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China in default on over $1T in bonds

Discussion in 'Too Hot for Swamp Gas' started by G8trGr8t, Jul 5, 2023.

  1. Jul 5, 2023 #1
    G8trGr8t

    G8trGr8t Premium Member

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    Owned by americans. And they have been for a long time with no effort to force payment as we tried to play nice with China.

    UK required China to pay off similar bonds held by British citizens/companies before they would transfer Hong Kong and provide China access to British markets.

    China is in default on a trillion dollars in debt to US bondholders. Will the US force repayment? | The Hill

    Some history is in order. Before 1949, the government of the Republic of China (ROC) issued a large volume of long-term sovereign gold-denominated bonds, secured by Chinese tax revenues, to private investors and governments for the construction of infrastructure and financing of governmental activities. Put simply, the China we know today would not have been possible absent these bond offerings.

    In 1938, during its conflict with Japan, the ROC defaulted on its sovereign debt. After the military victory of the communists, the ROC government fled to Taiwan. The People’s Republic of China was eventually recognized internationally as the successor government of China. Under well-established international law, the “successor government” doctrine holds that the current government of China, led by the Chinese Communist Party, is responsible for repayment of the defaulted bonds.

    A private group of American citizens holds a large quantity of these gold-denominated bonds. This citizen-led group, the American Bondholders Foundation (ABF), serves as trustee with power of attorney for some 20,000 bondholders, whose bonds are valued at well more than $1 trillion.

    Then-U.K. Prime Minister Margaret Thatcher’s tough negotiation stance on the return of Hong Kong to China led to a British settlement agreement on these same Chinese bonds in 1987. Thatcher said that for China to have access to U.K. capital markets, it had to honor the defaulted Chinese sovereign debt held by British subjects. Faced with that stark choice, China agreed. Unfortunately, the U.S. failed to take such a common-sense stance. To this day, China has had access to U.S. capital markets while openly rejecting its sovereign debt obligations to American bondholders.

    Lest anyone wonder about the age of these bonds, it is irrelevant. What matters is that this is a sovereign obligation. As recently as 2010, the German government made its last payment for reparations from World War I. In 2015 Great Britain made payments on bonds issuances that dated from the 18th century.
     
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  2. Jul 5, 2023 #2
    OklahomaGator

    OklahomaGator Jedi Administrator Moderator VIP Member

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    The US needs to hold China to the same financial requirements that everyone else is held to.
     
  3. Jul 6, 2023 #3
    tampagtr

    tampagtr VIP Member

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    That piece makes little sense. Curious if the point about the Brits is true, and if so, may be a function of certain HK banking relationships, which may have had offset or other special rights. But otherwise, these would not be successor debts, especially with Taiwan still as separate government, unless there was something in the circa 1972 official One China policy documents, which would make little sense.

    And I love the grift angle, which makes sense given the Heritage angle. Have the US government pay off a consortium that probably came to hold what was considered worthless private debt, giving incalculable returns. Sure thing.
     
  4. Jul 6, 2023 #4
    dingyibvs

    dingyibvs Premium Member

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    The issue here is that if the successor state is to be held responsible for its predecessor's obligations, then it also needs to be granted the assets of the predecessor state. In the UK's case, for China to assume the debt of its predecessor, the UK recognized China's inheritance of Hong Kong.

    If we were to demand the PRC to assume the debt of the ROC, then are we prepared to recognize the PRC's sovereignty over say Taiwan? What would then be the legal basis for us to potentially intervene in a Chinese invasion of Taiwan then? I'm sure China would gladly pay $1 trillion for Taiwan if that's the deal we're prepared to offer.
     
  5. Jul 6, 2023 #5
    danmanne65

    danmanne65 GC Hall of Fame

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    What the US government should do is buy all the bonds and threaten to use them to use them to cancel out China’s trillion or so of treasuries. I don’t think this is a good idea but it does amuse me.
     
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