Chapter 90: Loopholes

Ever since seeing that summary article about the Treasury Bond Incident, Tang Renrong had held Brother Di in high regard. Half a month ago, Liang Botao of Peregrine had been inquiring everywhere for information about Brother Di, which made him value him even more. Therefore, although he did not believe Liaoguofa could create that large of a hole, he still relayed the content of the call to Wei Wenyuan.

Wei Wenyuan was far better informed than Tang Renrong and had already heard rumors of a joint investigation team. Thus, he had focused all his attention on Wanguo Securities and was similarly dismissive of Brother Di's judgment, feeling that Liaoguofa was merely a minor player not worth investigating deeply.

However, just one day later, on the evening of March 30, after meeting Di Ye in person in a private room at the Japanese restaurant in the Garden Hotel while Di Ye was in Pujiang to apply for a visa, he quickly changed his mind, because Di Ye stated a reason that made his hair stand on end.

In the mid-90s, there were four treasury bond repurchase markets in the country: the Jinmen Securities Trading Center, the Jiangcheng Securities Trading Center, the National Securities Trading Automated Quotation System, and the Pujiang Securities Exchange. The first three only required 20% spot bond collateral, while the Pujiang Securities Exchange required 100% spot bond collateral.

Because moving treasury bonds back and forth was too troublesome, several trading centers began securities custody businesses in 1994, creating dozens of branch depositories across the country, using "Substitute Custody Receipts" or "Warehouse Entry Notices" as vouchers to circulate in the market in place of treasury bonds.

"The Pujiang Securities Exchange began allowing Substitute Custody Receipts to be used as collateral at the end of last year, General Manager Wei, am I right?"

"That is correct."

"Then, General Manager Wei, have you ever thought about what would happen if these Substitute Custody Receipts were fake?"

Wei Wenyuan had been appointed to a critical position in 1990 and successfully created the Pujiang Securities Exchange in just five and a half months. Over the years, he had experienced countless storms and had developed the psychological fortitude to remain calm even if Mount Tai collapsed before him. Upon hearing this, his expression involuntarily grew grave, and he frowned, saying, "It is impossible for them to be fake; treasury bond repurchase business can only be conducted by qualified institutions."

"Qualifications can be rented with money. I hear Liaoguofa has business dealings with many small local securities firms. If that is truly the case, issuing fake Substitute Custody Receipts is not difficult at all."

Wei Wenyuan's brow furrowed even tighter.

Brother Di lifted his porcelain cup filled with sake, a smile on his face as if he enjoyed watching the chaos, and said, "General Manager Wei, General Manager Tang, let's make a bet. Let's bet on a big meal. I guess the debt Liaoguofa has created is no less than 1 billion. What do you think?"

Tang Renrong, taking a detached view, raised his cup in a gesture and said with a smile, "I'll take that bet. Even if Liaoguofa is bold enough to defy the heavens, it's impossible for them to create 1 billion in debt. I think it's at most one or two hundred million."

Wei Wenyuan had absolutely no leisure for betting. He picked up his porcelain cup and drained it in one gulp, saying, "This isn't a question of how much debt there is, but a question of credit. I'm going to investigate first thing tomorrow morning!"

Tang Renrong felt the same. He sipped his sake and said, "If there really are fake Substitute Custody Receipts, even if it's only a few million, the negative impact caused would be no less than the Treasury Bond Incident..."

At this moment, the Big Brother phone Di Ye had placed beside him rang. After picking it up to answer, he discovered it was Zhu Zichun calling, saying he wanted to go to Pengcheng to join the R&D team. He couldn't help but feel a bit surprised, so he apologized to Wei Wenyuan and Tang Renrong, stood up, walked out of the private room, found a quiet place outside the restaurant, and asked, "Your internship at the Beijing game company ended so soon?"

"I resigned today. There's no future in wasting time there. In the same month, your R&D team created three pieces of software, but that company hasn't even figured out the most basic game settings. Every day, it's nothing but meetings... A few days ago, even the project manager ran off, leaving only me and two other interns to write code..."

Zhu Zichun was originally a gentle person, but after interning in Beijing for a month, he had become cynical. He ranted for several minutes about the bizarre things he encountered during his internship, and finally said, "I really regret not going to Pengcheng with you. Su Zhaonian used to rely on my cheat sheets to pass his C Language exams, but now his level is actually higher than mine. Just thinking about it makes me annoyed!"

"Su Zhaonian just has one more month of experience than you; you'll catch up in a few days. Where are you now?"

"I'm still in Beijing. If you're still taking people on your side, I'll take the train to Pengcheng tomorrow."

Because Di Ye was often running around, he had appointed Cheng Zhongwei as the deputy team leader of the R&D team, responsible for arranging daily work. Cheng Zhongwei was doing okay, but the guy loved to show off too much, was unpopular, and was a student recommended for postgraduate study, so he definitely wouldn't stay in the R&D team in the future. Now that Zhu Zichun was volunteering to join, it actually solved a problem.

"Try buying a plane ticket tomorrow first. If you can get one, just fly; I'll reimburse the ticket later. The day after tomorrow, I'm taking 10 new people to Pengcheng; you can just adapt to the new environment with them."

"Alright."

After Brother Di finished the call and returned to the private room, he had only been sitting for a few minutes when Wei Wenyuan stood up to take his leave, looking preoccupied, saying he had to return to the exchange to call a meeting with his colleagues to study how to investigate Liaoguofa's accounts.

At this time, it was still early, not yet 7:00 PM. After seeing Wei Wenyuan off, Di Ye and Tang Renrong continued eating Japanese cuisine while chatting about gossip.

"A Pujiang financial radio station launched the day before yesterday and invited Guan Jinsheng to attend the opening ceremony. As it turned out, the organizers didn't even arrange a seat for him, and they actually let Guan Jinsheng stand for a full five minutes. In the end, it was only after a Hong Kong brokerage representative gave up their seat to him that the awkwardness was barely resolved."

"Guan Jinsheng is still the General Manager of Wanguo Securities, right?"

"In name, yes, but in reality, he's already been sidelined and is waiting to be dealt with."

"Have those key personnel at Wanguo Securities resigned or jumped ship?"

"Except for the ordinary grassroots employees, anyone who had a say in the 327 Incident won't be able to run; they are all waiting to be investigated."

After inquiring about the basic situation at Wanguo Securities, Di Ye turned to another topic, which was the China-US Intellectual Property Agreement signed on March 11, wanting to observe, through Tang Renrong's perspective, how ordinary people in 1995 viewed this agreement.

In June 1994, the Clinton administration, in order to build momentum for the midterm elections, began hyping up the China topic and initiated the Special Provision on the grounds of protecting intellectual property. The two sides nearly fell into a trade war. After long negotiations, an agreement was finally reached on March 11, 1995, resolving this trade dispute.

Because the United States was China's largest trading partner, during the negotiations, the stock markets in Pujiang and Hong Kong were in a state of constant alarm, with the slightest disturbance causing violent fluctuations. Therefore, Tang Renrong was very concerned about this matter, believing that the signing of the agreement was a major positive for the Chinese economy and would be reflected in the stock market over the coming period. In other words, he believed that in a few months, the stock market would enter a major bull market.

This judgment could not be called wrong, because there would indeed be a major bull market a few months later, but it might not have been related to the China-US Intellectual Property Agreement.

Compared to finance, Di Ye valued the agreement itself more, because it contained two very important points: one was requiring public institutions to use genuine software, and the other was allowing the establishment of computer software joint ventures to produce and sell their products.

"General Manager Tang, don't you think the clause in this agreement requiring public institutions to use genuine software is a major positive for the domestic software industry?"

"But the agreement also opened up the threshold for joint ventures in the software industry. The domestic software industry isn't even as good as the automotive industry back then. At least the automotive industry had the First Auto Works and Second Auto Works; the software industry has nothing. What are we going to use to compete with international giants like Microsoft and IBM?"

"That's not necessarily true. Will Microsoft and IBM develop a counter trading system for your Haitong Securities? The software you cobbled together yourselves using dBASE is, in my view, no different from a toy; both its security and ease of use are extremely poor."

Tang Renrong had long been dissatisfied with his own trading system. Upon hearing this, he was lost in thought and asked, "Are you planning to open a company to do this kind of business?"

"I'm preparing to develop a database software. If the development is successful, I plan to customize a stock trading system based on it."

"I hear you're a computer genius. If you can really make a secure and easy-to-use trading system, our Haitong Securities will be the first to place an order."

"It's a deal, then. Let's have a drink."

The two chatted very congenially, rambling in the private room for over an hour before parting ways. As they separated, Brother Di reminded him as if casually, "General Manager Tang, you'd better check when you get back to see if Haitong Securities has received any fake Substitute Custody Receipts pledged by Liaoguofa, especially during the Treasury Bond Futures period."

"No need to check; we have never accepted Substitute Custody Receipts pledged by Liaoguofa."

"Just because you haven't accepted them doesn't mean your subordinates haven't. Your financial circle is full of loopholes everywhere; it's better to be cautious."

"That's true, too. I'll go back and check."