Guy Hamilton, a foreign correspondent for the Australian Broadcasting Service, arrives in Jakarta on assignment. He meets members of the close-knit community of British and Australians in the city, which includes journalists and diplomatic personnel. Among them is Billy Kwan, a Chinese-Australian dwarf who is a photojournalist. Hamilton's predecessor departed Indonesia before Guy arrived, and did not introduce Hamilton to any of his news contacts. Hamilton receives only limited support from the other foreign journalists in Jakarta, who compete for information from the Sukarno government, the Indonesian Communist Party (PKI), and the Indonesian National Armed Forces. Believing Hamilton to be a moral person, Billy (who is exceptionally well-connected) helps him obtain interviews. Hamilton's reputation as a journalist soars. Billy keeps photographs and notes about the people he knows, recording his observations of their character and their lives and making up stories about their possible motivations. Hamilton is alarmed to discover that Billy is keeping a file on him, too, but decides to trust Billy anyway. Hamilton and others frequently confide in the narrator, Cookie, who intersperses the story with details from Billy's files, such as that Billy is supporting a local woman, known only as Ibu, and her children living in Jakarta's slums with food and money.
Billy introduces Hamilton to Jill Bryant, a beautiful young diplomat at the British embassy. Billy and Jill are close friends, even to the extent that Billy poses as her boyfriend so she can avoid unwanted attention, and Billy subtly manipulates events so that Hamilton and Jill continue to encounter one another. Hamilton quickly falls in love with Jill, and their relationship starts soon after a trip to the port of Priok. Hamilton also learns that Billy is a strong supporter of the Sukarno regime but is very concerned with the extreme poverty afflicting Indonesia.
Jill's diplomatic work is a cover for her real job as an intelligence officer at the British embassy. She discovers that the People's Republic of China is apparently sending a shipment of weapons to Indonesia to arm the PKI. Jill tells Hamilton this in confidence, to explain the reason for her spending time with Colonel Henderson, a British diplomat and her former lover. But Hamilton, now focused almost completely on his career, decides to verify the story and scoop the other journalists. His assistant Kumar, a PKI member, suggests they holiday in a Dutch colonial villa in the mountains, but brings along Vera, a suspected KGB officer.