An ocean response to typhoon Kai-Tak is simulated using an accurate fourth-order, basin-scale ocean model. The surface winds of typhoon Kai-Tak were obtained from QuikSCAT satellite images blended with the ECMWF wind fields. An intense nonlinear mesoscale eddy is generated in the northeast South China Sea (SCS) with a Rossby number of O(1) and on a 50 - 100 km horizontal scale. Inertial oscillation is clearly observed. Advection dominates as a strong wind shear drives the mixed layer flows outward, away from the typhoon center, thus forcing upwelling from deep levels with a high upwelling velocity (> 30 m day-1). A drop in sea surface temperature (SST) of more than 9°C is found in both observation and simulation. We attribute this significant SST drop to the influence of the slow moving typhoon, initial stratification and bathymetry-induced upwelling in the northeast of the SCS where the typhoon hovered.