Chapter 2552: Chu He and Ren Youzi

The two returned from the market and immediately sent word to the Municipal Government—they didn't know who else to notify. Soon after, a courier arrived with An Jiu's note: Chen Lin was requesting a meeting to discuss Guangzhou's current Paper Cotton situation.

The moment he heard "Paper Cotton," Li Shan said, "Find Chen Lin at once. Tell him I'll see him immediately!"

The courier turned and left. Within the hour, Chen Lin arrived at their temporary office in the Great World. He recounted everything he'd witnessed regarding Paper Cotton and shared his growing concerns.

"...If cotton prices rise three times a day, so be it—markets fluctuate, and there's usually a reason behind it. But when Patterned Cloth Firms write contracts on slips of paper and sell them as if they were actual goods, exchanging them for real silver? I've never heard of such a thing..."

"Don't worry too much. This is pure speculation," Li Shan said. "The greedy ones will inevitably suffer heavy losses. As long as you keep your head, you'll be fine. As for the cotton shortage you mentioned, we have preparations in place. Raw cotton will enter the market within days."

"Yes, many thanks, Chief!"

"However, keep this to yourself for now." Li Shan told Chen Lin not to worry, but his own stomach was in knots. Once the Paper Cotton bubble burst, spot prices for raw cotton would collapse along with it.

True, the current spot market was also wildly inflated, and a return to normal prices would be healthy. But if prices fell too sharply, it would devastate a broad swath of industry stakeholders—hardly conducive to the industry's development.

More troubling still: would this debacle affect the cotton textile industry's standing with the Senate? That was what worried Li Shan most.

Even setting aside the Paper Cotton incident, the raw cotton shortage and factories teetering on the edge of shutdown were undeniable realities. It vindicated the senators who had long opposed developing a cotton textile industry: Guangdong's cotton cultivation simply couldn't support industrial-scale textile production. Li Shan had originally believed he could crush Songjiang Cloth through dumping cheap machine-woven fabric, forcing cotton exports from the Jianghuai region.

The problem was that cotton supplies were already insufficient. Where would "massive" quantities of "cheap" machine-woven cloth come from? Songjiang Cloth—which should have been "finished" according to plan—was not only surviving but expanding southward. Local textile production, whether from factories or farm households, couldn't begin to satisfy the appetite of the Nanyang Company, that suddenly ravenous giant.

Counting on Jianghuai cotton was unrealistic, and Guangdong itself wasn't suited for cotton cultivation. The only hope was India. Fortunately, Li Shan had shown foresight: the previous year, he'd dispatched Penglai Company to negotiate with the Portuguese and British, securing several forward contracts for cotton delivery. Now three Portuguese ships fully loaded with Indian cotton lay anchored in Macau, undergoing quarantine and customs clearance. Once the paperwork was complete, they would sail directly to the International's cargo wharf. Hundreds of tons of cotton would flood the market in an instant.

The inevitable result of the Paper Cotton bubble bursting while large quantities of spot goods hit the market would be a comprehensive collapse in cotton prices.

How could they engineer a "soft landing" instead of a crash? Li Shan and Zou Biao spent half the day discussing it in the office and came up with nothing.

The only approach they could devise was to ask Liu Xiang to intervene administratively—ban Paper Cotton trading outright and shut down or seize the Patterned Cloth Firms that had started it all. But what about the aftermath? Even if every cent of "illegal income" could be recovered from the firms, it would fall far short of covering a market that had ballooned to more than ten times its original value. Common people left holding worthless Paper Cotton would never accept such an outcome.

"The way I see it, we can't solve this ourselves. We need professionals." Zou Biao offered a suggestion. "As for the Indian cotton, I think we shouldn't let it enter the market just yet. If it stays off the market, at least spot prices can stabilize. The main buyers for raw cotton were never the retail speculators anyway. Let Penglai supply the Nansha Factory and Guangzhou State Cotton Factory directly at internal contract prices. That should minimize the impact of new supply..."

"But that means Penglai absorbs all the financial pressure."

The Nansha Factory currently operated only 720 spindles—its capacity to absorb inventory was limited. And Guangzhou State Cotton, with its 1,200-spindle first phase, wouldn't complete construction and equipment installation until autumn.

"Forget it. Let's go find Old Ren and Chu He," Li Shan said.

Before they could leave, the day's closing figures from the International Textile Market arrived. Cotton cloth had fallen 16% from the previous day. Cotton yarn was down 23%. Raw cotton had plunged 27%.

The carnage was difficult to look at. Li Shan knew that if this were a stock market or futures exchange, people would already be jumping from buildings.

"What about the Paper Cotton market?"

"The people we sent to investigate reported that Qingyun Tower Tea House—where Paper Cotton was traded—closed its doors after noon..."

"What? They fled?"

"The details are unclear."

"Contact the Municipal Police Bureau in my name. Find Mu Min and tell her I'm requesting a few officers to help investigate." Li Shan scrawled a note as he spoke and handed it to the courier. "Have them report to the Securities Regulatory Commission office."

Then he hurried to make a phone call to Liu Xiang.

"I'm already aware of the situation." Liu Xiang's voice was distinctly lukewarm. "Little Ren and Chu He are working in the Great World. Hold your meeting there."

From his tone, Liu Xiang clearly didn't consider this a serious matter.

"This... Aren't you... Won't you send someone to attend?"

"I believe this matter is rather specialized and involves financial stability. As a local administrative leader, I'm not suited to take the lead in organizing direct intervention." Liu Xiang's words were measured. "Discuss it among yourselves first. Once you've formed a concrete plan, I'll review it for implementation. Rest assured—the Municipal Government will fully cooperate."

These words were equal parts evasion and positioning, but the message was clear: Liu Xiang had no intention of getting deeply involved in the Paper Cotton incident and little interest in "maintaining market stability."

Still, at least he'd made his stance known.

Ren Youzi and Chu He's office was inside the Great World, just a short walk from their own. Li and Zou went over and knocked, only to find Ren Youzi still absent. Chu He was holding down the fort alone.

"Old Ren got called away to help Cheka. We don't have much going on here—not enough to keep us busy. But he'll definitely be back before dinner." Chu He offered an awkward smile. "You two are here about the Paper Cotton situation, I assume?"

"That's exactly it!" Li Shan was burning with anxiety. Seeing Chu He looking so utterly unperturbed, he felt a flash of irritation. The man's puffy eyelids made it obvious he'd just woken from a nap.

A disaster is unfolding out there, and you have the peace of mind to sleep! Li Shan fumed inwardly. But courtesy demanded otherwise: "This situation has grown quite serious. I'm worried about where it's heading, so I came to find you both—after all, you're the professionals."

At the word "professionals," a hint of pleasure crossed Chu He's face. "Whether we're truly professionals, I wouldn't presume to say—social conditions here are quite different from what we studied. Please, sit. Ren Youzi will return shortly, and we can discuss it together." He called for a secretary to pour tea for his guests.

"Regarding Paper Cotton, Old Ren and I have actually known about it for some time—it was in the Guangzhou social situation briefing. Honestly, we're both quite fascinated. It illustrates an important point: commerce and finance are fundamentally inseparable. To some extent, even without us so-called 'Future Brains' teaching these mechanisms as if they were arcane secrets, they emerge spontaneously in various forms..."

Zou Biao thought: From your expression, you seem to view this as a sign of social progress. But it wouldn't do to lose his temper now, so he held his tongue.

"On this matter, Old Ren and I are in complete agreement. Everyone should stay calm. Even if the bubble bursts, the consequences won't be catastrophic."

"But—"

Just as Li Shan was about to object, Ren Youzi returned. He strode through the door asking, "What's going on? Why are there two police officers here? They say Mu Min sent them to report here..."

"I asked Mu Min to dispatch them," Li Shan explained hastily.

"Good heavens—you're already deploying police for the Paper Cotton situation? You've defined its legal nature?" Ren Youzi set down his briefcase, took the towel his secretary offered, and mopped his brow.

"I don't have the authority to define anything legally. But our futures market suddenly closed its doors." Li Shan recounted how Qingyun Tower Tea House had abruptly shut down after noon. "Most Paper Cotton trading happened at that tea house. A sudden closure suggests the people behind it may be trying to disappear. I thought we should have the police pick them up first."

"It's possible," Ren Youzi nodded. "However, the tea house owner himself isn't the one issuing Paper Cotton. At most, he collects handling fees—and whether he even does that is unclear. Arresting him wouldn't accomplish much. Besides, even if you rounded up every Patterned Cloth Firm boss who issued Paper Cotton and forced them to disgorge every coin they made, would it fill the hole that's been created?"

"Well..."

"You two are responsible for the cotton textile sector—I understand your concern. But we've been monitoring this situation closely." Ren Youzi pulled a document box from the filing cabinet and handed it to Li Shan.

"This contains everything we've gathered on Guangzhou's Paper Cotton situation. Large and small, it's all here."

"So you were paying attention after all..."

"What did you think? That we just drink tea and nap all day?" Chu He smiled wryly. "As I mentioned, the emergence of Paper Cotton is a fascinating phenomenon. Whether as a professional duty or simply to satisfy our research curiosity, we were bound to follow it."

Li and Zou finally felt some of the tension leave their shoulders. Perhaps these two were reliable after all.

(End of Chapter)