Hong Kong: The World's Drug Capital

Illegal drugs are the biggest business in the Far East — and by a close margin the biggest business in the world — but in Hong Kong, drugs do not merely dominate the economy: they are the economy. A look at the British colony of Hong Kong gives us a picture in microcosm of the drug-dirty money economy worldwide.

First, start with the fact that Hong Kong is the most drug-ridden place in the world, per capita. Official British police estimates have it that 10 percent of Hong Kong's population or 500,000 people, are hardcore addicts. Unofficial estimates run this figure up to 50 percent. A safe, conservative estimate is 20 percent or 1 million people — more than New York City's addicts. Assuming the daily cost of a serious opium or morphine habit in Hong Kong to run to about $10 U.S., the annual cash-flow of retail drug sales at HongShang's back porch runs to about $3.7 billion.

As the region's central bank, the Hong Kong and Shanghai bank provides banknotes to its clients, among other services. Any reasonable estimate of Hong Kong's dirty money operations including the retail drug trade, as well as the notorious bribes to police officers, international drug wholesaling based on the island, illegal gambling, and other forms of illicit transactions, must yield a shockingly large number. With a drugged-up population of that size, the life of Hong Kong's population must be organized around illegal activity.

Shifting focus to New York City for a moment indicates the magnitude of the world's drug-centered illegal economy. Most estimates put the city's addict population at 500,000 (and another 250,000 nationally). Assuming a $50 per day habit is average — which the federal estimates apparently do — this addict population must obtain $9 billion a year out of New York City's faltering economy to meet its needs.

Where does it get $9 billion? Not substantially through well-paying jobs. With rare exceptions that is physically impossible. Not from muggings; however bad matters seem, neither 500,000 muggings, nor a combination of muggings and burglaries, take place daily in New York City. Even prostitution could contribute only a small portion of the $9 billion annual habit of New York City's addicts.

Where does the money come from? From organized crime activity: the numbers racket, bookmaking, protection rackets, auto-theft, stolen auto parts distribution, prostitution, pornography, arson-for-hire, and similar occupations. Drug addiction could not possibly exist without organized crime to provide the means of financing addiction.

The National Education Television's recent series on the narcotics trade demonstrated irremonstrable nerve by repeatedly citing the view of the (well-paid) Royal Police of Hong Kong that the narcotics traffic will always exist as long as there is a market. The market for the worst form of human misery not only is the most centrally organized of any market in the world, but could not possibly exist in any other way. If the demand provokes the supply, one might ask, why do narcotics wholesalers produce roughly ten times what addicts can consume annually?

Hong Kong is the capital of the world's illegal drug economy. This explains some of its most notable characteristics: the biggest illegal market in dirty money, drugs, and gold; the world's biggest liquidity ratio; and the world's biggest bribe rate.

The annual exports of the colony this year will be no more than $8 billion; as we have seen, it will take in more than $10 billion in drug and drug-related financial activity. There is no credence to the myth that Hong Kong's economy is booming on the basis of cheap electronics and textiles.
 

The illegal market

Apart from retailing and wholesaling of drugs, huge sectors of the island's economy are indirectly dependent on the drug traffic. Exemplary is the booming gold market, whose turnover doubled from 305 tons in 1976 to 600 tons (worth $43.6 billion) in 1977. Some several hundreds of millions of dollars of gold go directly to the Golden Triangle; hundreds of millions more absorb and hide the profits of drug traffickers across the Far East.

This is the place where the Hong Kong and Shanghai Bank smuggled gold openly for a quarter-century, rigs the stock market in full public view, and promotes Chinese smugglers to the upper reaches of Hong Kong society. Nothing moves in the colony without the knowledge and approval of the Hong Kong and Shanghai Bank and interlocked old-line opium trading companies. They set the island up as an opium center in the 1820s when it was bare rock, and they run it now.

A Soviet commentator, M.A. Andreyev, wrote in 1974:

"In the Far East Hong Kong is the main center of illegal operations in gold and foreign exchange. Large-scale illegal transactions are carried on regularly there in Filipino pesos, Indonesian rupees, Malay and Singapore dollars, Burmese kyats, Thai bahts, South Vietnamese piastres, Cambodian riels, Laotian kips, Chinese yuans, British pounds and U.S. dollars. The foreign exchange transactions in Hong Kong daily involve several billion U.S. dollars (the figure is a gross underestimate, even for 1974 — ed.), with the larger part of these transactions carried on by businessmen from Southeast Asian countries. On a lesser scale such illegal transactions in foreign exchange and gold are conducted in Singapore and Bangkok ....

"The overseas Chinese bourgeoisie actively finances the gold and foreign currency operations in Hong Kong and on the outskirts of Southeast Asia. Ever since the end of the Second World War much of the migrating capital from China has been used in the illegal gold and foreign exchange operations in Hong Kong.

U.S. economists note that in the mid-1950s most of these operations in the Hong Kong black market were handled by Chinese brokers. Chinese businessmen are even more active in the gold and foreign exchange black markets in the Southeast Asian countries. Regarding the part played by Chinese financiers in the gold and foreign exchange market in the Philippines, a Hong Kong publication (Wong Po-Shang, The Influx of Chinese Capital into Hong Kong since 1937— ed.) wrote:

'Besides remitting through the regular free market, these people have made transfers of their money by trade transactions and devious means as well as by out and out smuggling. This is said to be the case with money from the Philippines where large underground organizations are said to be in operation with the object of helping to smuggle funds, gold bullion and valuables out of the country.' " (1)

Andreyev adds:

"Three types of transactions predominate among the innumerable and varied black market gold and foreign exchange operations. These are, first, the acquisition in the local market of gold and foreign exchange (mainly U.S. dollars) smuggled into the country concerned for local currency which devalues quickly. Next, the smuggling of local currency overseas, to countries with a relatively stable currency, for the subsequent exchange of that currency for gold or hard currency. Whereas these types of transactions involve the physical movement of gold and bank-notes from one country to another and are, thereby, closely connected with smuggling (in all Southeast Asian countries there are strict limitations on the inflow and outflow of gold, foreign exchange, and local currency), the third type of black market gold and foreign exchange operation is practically not linked with the movement of bank-notes or gold from country to country . . . (but rather with obtaining) funds in the black market from local businessmen desiring to build up large overseas hard currency or gold accounts.

"The existence of organizational links between numerous Chinese companies in the different Southeast Asian countries makes it possible to export Chinese capital from country to country even without the physical movement of that capital. Take, for instance, a Chinese firm with branches in Hong Kong, Singapore, Djakarta, Kuala Lumpur and Bangkok. It can, if it so desires, pay for its operations conducted in its behalf by its Bangkok branch not through official channels but by transferring the necessary sum of money in foreign exchange to that branch's overseas bank account. In this case the Bangkok branch pays for these operations from its local currency fund and in exchange gets an addition to its hard currency account abroad." (2)

Highest liquidity ratio Hong Kong's drug traffic and the region wide illegal dealings surrounding it undoubtedly account for the colony's chronic excess of liquidity (see International Currency Review, vol. 10, no. 4, for a descriptive analysis). Year-to-year growth in money supply as of April 1978 was 25 percent; however, some of that is attributable to inflows of foreign currency related to the opening of an offshore Hong Kong bond market.

Over the past 15 years, the huge volume of external lending tended to suppress the other ise huge money supply needed to finance several billions of illegal activity on an island whose reported money supply is now about $4.5 billion, U.S. Offshore business booked through Hong Kong was formerly so large that the liquidity ratio of the banks (taking into account both cash and rediscounted offshore bills of exchange) stood at an extraordinary 50 percent. Most of the local money supply was in the form of cash. (3)

In effect, the cash-based local drug traffic in Hong Kong created a reserve base for offshore lending to finance the drug traffic in the rest of Asia! Since 1975, however, the development of the offshore bond market and the influx of foreign capital has led to the reduction of the liquidity ratio to a still-extraordinary 43 percent.

Understandably, even public business practice in Hong Kong is politically corrupt. The HongShang's entirely open role in gold smuggling between Hong Kong and Macao was noted above. The London Financial Times of July 4, 1977 reported a 1977 scandal in which Wheelock Marden, a trading company listed on the Hong Kong Stock Exchange, provoked an investigation by the Securities Commission, after a "modestly optimistic statement" was followed by "revelation of huge profits drop, dividend cut, write-offs and liquidity problems."

The Financial Times wrote,

"insider trading is rampant . . .. These flurries may be attributable to leaks by clerks, secretaries and translators, rather than to insider trading at the top. But who can blame these lesser lights when Mr John Marden is still chairman of Wheelock Marden, still sits on the board of the Hong Kong and Shanghai Bank, is still a pillar of 'respectable' colonial society?" (4)

Biggest bribe rate

Law enforcement sources report that the "lesser lights" are generally taken care of through the world's most efficient bribery system. At least $1 billion is passed out to Hong Kong's officialdom.

According to a report in the same London Financial Times article cited above:

"'Perhaps a billion dollars a year flow into the syndicates,' admits Mr Jack Cater, Hong Kong's head of the Independent Commission Against Corruption (ICAC) started in February. The sum gives one clue to the size of the problem the ICAC has to tackle. Another, Mr Cater points out, is the extent of official and in particular police corruption in the Colony. With membership varying from 10 to 300, there are at least 28 identifiable public sector syndicates, and 25 of them are in the Royal Hong Kong Police Force ....

"The ICAC has considered about 9,500 reports on corruption, about 85 percent of them involving Her Majesty's service. Reports of police crime (4,000) have regularly accounted for more than half the reports of government crime .... Mr Cater has failed to bring back the many wealthy and mostly Chinese non-commissioned police officers who left Hong Kong before the ICAC cast its net." (5)

 

(The largest concentration of the last-mentioned is in Vancouver, British Columbia, where they are still active in the narcotics traffic, according to law enforcement specialists.)

The $1 billion figure cited can be counted as overhead on the narcotics and related drug traffic in the area. Earlier, the local Hong Kong retail drug traffic was estimated at about $4 billion, and the area's drug wholesaling business at $3 million and more. Assuming that bribes of police and other officials — what most of the $1 billion cited represents — amount to no more than 10-15 percent of the volume of drug traffic, retail and wholesale combined, then the estimates for the size of the drug traffic already made are unquestionably on the low side.

The $1 billion in Hong Kong corruption annually estimated by the authorities — and it is not likely that this estimate is excessive — indicates drug traffic in and through Hong Kong of close to $10 billion, by ordinary reasoning. That figure, of course, does not include bribes to customs officials at Bangkok, Rangoon, Singapore, and elsewhere, let alone bribes to Thai and Burmese army officials.

To the extent that limited efforts at giving the appearance of honesty have come to pass in Hong Kong, both the police and the Chinese expatriate community have risen in revolt against them. Last year police rioted uncontrollably against so-called anticorruption efforts. The July 4, 1977 Financial Times account notes that the crusade "enraged Chinese business in particular .... In a rare display, the Chinese Manufacturers Association (pro-Peking) and the Kowloon Chamber of Commerce held a mass rally to protest against 'interference in Chinese ancient customs.' " (6)

Such ancient customs indicate the nature of Hong Kong and its bank. According to custom, no bribes are solicited, none offered. Instead, couriers make their rounds through Royal Hong Kong Police and other official buildings early each Monday morning, leaving an envelope containing between one and five hundred-dollar bills in the top drawer of every desk. Any policeman who refuses to take his envelope will probably be dead within 48 hours, according to law enforcement officials.

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The Peking Connection

Some of them (U.S. troops in Vietnam) are trying opium. And we are helping them. . . . Do you remember when the West imposed opium on us? They fought us with opium. And we are going to fight them with their own weapons. . . . The effect this demoralization is going to have on the United States will be far greater than anyone realizes.

Chinese Prime Minister Chou En-lai,

in conversation with Egyptian President Nasser,

June 1965 (1)

Only since Henry Kissinger's 1972 trip to China has the Chinese role in the world opium trade been out of the headlines. The American, European, Japanese, and Soviet authorities had long insisted that Peking was a major primary producer and exporter of opium and its derivatives, and the British, under extreme pressure from abroad, had to assent. The highlights of the public record to this effect follow below in this section. However, even the most compelling documentation of Peking's role in opium production misses the point.

Red China's revenues from opium exports, as we will demonstrate, are a mere $800 million annually. Peking makes its real profits in the wholesaling, retailing, and financing of the opium traffic, mainly through Hong Kong, where the big money is made. As noted in Section 4, the People's Republic of China has taken active part in the gold smuggling side of drug financing in the orient since 1950.

But since approximately the time of the Sino-Soviet split in the late 1950s, Peking has deliberately integrated its external financial affairs with the top British drug-running firms in Hong Kong, and the expatriate Chinese drug wholesaling and dirty money networks throughout the orient. Peking's financial policy coincides with strategic commitment — stated unambiguously by the late Premier Chou En-lai — to the full-scale use of the opium weapon against the White Devils of the United States.

Peking's financial dependence on Hong Kong is a matter of public record. On Oct. 2, 1978, Chase Manhattan Bank's news-letter East-West Markets estimated that the financial flow into mainland China this year (excluding exports) through Hong Kong would total $2.5 billion, up from $1.3 billion in 1977. This $2.5 billion includes income on Peking's foreign investments in Hong Kong and other Southeast Asian centers, plus remittances back to relatives on the mainland from Chinese expatriates.

Apart from the purely financial off take, most of Red China's exports pass through Hong Kong. In 1976, Peking earned $2.4 billion in exports through the British colony, or sufficient to cover 40 percent of the PRC's total import requirements for that year. Peking does all its banking through Hong Kong, largely through the Hong Kong and Shanghai Bank, and secondarily through the Standard and Chartered Bank. Peking conducts all its investments abroad through Hong Kong. That dependency is not merely established, but is increasing markedly.

The astonishing $2.5 billion financial reflow back to the PRC this year represents the fruits of Peking's 20-year-old program of moving into the higher echelons of the drug traffic, by agreement with the British. Combining American and Soviet sources, we will demonstrate that this estimation of foreign drug revenues through Hong Kong is a good approximation of Peking's income from drug wholesaling, retailing, and financing, as well as gambling, real estate, and other shady joint ventures with British and expatriate Chinese finance, closely related to the drug trade proper.

Even the $2.5 billion figure does not include the $800 million Peking earns as a primary opium producer. To estimate Peking's gross revenues from the drug traffic, an additional sum of several hundred millions of dollars must be added: the overhead cost of maintaining one of the largest and best-financed intelligence and sabotage operations in the world, the Chinese Communist Intelligence Service (CCIS).

In summary, we will demonstrate that the People's Republic of China is a 40 to 60 partner with the British oligarchy in the Far Eastern narcotics trade.
 

OLD TIES GROW STRONGER

Peking's current policy represents a direct line of continuity between the current regime and Britain's 19th century corrupt collaborators in China. Correspondingly, the fortunes of the Maoist Great Han Chauvinist faction in Peking are linked to the opium trade and the British oligarchy. They have staked China's economy — its capacity to import urgently needed foreign goods — on the opium trade.

In consequence, the factional importance of the opium issue inside China is enormous. One unmistakable indication that reached Western view is the peculiar case of the Chinese-made film The Opium War, now distributed throughout the West. The Opium War uses the 19th century events as a parable for contemporary China.

The villains of the film are not so much the British, but the corrupt Chinese who enable the British to win the Opium Wars, by preventing the Emperor and his loyal intelligence chief Lin Tse-hsu from repelling the White Devils. The film was initially banned by Madame Mao and the rest of the "Gang of Four," allegedly because hero Lin Tse-hsu was an oblique reference observers, related drugs. to to Gang of however, a raging Four opponent have speculated-political battle over Peking Teng that Hsi the ao-p'ing. banning involvement in Some was

What political fireworks ensue every time a Japanese trade delegation, export-financing agreements in hand, shows up in Peking, can only be imagined. Japan's economic approach to China, embodied in the recent Sino-Japanese treaty, offers the PRC an alternative to dependence on drugs and the British. Correspondingly, the Japanese approach gives the anti-opium group in the PRC powerful factional arguments.

Despite the Japanese initiative, however, Peking's policy has taken dramatic new steps toward economic integration with British Hong Kong.

Among the first major foreign credit arrangements the Peking government has accepted was a $200 million deposit last summer in the Bank of China by a consortium of banks led by Standard and Chartered. Then, in October 1978, the venerable opium traders Jardine Matheson concluded a $300 million agreement with PRC firms in Hong Kong to develop a real estate complex adjoining a branch station of Hong Kong's new mass transit system.

Apparently, the joint investment came as part of a package deal including the largest-ever export package to China, also announced at the beginning of October by Jardine Matheson, which handled the negotiations on behalf of a consortium of British firms. The $300 million real estate development in Hong Kong's New Territories includes an 80 percent stake on the part of two PRC-owned firms in Hong Kong, the Sun Company and the Kui Kwing Company; a 15 percent stake from the Hong Kong Land Company Ltd., headed by Jardine Matheson's ex-chairman H. N. L. Keswick; and a 5 percent share from Jardine Matheson itself. (2)

The extraordinary leap in Peking's investment income in and through Hong Kong, and the haste in opening new operations in common with the British, including Peking's official entry into the Hong Kong gold market, mean one thing: Peking and London are jointly preparing a massive expansion of the opium and heroin traffic. Apparently, the market research that Dope, Incorporated conducts in the United States shows that the push for decriminalization of drug use could open the U.S. market up like a clam. In this section, we will show:

(1) The content of Peking's activities in Hong Kong;
(2) The documented record of Peking support for the drug traffic;
(3) The activities of the grossly underestimated Chinese Communist Intelligence Service (CCIS).

Peking intelligence and the expatriate, largely Ch'ao Chou Chinese networks who handle the drug traffic are the same entity. As we demonstrated in Section 3, the expatriate networks operate under financial control from London. In fact, the entire operation of these networks runs through Peking-London joint ventures.

Then, in the next section, we will report how the Royal Institute of International Affairs — which makes policy for the HongShang and the rest of the British banking establishment — negotiated the continuation of the old Anglo-Chinese drug traffic at the end of World War II.
 

"Communist fat cats"

London's current view of Hong Kong's relationship to the mainland is rosy.

"By its acceptance of the status quo, China shows that it is happy to keep the Kong Kong show on the road," wrote the London Financial Times.

 

"The existence of the communist banks (in Hong Kong) is an indication of the continuing commitment, as the establishment of a machinery manufacturing plant on Tsing Yi island, one purpose of which is to modify mainland machinery which fails to meet the requirements of potential buyers in the region.

 

"This sort of commitment is understood by even the most nervous businessmen and helps remove the cloud of uncertainty which would otherwise start to gather. ... It may be the final irony of the Hong Kong paradox that to ensure Hong Kong's wellbeing, Peking will have to increase its own investment and participation in the colony." (3)

The same Financial Times report then specified what it meant by increased Peking participation in the colony, citing the exemplary case of a leading Hong Kong and Macao entrepreneur, Mr. Stanley Ho:

"It is a widely accepted allegation that Mr Ho and his partner, Mr Henry Fok, started their fortunes at the time of the Korean War running strategic materials into China. Certainly, both men became prominent during that era of smuggling. Indeed, Mr Ho seems to have weathered the 1967 riots (following the Cultural Revolution — ed.) without taking sides, and he even managed to bolster his friendship with Peking authorities. The relationship, and Mr Ho's wealth, can be traced to the award of China's sand monopoly in Hong Kong to his partnership with Mr Fok. Later, in 1962, Mr Ho was awarded the 25-year gambling franchise in Macao, where he had worked during World War II for a Japanese company. It is fair to say that the gambling franchise was a present from Peking."

The Financial Times could have cited other cases, like the Shaw Brothers (Anglicized Chinese name), Hong Kong's premiere producers of Kung Fu films for distribution throughout the world. Apart from their chain of theaters in Chinese communities across the world, the Shaw brothers control most of Hong Kong's prostitution. (4)

In any corner of the world but Hong Kong, Peking's relationship to the British elite — Peking-owned businessmen and British bankers rub shoulders in the Hong Kong Jockey Club and other havens of Hong Kong's elite — would be a source of international outrage.

Peking controls the Chinese General Chamber of Commerce in the colony, the same organization that organized riots in 1977 to protest the Independent Commission Against Corruption's "interference in the ancient Chinese practice" of bribing police officers. Its chairman, Dr. Wang Kwan-cheng, is a frequent visitor to the mainland, and has been identified in intelligence reports as a PRC political intelligence operative. Wang's position has been described as "the most prestigious in the colony, along with the British Governor-General."

Among other things, Wang is among the wealthiest men in Hong Kong, with interests in the retail trade, restaurants, real estate, and transportation. Accord ing to his entry in Who's Who in Hong Kong, Wang is "chairman of the Board of Directors of Magna Development Company, Chinese Arts and Crafts (Hong Kong)," and a member of the Hong Kong Jockey Club.

The vice-chairman of the Chinese Chamber of Commerce is C. H. Kao, who, like Macao gambling czar Stanley Ho, amassed great wealth by running strategic materials into China during the Korean War. Other known Peking agents include Ho Yin, chairman of the Macao Chamber of Commerce, and Macao's representative to the PRC's People's Congress, the organization that centralizes the political activities of Chinese expatriates through Peking (see below). Another is K. C. Jay (or Choi), formerly with the Bank of China in Peking, and currently a resident financial intelligence operative and currency specialist for the Bank of China in Hong Kong.

As Richard Deacon, the British author of The Chinese Secret Service, puts it:

"What is abundantly clear is that Peking has a great reservoir of strength and talent among its supporters in Hong Kong. Its Secret Service activities there are low-key, as in many other centers, and have avoided clashes with the authorities. Indeed the only espionage scandals to break in the colony for several years past are attributable to other powers altogether, some of them at least manufactured by the Chinese to embarrass another nation. Perhaps the subtlest of these was when in 1973 a Chinese Intelligence agent tipped off the British about two

K.G.B. agents, who had been taught Chinese at the University of Vladivostok, arriving in Hong Kong. In their possession were found documents containing valuable information about the Soviet espionage network in the Far East."

And as Deacon remarks,

"There may even be some unofficial contacts on an intelligence level between the British and Chinese secret services. . . ." (5)

Deacon also reports that when China's narcotics smuggling operations were at their height, they were controlled by the Central External Liaison Department and the Ministry of Investigation. According to Deacon, the major secret agents were employed through the pro-Peking China Sailors' Union in Hong Kong. The union was responsible for bringing in a large shipment of heroin discovered by the New York police in January 1973. "The International United Front operations, controlled by the CFLD, included drug-pushing with the aim of creating disruption and demoralization in carefully selected target areas indicated by the CFLD."

Deacon adds:

"From Italian sources, diplomatic and otherwise, comes confirmation that the heroin traffic between Hong Kong and Europe is master-minded by Chinese secret agents. It is even suspected that there may have been undercover deals between the Chinese and the Mafia for distribution of the stuff."

Deacon identifies Keng Biao as the chief of the cited Central External Liaison Department. Whether Keng, in fact, coordinates Chinese drug-pushing cannot be independently corroborated at this time. Since the 1974 publication of Deacon's account, however, Keng was elevated to the Politburo, China's highest political body, in August 1977. In August 1978, he toured some of the prime marijuana-growing regions of the Caribbean, including Jamaica. Keng also stopped in the island of Malta, the old base of the drug-pushing Maltese order, for unexplained reasons, on his return home.

The renowned Mr. Stanley Ho, mentioned above, who as controller of Macao gambling is the proprietor of what law enforcement agencies consider the world's dirtiest financial operation, is a bona fide member of Hong Kong's social elite. Macao's relationship to Peking became a public scandal in 1974, when the revolutionary Portuguese government offered to cede the colony to PRC. The Peking government refused, because Macao is much more useful to Peking as a source of illicit foreign exchange earnings through opium and other forms of smuggling than as a people's commune. (6)

Only in rare instances have the links between the Hong Kong opium firms, British intelligence, and the Chinese Communist Intelligence Service come to public light. Where they have, the results put the best pulp thrillers to shame. One illustration is the story of the luckless Rennie family, Scots traders who sold their operation to Jardine Matheson in 1975. The Rennies are old Africa and Asia hands both in merchant ventures and the British colonial service, with major operations in South Africa, through Rennies Consolidated Holdings Ltd. (7)

A relative, Sir John Rennie, resigned as head of Britain's foreign secret intelligence organization DI6. Normally the identity of the chief of DI6 — "M" in the James Bond movies — is one of Britain's best-guarded secrets. But Rennie's identity came to light after his son, Charles Tatham Ogilvy Rennie, was arrested for heroin trafficking in London on January 15,1973. Official British press censorship, the infamous "D-notices" sent to newspaper editors, delayed press coverage of the blue-blooded drug bust until February 7, 1973, when London's Evening Standard reported that "the previously unnamed son of the head of DI6, who is facing drugs charges in London, is Charles Tatham Ogilvy Rennie."

Significantly, on the same day West Germany's Stern magazine blew Sir John Rennie's cover — in a dispatch from Hong Kong, the base of the Rennie family's business partners, Jardine Matheson. Stern magazine's information could have come either from Rennie family channels through Jardine Matheson, or through the Chinese Secret Service, or both.

According to a Chinese Communist intelligence source cited by a British author,

"In the case of Sir John Rennie I believe the Chinese were so cautious that they refused to accept their own suspicion (that Rennie was head of DI6) for a long time. Confirmation finally came when Sir John's son was arrested. They did not have far to look as his son's wife used Gerrard Street — almost a 100 percent Chinese quarter of London — as a rendezvous for obtaining Chinese heroin."

The British author, Richard Deacon, commented,

"I suspect that some of the leakages to the press of this information came from the Chinese, who have a very high regard for the British Secret Service."

Of course, nothing is proven; British author Deacon guards his version of this story with an elaborate description of the Chinese Communist Intelligence Service's purported method of discovering the chiefs of British intelligence branches through a careful reading of Who's Who. Nonetheless, we have the fact that the head of DI6 was a member of a family with intimate business ties to the core of the Hong Kong drug traffic; that his son dealt in narcotics through Peking intelligence agents in London; and that the ultimate public announcement of his son's arrest came via Hong Kong sources, either British or Chinese.

More recent events provide a useful epilogue. On September 2, 1978, the London Economist reported, "One after another, top South African businessmen have been falling foul of the country's strict foreign exchange laws. This week's man in the spotlight was Mr Charles Fiddian Green, chief executive of the country's leading transport conglomerate, Rennies ... He was convicted of currency offenses on Aug. 29 and fined Rand 10,000.

"Last week Mr Gordon Rennie (Sir John's relative and Rennie Consolidated chairman) cut his throat and wrists after police came to talk to him. He went to hospital and was charged with currency offenses. Four other Rennies executives have been questioned by police; another has already been charged with currency smuggling; and two, including Mr Laurence Parry, have been sacked after apparently leaving the country." (8)

Also significant is the implication of Laurence Parry in the recent Rennies scandal; Parry was chief of Rennies Holiday Inn franchise in Swaziland and Lesotho, where rich South Africans, spend weekends gambling and watching fleshy floorshows that are prohibited in puritan South Africa. Rennies, since 1975 a 53 percent owned subsidiary of Jardine Matheson, has an almost classical dirty money profile, apart from its casino-gambling and fleshpot operations.

Rennie's subsidiary in the security field, Fidelity Guards, is South Africa's leader in armored car services and payroll preparations, including its own computer facilities — tailor-made for the currency smuggling operations of which Rennies has just been accused. In addition, Rennies owns its own air and cargo shipping facilities, making it the leading transport group in South Africa. (9)

At the time of Rennies' merger with Jardine Matheson, South Africa's magazine Management wrote, "For both, it's a getting together of like people, like lifestyles, and remarkably similar management philosophies. Good solid Scots tradition abounds in both groups." Apart from its affinity to the leading Hong Kong dynasty, Rennies is part of the South African mining establishment.

Two of its board members, the just-arrested Charles Fiddian-Green and Fred G. Wolmarans, were previously senior officials of Consolidated Gold Fields of South Africa. Consol idated Gold, as quoted extensively in Section 4 above, wrote the book on currency smuggling — literally.
 

THE MONEY LINKS

The PRC's financial intimacy with Hong Kong is a matter of public record. (Less public is the PRC's relationship to the Bangkok connection noted above, the seven-year residency of drug financier Chin Sophonpanich in Peking.)

The PRC's roughly $3 billion in foreign exchange reserves are banked through HongShang, Standard and Chartered Bank, and other British banks through Hong Kong. In 1978 Peking began large purchases of gold through the Hong Kong gold market, according to the London Economist's Financial Report. (10)

The International Currency Review reported in September 1978:

"China's increasingly open economic policies are likely to have a further impact on other Hong Kong balance-of-payments items . . . the Bank of China's announcement in early July that the 13 Communist-owned banks in Hong Kong would be able to purchase bullion, deventures and possibly equities, should generate further hard currency revenue for Hong Kong's financial community — and will also probably encourage a great deal of additional business. . . . The Chinese Government's initiative in this connection represents one of several financial liberalizing measures recently implemented by Peking. In June, for example, the Bank of China and the Vanying Bank issued guarantees for a real estate project in Tsuen Warn, located in the new territories." (11)

Peking's opium weapon

Gold trading, banking, property, gambling — and roughly half of Peking's foreign trade. That is the bottom line of the Peking investment in Hong Kong. Since the early 1950s, it was the official view of American law enforcement agencies that Hong Kong was the main outlet for heroin grown in Red China. In 1961, just before the Kennedy Administration kicked him out, U.S. Narcotics Bureau Chief Harry Anslinger stated,

"One primary outlet for the Red Chinese traffic has been Hong Kong." 02

Figure 5

Hong Kong and Peking: Sharing the Drug Take
 

Roughly $10 billion annually passes into and out of Hong Kong as payments related to the production and wholesaling of illegal opium. Of this, something under half is paid to or at the disposal of the People's Republic of China. The involvement of the Chinese Communist Intelligence Service in the dope trade may be considered self-financing, at a minimum; the Chinese also receive something on the order of a $.5 billion directly for opium growing. By far the largest part of Peking's drug-take assumes the form of remittances to the mainland by overseas expatriate Chinese, the bulk of this $2.5 billion accounted for by those Ch'ao Chou drug-financiers and others in the Southeast Asian orbit of Britain's Hong Kong and Shanghai Bank.
 

The police blotter's record of Red Chinese opium traffic through Hong Kong is comprehensive. Even the British and Hong Kong police have been forced, on occasion, to admit this is the case. Scotland Yard attributed a large quantity of heroin seized in a 1969 bust in London's West End to PRC shipments through Hong Kong. On Oct. 15,1970, the chief of Hong Kong's notoriously corrupt narcotics bureau, Shih Tieh-pi, told a press conference that his force had confiscated 10,500 pounds of raw opium, 320 pounds of heroin, and 250 pounds of morphine, all of Red Chinese origin, during 1969. The quantities just cited compare dramatically with the largest-ever U.S. bust of heroin — the so-called French Connection bust involved a mere 100 kilograms. (13)

Without knowing the quality of the heroin seized, or the veracity of Mr. Shih Tieh-pi, comparisons are difficult. But if the 320 pounds of heroin seized so close to the original source were fairly pure, which is likely, and the rule of thumb applies that roughly one-tenth of illegal narcotics shipped are seized by police — then 3,200 pounds of heroin passed through Hong Kong in 1969. That is roughly what American narcotics addicts consumed in 1969.

The PRC's Hong Kong connection is not a matter of convenience, but the expression of a quarter-century-long policy agreement between the Peking government and the highest levels of the British oligarchy. The best-known source for the unexpurgated views of China's elite is Al Ahram editor Mohammed Heikal. Heikal reported the following 1965 conversation between Nasser and visiting PRC Prime Minister Chou En-lai:

"One of the most remarkable statements Chou En-lai made on that evening (June 23, 1965 — ed.) during our discussion of the demoralization of American soldiers was that: 'Some of them are trying opium and we are helping them. We are planting the best kinds of poppies especially for the American soldiers in Vietnam.' Nasser appeared to be somewhat disturbed, but Chou continued: 'We want them to maintain a large army in Vietnam that will serve us as a hostage, and we wish to demoralize the troops. The effect of this demoralization on the United States will be much greater than anyone can imagine.' Nasser thought that Chou might be exaggerating somewhat, but Chou's concept was clear. He left no doubt that this was his course of action." (14)

The Soviet government newspaper Isvestia of Feb. 17, 1978 cited a Chou En-lai speech in Wuhan in 1952 elaborating the same policy. According to Isvestia, the Chinese Prime Minister said:

"We are trying in every way to support the creation of opium poppy plants. From the standpoint of the revolution, opium is one of the means of helping the revolutionary cause and must be used actively. If the question is approached from a class standpoint, opium is one of the most powerful sorts of weapons of the proletarian revolution. ... It is extremely important for us to export morphine and heroin in big quantities, use them to weaken the combat strength of the enemy and destroy the enemy without entering into war with him."

Whether or not the Soviet citation is accurate, the views expressed coincide with those reported by observers such as Heikal, who is far from pro-Soviet or anti-PRC, and conform to the practice of the PRC and its secret service, the CCIS.

Ironically, the British were quick to point an accusing finger at the PRC when it benefited their policy, during the Korean War. In 1950, the British Mission to the United Nations made public a PRC offer to sell 500 tons of opium grown in Jehol (North China) and in storage in Canton, to a firm in Hong Kong. The British Mission said that the offer had been refused.
 

FROM HONG KONG

Until the "China Card" strategic policy found favor in Washington under Kissinger, the official American view, among others, was that the PRC grew and exported large quantities of opium. Harry Anslinger, the first chief of the U.S. Federal Bureau of Narcotics, said in 1961:

"Heroin made in Chinese factories out of poppies grown in China is smuggled into Hong Kong and onto freighters and planes to Malaysia, Macao, the Philippines, the Hawaiian Islands, the United States, or, going the other direction, India, Egypt, Africa, and Europe. A prime 'target area' in the United States was California. The Los Angeles area alone probably received 40 percent of the smuggled contraband from China's heroin and morphine plants. The syndicate crowd does not object to dealing with the Reds as long as the profits are big in terms of dollars." (15)

U.S. investigators have only succeeded in putting heat on the Hong Kong authorities, provoking token busts of local drug operations. The last major scandal raked up by American authorities — immediately before the "opening to Peking" slammed the lid down on further action — came in 1973, when U.S. Congressman Lester Wolff visited Hong Kong on behalf of the House Select Committee on Drug Abuse.

Citing the Nixon Administration's effective crackdown on Turkish heroin entering the U.S. East Coast through the so-called French Connection in Marseilles, Wolff charged,

"All the narcotics entering the United States must be coming from somewhere else, the center of which is Hong Kong." (16)

The Japanese authorities held the same view. Susai Sugahara, head of the Japanese Narcotics Bureau, maintained that China was the largest opium producer in the world. Taking the export figure Sugahara cited, the Soviet commentator V. Ovchinnikov estimated in 1964 that one-third of PRC opium production went to Japan. According to the Japanese Narcotics Bureau, the PRC was the source of the major influx of opium into Japan that began in the early 1950s, producing an estimated 40,000 addicts as of 1953. (17)

In 1969, the Soviet monthly Liternatura Gazyeta estimated Chinese opium export earnings at $500 to $800 million per annum. (18) There is no way to confirm this report, and Soviet estimates (as well as Taiwanese) of the size of the PRC's opium crop unquestionably exaggerate in many instances. However, there is a strong element of credibility in the 1969 Soviet report: the $500 to $800 million is within the range of the $1 billion estimate developed independently (see Section 2) for the primary wholesaling revenue of the Far Eastern opium traffic. The Soviet estimate corresponds closely to what may be readily deduced from hard law enforcement agency data.

Why has no action been taken against Hong Kong, when the evidence is so well known? There are two reasons. First, no American law enforcement or intelligence agency has ever had operational access to Hong Kong. Hong Kong, as British territory, was strictly off limits to American investigators. To our direct knowledge, American intelligence never tries to circumvent this feature of the "special relationship" between Britain and the United States. Secondly, the courageous work of Harry Anslinger and other American narcotics officials did succeed in putting some heat on the rotten little island. The British seizures of narcotics cited earlier are an indirect result of the pressure applied, in the context of Nixon's war against drugs.

The more important reason is that, to a great extent, the actual refining of heroin — which moved lock, stock, and barrel to Hong Kong from Shanghai after the Communist takeover in 1949 — is no longer done in Hong Kong. Rather, Hong Kong's importance is overwhelmingly in the sphere of dirty money operations, and secondarily in transshipment of heroin. The great shift of the production-refining cycle from the Shanghai to Hong Kong route to the Golden Triangle (including substantial portions of China's Yunnan province) occurred in the context of the Vietnam War.

Vietnam, which Britain successfully advised the United States to enter, provided a gigantic captive market with easy access from the Burmese-Thai-Laotian growing areas, some of which had already grown substantial quantities of opium during the British colonial period.

For whatever reason, American intelligence ignored field reports throughout the 1960s that indicated a gigantic step-up of Peking's narcotics trafficking. One of the most extraordinary of the stories that got lost in the intelligence bureaucracy involved an airfield in northern Laos, 75 miles south of the PRC border, built by PRC troops during the summer of 1964.

According to American intelligence sources, the airfield appeared in Phong Sally province, between Luang Prabang, Thailand's religious capital, and the border of Red China's Yunnan province. Meo guerrillas operating in the area under American direction discovered the Chinese building the airstrip far into Laotian territory, and reported back in June 1964.

However, the intelligence chain-of-command showed little interest in those reports. An enterprising mercenary pilot flying a T-28 aircraft obtained clear-as-daylight reconnaissance photo graphs of the airfield, including shots of Chinese soldiers pushing wheelbarrows. The photographs were duly sent through channels, where they disappeared. American officers, however, believed that the airstrip was intended to link up with an asphalt highway the Chinese had been building from Yunnan province into northern Laos for some time. Initially, thinking among American intelligence officers centered on the possibility that the airstrip had been intended as a forward fighter base for PRC involvement in the Indochinese conflict. Only later, when no Chinese fighters appeared, did the truth emerge: the Chinese road and connected airstrip were built to ship opium out of Yunnan province.

American investigators, who have always viewed the drug traffic from the bottom levels upward, never "cracked" the controlling financial relationship that Hong Kong exercises over the traffic.
 

The Ch'ao Chou connection

The key to the Far Eastern drug traffic — the link that ties the entire operational picture together — is the Chinese expatriate connection. As noted in Section 3, law enforcement investigators have known for years what the Ch'ao Chou Chinese networks were up to. But the law enforcement agencies never followed through the maze of financial connections: to do so would have violated standing American intelligence agreements with British intelligence.

Crucial clues to the inner operation of drug traffic — the joint operations of the Chinese Communist Intelligence Service (CCIS), British intelligence, and Chinese and British finance — have been gathering dust in police files for years. One such clue is the 1972 arrest of a Chinese Communist Party official in Djakarta, the Indonesian capital, in 1972.

The Indonesian authorities arrested a Ch'ao Chou Chinese, complete with Chinese Communist Party card and other documentary evidence, in possession of 30 kilograms of heroin — worth between $60 and $150 million in terms of American street value, depending on the quality. The investigation, employing the combined efforts of Indonesian and American drug enforcement officials, showed that the purpose of the heroin imports was the financing of the Indonesian Communist Party (PKI) through the creation of a drug ring in Djakarta. (19)

An interview by a U.S. Labor Party investigator with a Malaysian intelligence source made in November 1978 is worth printing in full here for the insight it gives into this particular type of operation:

Source: It is definitely a fact that China distributes narcotics to its fraternal Communist parties in Southeast Asia as a means or raising funds for their activities. The most recent case is that of North Korea. Their diplomats have been kicked out of several European countries for smuggling and distributing heroin. Opium is not grown in North Korea. It is obviously given to them by the Chinese. In Singapore Communist agents were reported selling narcotics to American students at the American school for lunch money.

 

Imagine, they were giving fixes out for 20 or 30 cents — just to get the kids hooked for their return to the U.S. Question: Can you substantiate that? Source: It's on the Singapore official record. There is more information at the local Kiwanis Club. They keep a file on narcotics. Also there was a DFA report written on how the PRC distributes narcotics through local party functionaries in the region. The report was never released but photostats exist.

Question: There is a lot of accumulated evidence that the Hong Kong and Shanghai Bank is at the center of the entire Far Eastern narcotics trade.

Source: HongShang is the largest bank in the region and particularly in Singapore. China's biggest agent is Pang Hock-lim. He is instrumental in trafficking Chinese opium into India, Thailand, Singapore, and Malaysia.

Question: Has he been arrested?

Source: Sure. He's been arrested plenty of times but every time a fix is made and he is released.

Question: Who makes the fix?

Source: He's directly linked with the Hong Kong and Shanghai Bank. That's a fact.

A handful of similar incidents are on record. At the same time, American policy busted a Filipino diplomat carrying seven pounds of pure Number Four white heroin in his country's diplomatic pouch. He had been followed from the Philippines to a New York City hotel room. His contact man, arrested with him, was a Ch'ao Chou Chinese.

One of the very few things that American intelligence knows about the CCIS is that the majority of its operatives are ethnic Ch'ao Chou. The Ch'ao Chou — as in the case of leading Bangkok banker Chen Sophonpanich — are also the leading element in the expatriate Chinese community involved in the drug traffic. (20)

Published Soviet material documents the spider's web of links between the Peking government and expatriate Chinese; the cited M. A. Andreyev's recent book, Overseas Chinese Bourgeoisie — A Peking Tool in Southeast Asia, is the most comprehensive Soviet source available. What the Soviets either do not know, or have not chosen to publish, is that joint Chinese expatriate-British financial operations in the world narcotics traffic hold the entire structure of Chinese foreign intelligence together.

The Chinese expatriate population's close ties to the Peking regime are well documented. According to a British author writing in 1965, two-thirds of the Chinese expatriates in Southeast Asia supported the Peking regime, and only one-third Taiwan. (21) American authors like A. Doak Barnett have drawn the same conclusion. (22) These impressive figures are the result of assiduous cultivation of such ties on the part of the Peking government.

Peking's insistence on the continuity of ties between the 12 million Chinese residing abroad and the Great Han motherland is a matter of public record, and achieved notoriety through such incidents as the recent border disputes with Vietnam.

Andreyev complains,

"Under the 1954 Constitution the overseas Chinese have 30 representatives in the National People's Congress, the highest legislative organ in China. ... In 1953, representatives of overseas Chinese supporting the people's democratic system and actively opposing the Chiang Kai-shek regime met in Peking, where they had a preliminary discussion on the procedure for nominating deputies to the National People's Congress from the Overseas Chinese. . . An enlarged sitting of the Overseas Chinese Affairs Committee, held in Peking in July 1954, was attended by 195 representatives of Chinese living in different countries. This meeting delegated 30 representatives of the overseas Chinese to the National People's Congress." (23)

At that time, the Chairman of the Overseas Chinese Affairs Committee declared that "no one can rupture the bonds linking overseas Chinese with their homeland. China is the motherland of all overseas Chinese." Peking policy, as stated publicly, has not changed through to the present.

Andreyev documents a complex, tightly knit web of Peking connections to the expatriate Chinese, including foreign investment, trade, and, perhaps most important, expatriate remittances to relatives in the PRC.

Andreyev writes,

"By agreement with the Bank of China, two British banks — the Hong Kong and Shanghai Banking Corporation and the Chartered Bank — with their large network of branches in Southeast Asia — handle the remittances of overseas Chinese to China." (24)

The system of remittances from Chinese residents abroad to families on the mainland, and the more recent system of joint investments between the Peking regime and Chinese expatriates, are not only a major source of foreign exchange for China; they are the financial infrastructure of Chinese secret intelligence. The network of financial ties between Peking and the expatriates overlaps the networks that control the wholesale drug trade in the Golden Triangle.

Several examples make this conclusion inevitable. One is the cited fact that the biggest dope financier in the region, Bangkok Bank chief Chin Sophonpanich, fled a fraud charge in Thailand and spent the next seven years in Peking; since his return, Sophonpanich has kept up close contact with Peking. But the most compelling evidence is the structure of the remittances transfers which — as noted — channel through the Hong Kong and Shanghai Bank.

The cited Soviet commentator argues that the standard estimates of the flow of remittances back to China, which run to a few tens of millions of dollars a year, are grossly inadequate.

"Most of these evaluations," Andreyev wrote, "are based on at least three assumptions. The first is that all the foreign exchange and commodities are sent via Hong Kong. Actually, this is not true. In particular, this assumption ignores Macao, through which pass considerable quantities of overseas Chinese capital. Moreover, in Southeast Asia and Hong Kong there are a number of official PRC agencies that have the possibility of secretly sending large sums of money directly to Peking. Considerable possibilities are opened for this by China's commercial dealings with Southeast Asian countries, and Peking, evidently, uses these possibilities." (25)

Andreyev continued,

"Lastly, along the poorly controlled Sino Burmese border there, probably, are loopholes through which considerable material values can drain to the PRC, at least from the countries in the Indochinese Peninsula. This is borne out by the flow of gold to China across that border." (26)

That report — matching the earlier-cited Isvestia estimate that the PRC's opium earnings were $500 to $800 million — is entirely credible, when matched to related evidence. This is in the general range of what the PRC's "take" should be if our earlier chain of evidence holds up. The Burmese border area is the ultimate destination of much of the gold that passes through the HongShang's gold market in Hong Kong, through the myriad of small Chinese banks. (With the 13 PRC-owned banks in Hong Kong now operating in the gold market, the PRC will be able to take an additional cut, in the form of trading commissions on gold that it will ultimately receive as payment for opium.)

Red China not only receives gold across the Yunnan province border in the Golden Triangle in return for opium going out, but indirectly intervenes among the competing opium warlord factions in Burma itself. During the early 1970s, the PRC armed the so-called White Flag Communist Party under the command of Ping Chia-hsiang, supporting Ping's move to take over prime opium-growing areas in the neighborhood of the Suloween River. (27)

China is one primary factor in the opium growing regions; Britain is the other. Most of the Burmese opium-growing regions are subject to genial competition between the Maoist-controlled White Flag Communist Party and other armed gangs, and Self Defense Forces under the control of British-trained and still British-influenced Burmese security forces. Anglo-Chinese cooperation on the Burmese border is one of the biggest scandals in the area.
 

Forging the Hong Kong-Peking link

Until the Sino-Soviet split period, the ties that bound the expatriate Chinese to the mainland were the strongest of all: family. This link was expressed in the large-scale transmission of remittances back to families on the mainland. According to the limited available data, the largest volume of such remittances, for which special remittance transfer agencies had been created, was to the small city of Swatow on the northern Chinese coast; Swatow is the home city of the Ch'ao Chou Chinese.

The Ch'ao Chou, seafaring and commercial people with a special dialect, evidently maintained the closest family links with the mainland. That is the background to the wholesale recruitment of expatriate Ch'ao Chou Chinese into Chinese secret intelligence during the postwar period. (28)

In the late 1950s, the volume of reported remittances dropped off sharply. Instead of paying remittances directly to relatives, expatriate Chinese invested heavily in both mainland China and in foreign joint ventures with the Peking government. The flow of remittances was capitalized in joint ventures with Peking, and relatives back home received dividends from these investments.

The volume of remittances is given in the following table:

The point of decline of remittances (that is, legal remittances, as reported above) coincides with Peking's orientation to joint investments with expatriate Chinese. That policy goes back to 1951, when the South China Enterprise Company, the forerunner of the present Overseas Chinese Investment Corporation, sold 100,000 shares to Chinese businessmen in Hong Kong and Macao. However, until 1957, the attractions for such investors were limited; overseas Chinese investment could only find opportunities in agriculture, the least profitable sector of the economy.

But in 1957 new regulations came into effect that not only guar anteed a 12 percent dividend investment, against a normal 8 percent dividend in ordinary mixed companies. The Peking government also made provision for repatriation of part of the profits to the overseas Chinese investor.

By the mid-1950s, this capital was concentrated in the Overseas Chinese Industrial Construction Company and related companies, which merged into the Overseas Chinese Investment Corporation (OCIC) in 1955, with initial capitalization of $50 million. The board of directors of the OCIC included leading Chinese businessmen resident in Southeast Asia. By 1966, there were 140 businesses under the OCIC aegis operating in China. (29)

By the mid-1960s, however, the policy of using the hard currency of expatriate Chinese to invest in China gave way to a much more efficient form of raising vitally needed foreign exchange. Peking took a stake in the expatriate Chinese community's expanding operations in drug-pushing and dirty money operations, centering on the boomtown in Hong Kong. The result is the flagrant cohabitation between London and Peking noted in Section 4. (30)
 

THE $2.5 BILLION TAKE

Despite the overwhelming weight of evidence showing Peking's integration into the Southeast Asian drug trade, there is no way to "prove" that the $1.3 billion financial reflow into the PRC during 1977 estimated by Chase Manhattan and the projected $2.5 billion flow during 1978 represent the revenues of the traffic. However, it can be demonstrated to the satisfaction of the reader that this estimate is entirely consistent with all the previous data.

By two independent types of estimate, our earlier data (Sec-tion 3) showed that the cash flow of the Far East drug trade broke down as follows:

Assuming that the PRC's primary wholesaling profits are $500 million, or half of the total — the lower range of apparently accurate Soviet estimates — then the PRC's secondary whole-saling profits would be in the ratio of 5 to 1 with respect to the first figure, or $2.5 billion. That is the Chase Manhattan figure reported above. Since the PRC is undertaking major official investments in Hong Kong this year, it is fair to assume that it would repatriate illegal profits to be re-invested in legal enterprises to a greater extent than during 1977, when the reflow back to Peking was only $1.3 billion.

Of course, the above calculations are hypothetical, but they do indicate that the $2.5 billion net revenue suggested by the Chase Manhattan figure is well within the range of accuracy.

The same type of range can be obtained through an entirely different chain of reasoning. The Soviet economist Andreyev, using published sources of area governments, calculated that total expatriate Chinese capital flow into China amounted to $1.66 billion in the years 1950-64 inclusive. Up through this period, the primary financial relationship between the PRC and expatriate Chinese was in the form of foreign investment inside China, through such vehicles as the Overseas Chinese Investment Corporation, as noted above. It is documented that after 1964, PRC policy shifted into a high-gear "Opium War in Reverse" posture, to use the phrase of British author Richard Deacon. At this time, Chou En-lai made his infamous confession to Nasser.

As noted, the financial relationship shifted into joint ventures in Southeast Asia between PRC-owned institutions and expatriate Chinese, with a heavy concentration in narcotics traffic and related activities.

Assume that the identical rate of expatriate Chinese financial support continued during the years 1965-78 in this form of investment, augmented only by a 10 percent inflation factor, highly conservative for the area. The aggregate investment during 196578 would amount to $6.3 billion, in joint operations with the PRC. Assume a 40 percent annual profit margin on this investment, much lower than profits on the drug trade, but in the middle of the range of the 30-50 percent figure given above for smugglers' profits in the area. The annual income from this investment would be precisely $2.5 billion.

The big move into Hong Kong transformed Red China from a mere producer of opium, into Britain's international partner in the distribution, and later the financing, of the opium trade in the Far East — if not elsewhere. (The Ch'ao Chou Chinese arrested in a New York hotel room with a Philippine diplomat and seven pounds of heroin carried the business card of the local New York Ch'ao Chou fraternal association.)

America's disastrous involvement in Vietnam gave the Mao regime the opportunity to make it big in the world of narcotics, and Peking jumped in — and into Hong Kong — with both feet. America paid the price of a skyrocketing rate of narcotics addiction. Nonetheless, the late 1960s were only a period of transition, the fulfillment of a strategic design sketched out between Mao Tse-tung and the British old-line opium families in the early 1940s.

That agreement, which united the highest level of British intelligence and finance with the Peking leadership, we turn to in the next section.

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