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Chinese admiral Ding Ruchang summons his naval commanders, among them Deng Shichang and Liu Buchan, as well as a British and an American advisor to discuss the question how China should behave towards Japan, since war seems imminent. The day after, a troop transport on a hired British commercial ship, the Gaosheng, is planned, and the question of her safety is at issue. The commanders are in disagreement about how to act. Deng Shichang, who commands the warship Zhiyuan, voices the opinion that the Chinese forces should demonstrate strength and let the troop transport be accompanied by the whole Beiyang Fleet. In contrast, Liu Buchan argues that the Japanese could interpret this as a sign that China wants to start hostilities and warns that Li Hongzhang, the top official, viceroy and responsible minister for the Beiyang Fleet, would certainly disapprove of such a step.
Liu is supported by the British advisor since the Gaosheng is sailing under the British flag, and the American suggests foreign mediation between the Chinese and the Japanese would resolve any problem in case of necessity. Deng, though, insists on his opinion saying that in case hostilities start, the Beiyang Fleet should be prepared. Otherwise they would endanger the warship Jiyuan which had been proposed to accompany the Gaosheng on her voyage. Admiral Ding Ruchang agrees with Deng but has to ask for instructions from Li Hongzhang first. After the consultation, all commanders and advisors leave the room. Admiral Ding now orders a telegram to be sent to Li Hongzhang and enrolls a map in careful and profound consideration.

Deng Shichang is informed of a strange flag signal given by another warship anchoring in the harbor. After investigation, it turns out that the warships shall not leave the harbor to accompany the Gaosheng and the Jiyuan. Deng is surprised and worried but first wants to ask admiral Ding about the reason.

Admiral Ding is in his office, when commander Deng comes in to ask him about the flag signal. Deng fears that the Gaosheng and Jiyuan could run into danger without proper protection. Ding turns his back on him and does not answer until Deng Shichang leaves the room. Finally, Ding calls Deng back and shows him sadly the telegram from Viceroy Li Hongzhang. Deng reads out the telegram which states that the Beiyang Fleet should avoid to appear offensive to deflect any Japanese ambition to provoke war. After reading the telegram, Deng is desperate, fearing for the well-being of the Gaosheng and the Jiyuan, lets the telegram drop to the ground and starts crying. Ding moves close to Deng, pats him on the shoulder and tries to console him by saying that Li Hongzhang surely made the correct decision.

The Japanese admiral Itô Yûkô and the commander of the warship Yoshino are overlooking the ongoing firing, even though war has not been declared yet. The scene switches back and fro between them and the Chinese Jiyuan under command of Fang Boqian. Fang’s marines want to know why they are not told to fire back at the Japanese. Commander Fang instead gives order to turn around whereas the Gaosheng, transporting the troops, and the smaller Guangyi, which was to accompany her together with the Jiyuan, go ahead as planned. On the Jiyuan a soldier named Wang Guocheng is preparing the ammunition. He is eager to fight, but has to wait for Fang Boqian’s order. Fang, though, puts on the white flag and makes the Jiyuan retreat. As the Japanese recognize the white flag, they decide to pursue the Jiyuan to attack her as one of the best ships of the Beiyang Fleet.
Meanwhile on the Jiyuan, Wang Guocheng is furious about commander Fang’s cowardice and pulls the white flag off the mast. He decides to take over the command himself and starts the firing which is so successful that the Yoshino has to retreat. When he goes down to the captain’s room to tell Fang of this development, he finds Fang in a corner hiding full of fear. Hearing of the success, Fang is surprised and delighted. The Jiyuan now turns around again to pursue the Yoshino, but the marines have to witness from a distance the Gaosheng’s being sunk by a Japanese torpedo. She had been without proper protection due to commander Fang’s former retreat. The soldiers on board of the Gaosheng had fired their guns at the Japanese and had heroically refused to surrender. Wang Guocheng and his comrades cry for the dying soldiers of the Gaosheng whom they should have protected.

Fang calls for Wang Guocheng who comes down into the captain’s cabin. Fang first slyly tells Wang Guocheng that he wants to treat his marines like his own sons. He then asks him whether his family lives in Weihaiwei, the harbour town. Wang Guocheng tells him that he is an orphan, but Fang says he surely has a bride there waiting for him. Fang then tells Wang Guocheng that is was not justified to start firing at the Japanese without orders. Wang Guocheng gets upset, insisting that it were the Japanese who shot first and that he was successful in any case. Fang offers Wang Guocheng a bar of silver and tells him to leave service immediately, since the firing would be disapproved of by the Chinese authorities as a provocation of the Japanese even though seemingly successful. Furthermore, foreign mediation was under way to prevent war.
If the truth about Wang’s insubordinate firing would be found out, Wang would loose his head according to military law. Furthermore, his father had been a Taiping. Therefore Fang – in put-up benevolence – urges Wang to leave and marry instead with the money offered. But Wang Guocheng feels disgusted, refutes the silver and angrily leaves the room. While packing, he tells his comrades that Fang has fired him because he has shot at the Japanese. The comrades are shocked since they probably would not be alive but for Wang’s firing back, but nothing can be done. Before leaving, a comrade suggests he go to Weihaiwei where his father and his sister live.

Wang Guocheng stands next to his friend’s sister who is amending a fisher’s net. In the background her father and other fishers are working. Wang Guocheng tells her that he has been fired by his former commander Fang, but they all agree that fighting the “devils” [foreigners, here the Japanese] is a soldier’s obligation. She suggests to Wang Guocheng he go to Deng Shichang, the commander of the Zhiyuan who is known for his resolution to fight the Japanese, and ask him for being taken into service again. Wang Guocheng tells her that he has already thought about it, but that Deng probably will not be able to take him in, since he has committed a punishable deed according to Beiyang regulations. The girl’s father has an idea, though, how Wang should try to talk Deng over.

Wang Guocheng tells Deng Shichang everything about Fang Boqian, how he hoisted the white flag, how he fired him, even threatening him to tell everybody that his, Wang Guocheng’s, father had been a Taiping, should he tell anybody the truth about Fang’s deeds. Upon hearing this, Deng flares in a rage, barely able to believe that Fang is such a traitor. Wang Guocheng, though, swears he is telling the truth and suggests Deng ask his former comrades to testify his words. Thereupon Deng believes Wang Guocheng who then asks Deng to accommodate him, even though he is a discharged sailor and his father was one of the Taipings. He tells Deng that the people from Weihaiwei suggested him to do so since they all believe in Deng’s integrity. (Chinese music sets in to highlight this dramatic moment of Deng’s pondering the question of recognizing patriotic behavior in defiance of legal constraints).
Finally, Deng agrees and orders his assistant to hand over to Wang Guocheng the uniform worn on his ship. Wang Guocheng is overjoyed, leaves the room and goes up on deck where his new comrades already await him. They introduce each other in a very friendly manner. (Back in the captain’s cabin) Deng Shichang and commander Lin Yongsheng of the warship Jingyuan are talking to each other about what Deng has come to know. An assistant enters the room and reminds them of admiral Ding’s invitation to celebrate the first Chinese “victory”, i.e. the one declared by Fang Boqian. Deng at first does not want to go to the celebration, because he just had been informed about the truth from Wang Guocheng. However, commander Lin suggests they rather join the celebration. Deng understands and makes up his mind to use this opportunity to set things straight.

All Chinese commanders have gathered to celebrate the “victory” over the Japanese warship – the Yoshino. Main figure at this celebration is Fang Boqian who is to be celebrated for his “great efforts”. Commanders Deng and Lin join in belatedly. Deng who knows that Fang has not beaten the Yoshino and thus has not achieved any victory, reminds the commanders present that they should remember also the martyrs of the sunken Gaosheng. Thus, the atmosphere immediately changes and all offer their cup of wine to the dead. After the libation ceremony, commander Liu Buchan, trying to switch back to the happier atmosphere in the beginning, asks Fang to tell about his fighting strategy against the Yoshino. Fang first politely declines but then starts talking, stressing his own merits by making up a story. He is interrupted by commander Lin and finally Deng, though, who pose several precise questions leading to Fang’s distress. Deng asks Fang, e.g., about the positions of all ships involved at the moment the Gaosheng sank, and why Fang and his crew had not rescued the Gaosheng’s soldiers.
Fang defends himself by asking Deng how he would have reacted in his situation and argues that it was impossible to rescue the soldiers. He is supported by commander Liu Buchan. But Deng then comes to the point, asking Fang in front of all other commanders, why he had hoisted the white flag. Fang’s face turns pale, and everybody else is shocked. Fang denies everything, but Deng says he has a witness, namely the former cannoneer of Fang’s ship, Wang Guocheng, who immediately enters the room. As Wang Guocheng starts accusing Fang, Fang tries to shoot him with a pistol, but Deng quickly prevents it. The reaction of Fang finally leads admiral Ding Ruchang to doubt the “victory story” and he insists on a thorough investigation of the truth. But Liu Buchan afterwards advises him against this step with consideration of what the uncovering of cowardice could entail for Li Hongzhang’s and the Beiyang fleet’s reputation.

Common people in Weihaiwei are gathering around a scholar whom they would like to write a letter for them to the emperor. But the scholar tries to evade this delicate task. Soon, two shadows appear in the moonlight which come closer: it is the commanders Deng Shichang and Lin Yongsheng. The people extend a hearty welcome to them. They feel evidently happy and honored by the presence of these two commanders. They drink some wine while Chinese music is to be heard. Then the people come up with their problem: they want to urge the emperor to declare war against the Japanese, but they do not know how to write and whom to trust their letter to. Finally, Deng agrees to function as their representative (even though he is not high enough in the hierarchy of officials to be entitled to report to the emperor).

Ding Ruchang and Deng Shichang are waiting to see Li Hongzhang to talk with him about military affairs. Li’s servant first tries to turn them down but Deng insists on being received. Ding expresses his fear that their visit to convince Li of a more active anti-Japanese stance is inopportune, since Li is about to negotiate peace, drawing in also other powers. Ding advises Deng not to press the point and not to say more than necessary.

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