25, 2007, everyone suddenly realized that we had the world's largest bank. On that day, the market value of Industrial and Commercial Bank of China surpassed Citigroup to become the world's largest bank by market cap.

This state-owned bank, which just a few years ago was deemed hopeless and on the verge of bankruptcy by all experts, suddenly rejuvenated overnight, making people feel like they were in another era. Even more ironically, European and American investors had made paper profits of $80 billion from their investments in the restructuring of state-owned banks like ICBC, far exceeding their $50 billion losses in subprime debt. Truly, when the West is dark, the East shines.

However, ICBC surpassing Citigroup was just the beginning of this series of myths. In the following months, Aluminum Corporation of China surpassed Alcoa to become the world's largest aluminum company; Shenhua surpassed Peabody to become the world's largest coal company; and Vanke's market value exceeded the total market value of the top four U.S. real estate companies.

The climax of this series of myths occurred on November 5, 2007. On that day, after PetroChina opened, its market value reached an unprecedented $1.1 trillion, making it the first company in corporate history to exceed a trillion dollars in market cap.

Some calculated that this market value was equivalent to ExxonMobil plus Microsoft plus Citigroup. Before 2007 ended, among the top ten companies in the world by market cap, China already had four.

From a closed, insignificant marginal capital market, it leaped in a short time to become a market that drew global attention. China's finance let out a spine-chilling roar in 2007.

Was this merely an ordinary bubble game or a bluffing financial performance?

Zhao Fusheng couldn't explain to Tan Kaixuan what lay beneath the seemingly glamorous surface, because he couldn't say it.

"Are you really that pessimistic about the A-share market?"

Tan Kaixuan laughed: "It was already over 6,000 points a few days ago."

Zhao Fusheng sneered: "Even if it hits 7,000 points, so what? Others may not know, but don't you? Do you think those market values are real?"

Tan Kaixuan fell silent at that.

As a big player on Wall Street, he knew very well that China's stock market was now a huge bubble.

Even those state-owned enterprises with soaring market values were mostly illusory.

Since the establishment of the State-owned Assets Supervision and Administration Commission in 2003, the profits of central enterprises had grown abnormally year after year like magic, and the vast majority came from monopolistic companies like China Mobile.

Costs never disappear on their own; they are only transferred, hidden, swept under the rug. And profits don't fall from the sky. In such a short time, the profits of central enterprises had surged. We have reason to suspect that, besides normal profit growth from economic expansion and improved performance of state-owned enterprises, a significant portion of central enterprise profits came from transferring costs and squeezing profits from other enterprises.

In other words, part of the profits that should have belonged to public welfare and other enterprises were transferred to the income statements of central enterprises. This was likely one of the main secrets behind the magical profit growth of central enterprises.

This could be seen very clearly in China's banking reform.

Not long ago, China's state-owned banks were typical bad banks riddled with non-performing loans. But within just a few years, through capital injection, introducing strategic investors, and then listing, state-owned banks quickly transformed from hot potatoes into sought-after 'high-growth' banks. Because of its remarkable results, China's banking reform was hailed as a financial miracle.

In reality, China's banks were far from as miraculous as experts boasted. They simply cleverly exploited China's special institutional 'advantages' to disperse and hide the enormous costs of reform.

The most critical step in the reform of state-owned banks was actually the injection of public funds.

Without this step, the subsequent introduction of strategic investors and listing would have been impossible. With this step, the later steps naturally followed. However, the several trillion yuan in capital injection could have been used to build equally urgently needed public goods such as healthcare, education, social security, and environmental protection.

Perhaps in the order of priorities for the Chinese, finance had more urgent dangers, but it was undeniable that the miracle of China's financial reform came at the cost of a severe shortage of public goods and a serious lag in social development.

This further eroded China's already severely corroded social solidarity and exacerbated the fragmentation of Chinese society. In recent years, the increasingly boiling anger in healthcare, education, environmental protection, and social security was no accident.

The financial crisis that people had been worried about seemed to have vanished into thin air, but in unseen places, China's social crisis was stirring.

A researcher once summarized China's banking reform as 'Chinese-style growth,' but from this perspective, a better term would be 'Chinese-style magic,' with a touch of dark humor.

Obviously, it wasn't just state-owned banks or large monopolistic state-owned enterprises that gained benefits by eroding other social interests; this was widespread across almost all enterprises.

This is easy to understand. Other types of enterprises didn't have the unique advantages of central enterprises and state-owned banks. Their methods of obtaining excess profits beyond economic growth often involved shifting environmental costs, obtaining cheap land, seeking tax breaks, and even directly exploiting workers.

This situation was common in China's real estate companies and sweatshops.

In China's reforms, besides the deep-rooted worship of government, a new corporate worship had emerged, creating a highly favorable cultural atmosphere for enterprises to obtain excess profits in economic development. The direct consequence was the extreme atrophy of 'citizens' and their rights as important social subjects, and the abnormal growth of government and corporate income.

If the increase in corporate profits came from a relatively balanced growth among government, enterprises, and citizens, that would be a good thing. But if it came from depriving other stakeholders or shifting costs, it was very worrying.

China's current situation was likely the latter.

No one knew better than Zhao Fusheng what impact this so-called reform dividend would have in the future.

Starting from 2007, China's stock market had been bearish for eight years.

During these eight years, housing prices rose higher and higher, and people's incomes gradually failed to keep up with rising prices. The most intuitive example was that money became increasingly harder to earn.

At the same time, channels for upward mobility were locked. Examples of starting from scratch and succeeding in entrepreneurship, common in the 1980s, 1990s, and even the early 2000s, became increasingly rare.

People helplessly found that to live better, there seemed to be no more effective way than working for others.

Entrepreneurship became increasingly difficult.

The demand for pensions grew larger. The strictly enforced family planning policy was eventually abandoned in favor of the two-child policy. The government even began encouraging farmers to pay into pension insurance...

Zhao Fusheng was reluctant to admit it, but the facts were right before his eyes.

"What are you thinking about?"

At that moment, Tan Kaixuan's voice rang out. He looked at Zhao Fusheng in confusion: "You tell me to think, but you're the one spacing out."

Zhao Fusheng then realized he had been lost in thought.

With a sigh, Zhao Fusheng said to Tan Kaixuan, "In the coming years, besides real estate, try not to invest in the domestic real economy. Instead, tilt more capital toward the internet industry."

"What, have you thought of something?"

Tan Kaixuan was taken aback and looked at Zhao Fusheng in surprise.

Clearly, he felt that Zhao Fusheng must have seen something.

Zhao Fusheng smiled bitterly and nodded: "It's not that I've thought of something specific, but the stock market is definitely going to have problems this year. Just listen to me and sell all the stocks in your hands quickly. Don't wait until a real bear market starts and you can't find anyone to take over your positions."

"I know that."

Tan Kaixuan nodded. On this matter, he still tended to listen to Zhao Fusheng.

But as for other things, he really wanted Zhao Fusheng to explain.

"The economic situation is not optimistic."

Zhao Fusheng sighed and, without hiding anything from Tan Kaixuan, shared some of his judgments combined with memories from his past life, saying solemnly, "The real economy will get harder and harder. Manufacturing will face great difficulties, especially in the northern regions."

After hearing Zhao Fusheng's words, Tan Kaixuan's face suddenly changed: "It can't be that bad, can it?"

Clearly, he didn't think what Zhao Fusheng said was that serious.

Zhao Fusheng shrugged: "What do you think? Think about it—now even old ladies selling vegetables on the street know that stock trading makes money and want to put their money in. Do you think that's normal? If the value of these stocks shrinks by even a third, how much wealth do you think would evaporate? Take PetroChina—if its stock price plunges, how many years do you think it would take to recover? How many people would lose everything?"

Tan Kaixuan was speechless.

Zhao Fusheng's words hit the nail on the head, completely exposing the blind spot he had never considered.

"Damn it! If that's the case, I'll pull my capital out of the country!"

Tan Kaixuan gritted his teeth and said to Zhao Fusheng solemnly.

Zhao Fusheng laughed: "Suit yourself. But I'll say it again: try not to touch the real economy; invest more in internet projects."

This was the real solution Zhao Fusheng wanted to tell Tan Kaixuan.