China could owe America one trillion dollars

Discussion in 'China' started by Ray, Dec 2, 2013.

  1. Ray

    Ray The Chairman Defence Professionals Moderator

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    China could owe America one trillion dollars

    POSTED BY CHINA DAILY MAIL


    [​IMG]
    1927 Guangzhou War Bond

    China has a secret: It owes American investors hundreds of billions of dollars.

    The Chinese government doesn’t like to talk about it and the U.S. government doesn’t want to raise it. But decades ago, Beijing defaulted on debt owed to Americans, as well as investors and governments around the world. In one case, it was paid. In the rest it was not. More than 20,000 American investors own this debt. The U.S. government may also own Chinese war debt, unpaid since World War II.

    With the simple stroke of an executive proclamation, President Barack Obama can begin the process of addressing this issue. A 1930s-era law has established a quasi-public agency within the Securities and Exchange Commission, known as the Corporation of Foreign Securities Holders, which can arbitrate this dispute, much as a predecessor agency did for decades. China can both afford and benefit from this solution; it will afford goodwill at a time when relations between the world’s two superpowers are strained.

    The story begins nearly 100 years ago, in 1913, when the government of China began issuing bonds to foreign investors and governments for infrastructure work to modernise the country. As the country fell into civil war in 1927, paying these debts became increasingly difficult and the government fell into default. Even so, in April 1938, the Nationalist government of China began to issue U.S.-dollar denominated bonds to finance the war against Japan’s brutal invasion.

    Locked in a pitched battle for survival, the government issued these bonds into 1940. As part of its wartime financial aid, the U.S. government further provided a $500 million credit to China in March 1942, shipping gold there and helping to stabilise the currency. In return, it appears that the U.S. government redeemed some of these dollar-denominated bonds. But China doesn’t appear to have repaid this debt either, according to State Department records, and the declaration of the People’s Republic of China in 1949 ended decades of political, military and financial cooperation.

    While successor governments are usually bound by the debts of predecessor governments, the new Communist government refused to pay any of these claims. The issue lay dormant for decades, just as the bilateral relationship did. Then, in 1979, as part of normalising relations, Washington released government financial claims regarding the expropriation of American property and appears to have dropped the matter of the war debt entirely. However, it is one thing for government decision-makers to let go of government debt, however questionable that is.

    And it is entirely another thing for individual citizens to press their claims. Some U.S. investors tried to sue the Chinese government in the 1980s and 1990s. However, the Foreign Sovereign Immunities Act makes it very hard for any U.S. citizen to sue a foreign government in U.S. courts because the law generally says that U.S. courts do not have jurisdiction.

    The law usually only allows the jurisdiction of U.S. courts if a foreign government waives its immunity, commits a tort or seizes property. Recent additional exceptions have been added for terrorism. China lost an initial summary judgement for failing to appear in court but, with the urging of the U.S. State Department, later appeared in court and successfully argued that U.S. courts did not have jurisdiction.

    Today, the Chinese bonds held by U.S. investors may be worth as much as $750 billion, according to Jonna Bianco, president of the American Bondholders Foundation, who estimates the value of bonds held by investors worldwide may be $10 billion, including interest and penalties for default.

    Over the years, congressional interest has been piqued. The late Rep. Henry Hyde convened hearings in 2003 and advocated that the bondholders press their case. In March, Republican Rep. Ken Calvert and Sen. James Inhofe of Oklahoma, along with eight other members of Congress, asked the Government Accountability Office to look into the matter. In April, Rep. Gary Miller inquired with Treasury Secretary Timothy Geithner.

    In general, governments do inherit the debt of their predecessors just as they inherit the assets of the nation. Governments have defaulted on debts since at least the 4th century B.C., when 10 of 13 Greek cities could not pay their bills; ironic, yes. And there is a long history of settlements, too. In the last 200 years, more than 70 governments, from Austria to Vietnam, have defaulted and eventually settled for far lesser amounts, allowing them to borrow once more, according to an MIT study, which adds: “The great majority of defaults in the 19th and 20th centuries eventually led to some form of settlement between creditors and the debtor country.”

    Examples abound. An international arbitration panel found that post-revolutionary Iran needed to pay the United States for military aid in 1948. Post-apartheid South Africa has not repudiated debt incurred under the previous regime. In 2006, Great Britain paid the final instalment on a World War II-era loan from the United States and Canada, and even sent a thank-you note. Russia has paid debt incurred under the tzars. One exception argued by governments is that in some cases a previous regime’s debt is “odious.” That is, the debt was incurred to enrich the regime or oppress the people.

    Neither seems the case in China, which may be why it has never submitted to international adjudication. China, for its part, has not exactly disavowed the debt; it simply has selectively refused to pay it. Beijing paid British investors a miserly $39 million upon the takeover of Hong Kong in 1987. France has tried to press the issue, even at the World Trade Organisation. Further, in Taiwanese press accounts Chinese officials have indicated, in fact, that they might pay the United States — as part of a negotiation over the final status of Taiwan.

    Technically, this calls into question China’s stellar credit ratings and those of its government-owned enterprises. But specifically, the U.S. government has a legal obligation to its citizens. The 1933 Securities Act established both the Foreign Bondholders Protective Council, under State and Treasury, and the Corporation of Foreign Security Holders, under the SEC, to get foreign governments to address debts owed to private U.S. investors. Housed in a Virginia suburb, the council in 47 instances settled the debts of foreign governments, including communist ones, to U.S. citizens. In 1975, the Polish government paid U.S. investors one-third the face value, or $8.5 million, of nine different series of bonds, all inherited from previous governments.

    Indeed, President George W. Bush’s counsel directed the bondholders to the council in 2001 but the council did nothing, most likely to keep from rocking the bilateral U.S.-China boat. Now, the council is shuttering its doors, as it has completed dozens of cases and no administration wanted to refer the Chinese case for fear of upsetting Beijing again. However, the Corporation of Foreign Security Holders is still on the books and represents the only chance for U.S. investors to be paid.

    All that has to happen is that President Obama issue a proclamation to stand up the corporation, and a staff, at the SEC. The bondholders would bring their bonds in for examination and verification of the certificates and serial numbers. Then the corporation could get about settling the issue through payment, reissue of bonds, restructuring or even settling the debt. Many of these people are not wealthy investors but just everyday citizens. Bianco herself is a Tennessee cattle farmer.

    The reality is that a settlement could benefit everyone. Yes, it will be politically distasteful in Beijing. But in all likelihood, a settlement would likely be struck for a fraction of the face value of the bonds. Unlike 1949, China today has the ability to pay. It would be seen as good faith by Americans. And that, in turn, would help reassure us about China’s increasingly important place in the world. There are simply too many other questions about China’s peculiar brand of state capitalism.

    And besides, this is what economic superpowers do: They fulfil their obligations.

    Richard Parker, a former Pentagon correspondent for Knight Ridder, is president of Parker Research in Austin. Researcher Emily Boyd contributed to this article.

    Source: Juneau Empire – China’s secret? It owes Americans nearly $1 trillion

    China could owe America one trillion dollars | China Daily Mail

    _____________________________________________________________


    One wonders what our Chinese friends have to say to this!
     
    Last edited: Dec 2, 2013
    Yusuf, AVERAGE INDIAN and W.G.Ewald like this.
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  3. Ray

    Ray The Chairman Defence Professionals Moderator

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    It's Time for China to Pay Its Debts to the United States

    Many people assume China has the U.S. over a barrel. The country buys so much of our debt—around $800 billion—that we cannot “rock the boat” when it comes to U.S. and China relations. That has meant not pressing the PRC “too hard” when it comes to North Korea, or Iran.

    Just recently, a top Obama administration delegation visited the People’s Republic of China. While there, the Chinese were told not to worry about the U.S. paying its debts to the country — their investments in the U.S. were safe. True enough.

    But, I was struck with the fact that the PRC, however, does not pay its debts to the U.S. Now, that may strike most Americans as a “You must be kidding story”. But in fact it is true.

    Many decades ago, China sold sovereign bonds worldwide to investors in many nations. They sold tens of thousands of these bonds on U.S. soil to American citizens on the recommendation of our government, indicating it was a solid investment.

    Over the last sixty years, China has refused to pay to these bondholders either the principal or interest on these full faith and credit sovereign bonds. (To say nothing of the hundreds of billions also owed to U.S. artists from unpaid royalties on the more recent sale of pirated CD’s and videos, but that's another story).

    In 1987, threatened with being kept out of the British financial markets, China acknowledged the debt in owed from the sale of these exact same bonds to British investors. As part of the Great Britain-PRC agreement on Hong Kong, the PRC agreed to pay its debt to British citizens who owned these same bonds. By paying the British bondholders, but no other bond owners worldwide, including U.S. bondholders, China “selectively defaulted” on these bonds.

    Standard and Poor’s claims it does not have to find the PRC in selective default because under their view of things, it is their first amendment right NOT to discuss certain things or take such things up. Well, not so fast, boys and girls.

    Under the rules, they are granted a license by the Security and Exchange Commission (SEC) of the United States to be a nationally recognized statistical rating organization (NRSRO), a charter to assess the risk of investing in sovereign and corporate debt, stocks, or bonds. The “selective default” of the PRC must be acknowledged,in that the metrics used by the NRSRO organizations that they themselves have promised to follow as part of their license agreement includes just such a requirement.

    Now if China was found in selective default, this would cause the PRC to have to pay considerably more to finance its debt than it does now. Billions more.

    But because everyone thinks the PRC is the strong economic horse, S&P fudges this issue big time and does a disservice to the American people. It is as if you could pay a credit agency to write-up your credit score according to your own rules! Well... wouldn’t that be nice?

    Ironically, with the fall of Saddam Hussein’s government in Iraq, the PRC insisted at the United Nations that any successor government in Iraq must be held to pay its debts, including debts to China. The U.N. approved.

    Under international law as it has been understood for centuries, successor governments, no matter the circumstances of the establishment of a new government, whether by revolution or civil war, must pay the sovereign debt incurred by its predecessor. But currently, the People’s Republic of China owes a debt of over $750 billion to American citizens who are holding these full faith and credit sovereign bonds (many of them denominated in gold) sold to them by the Republic of China. Worldwide, the debt China owes to all bondholders is estimated to be several trillion dollars. The debt owed to the American people should be paid. The U.S. government could dollar for dollar offset bond interest we owe China with interest, principal and penalties China owes us.

    That would be $750 billion. Split 10 to 1, the U.S. taxpayer saves $700 billion in debt payments and the bond holders could receive the balance. As part of the deal, each state could receive badly needed investment funds as well.[ABF Charities, a 501(c)3 organization devoted to humanitarian projects across all of the United States could distribute these funds]

    And we could contribute significantly over a period of years to reduced U.S. debt. That could even be part of the upcoming budget and debt agreement, paid down over a period of years.

    But as Michael Auslin of the American Enterprise Institute writes in The National Review, “Beijing’s plan since the early 1980s has been clear: Get strong. But in its success, China has developed the idea that the world’s rules don’t apply to it.” And I might add, when called to account for its behavior, it throws geostrategic temper tantrums.

    Auslin suggests we imagine a China that protects U.S. intellectual property, pays its sovereign debts, upholds its contracts, and just for good measure, does not aim over a thousand missiles at Taiwan!

    Yes, America pays its debts -- as we have assured Beijing.

    Now, let’s ensure we hold the PRC to account for its illegal behavior. Rules are there for a purpose. As my grandfather used to tell me, “Good fences make good neighbors.” China must pay its debts, too. All $750 billion!

    Peter Huessy is President of GeoStrategic Analysis, a defense forecasting firm he founded in 1981.

    It's Time for China to Pay Its Debts to the United States | Fox News
     
  4. asianobserve

    asianobserve Elite Member Elite Member

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    In fairness to our Chinese friends here they only owe American investors $750 Billion dollars. :pound:
     
  5. Ray

    Ray The Chairman Defence Professionals Moderator

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    Ask the Chinese.

    They will say it is small change.

    But the Chinese love their small change and never parts with any change big or small! ;)
     
  6. W.G.Ewald

    W.G.Ewald Defence Professionals/ DFI member of 2 Defence Professionals

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    His party depends on political donations from China. That will never happen.
     
  7. jon88

    jon88 Regular Member

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    What is owed must be paid and Republic of China must fulfill all its debt obligations. So, Republic of China or commonly known as Taiwan....pay up.

    Many of us forgets that Republic of China is Taiwan. Republic of China(ROC) was ousted from China to Taiwan by the communist who created People's Republic of China(PRC). The only way for PRC to become bidding to the debt is if Taiwan(ROC) unified with mainland China since it is ROC who borrowed the money.

    Barking up the wrong tree.
     
  8. Tolaha

    Tolaha Senior Member Senior Member

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    CCP claimed and took over all assets claiming itself to be the legal successor of ROC. So are you claiming that CCP has the right to the assets but no obligation to the debts?
     
  9. ladder

    ladder Senior Member Senior Member

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    Asset and liabilities are the sides of same coin. By ousting the then govt. (ROC), CCP (PRC) has inherited both of them. As we haven't seen them (PRC) complaining about assets, why pass the buck to ROC when it's about liabilities?

    Your assessment?

    P.S Please introduce yourself in the members section.
     
  10. jon88

    jon88 Regular Member

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    Even if ROC is unified with PRC, there is still another issue. For what reason the war bond issued by ROC?...to fight the PRC. How do you pay up a debt your enemy took which is meant for your destruction? How do you foot your enemy's debt when your enemy is still living luxuriously in an island?
     
  11. Tolaha

    Tolaha Senior Member Senior Member

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    @jon88 from Malaysia, as pointed out by @ladder, read the forum rules and introduce yourself before posting! Let's here your story and where you come from! :rolleyes:
     
    Last edited by a moderator: May 10, 2015
  12. jon88

    jon88 Regular Member

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    I was from Mumbai but have been in Malaysia for 20 years

    What I am saying is this...who ever took the loan must pay up. The question of inheritance only comes up when the one who took the loan do not exist. Republic of China(ROC) still exist. Present day Taiwan is the continuation of the old Nationalist government by KMT. Do you see the irony of it?
     
  13. jon88

    jon88 Regular Member

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    Where do you find the forum rules?.. The only rules I read when signing up was not to express in a manner that will hurt the sensitivity of others in defence forum india.
     
  14. ladder

    ladder Senior Member Senior Member

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    The link below contains the rules and regulations.
    http://defenceforumindia.com/forum/rules/40876-rules-guidelines.html#post565421

    We here generally like to know to whom we are interacting with, so I requested you to introduce yourself. It's not compulsory under regulations.
     
  15. asianobserve

    asianobserve Elite Member Elite Member

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    I cannot verify this from internet sources but I think this really happened. If so then the PRC is estopped from denying the same bonds held by Americans.
     
  16. jon88

    jon88 Regular Member

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    Those are the rules? I think I saw more than 20 violators the 5 threads since I signed up today. C'mon this is exactly like the state of our beloved India, all the rules are there, no enforcement, no one actually respect and abide by the rules. Man...such professionalism and the eloquent language used in the rules and guidelines despite the glaring opposite realities. Hey guys, we have to do something about this. You guys are the seniors... do something.
     
  17. asianobserve

    asianobserve Elite Member Elite Member

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    Oh I found it! Here is an archive material from NY Times...

    China, Britain Settle Claims - NYTimes.com
     
    ladder likes this.
  18. jon88

    jon88 Regular Member

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    You might be right especially on that part of the article. That was the same time as the British unexpectedly announced that HongKong will be returned to China in 1997. It is also noteworthy that HongKong island was handed over to the British in perpetuity in the 19th century, only the New Territories part was on a 99 years lease expiring in 1997. Kinda similar to a "out of court" settlement deal.
     
  19. asianobserve

    asianobserve Elite Member Elite Member

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    The agreement mentioned in the article that allegedly signed by the PRC and USA refers to their 1979 bilateral agreement wherein the latter formally recognised the PRC as the government of China:

    Candace Riddle: China’s Defaulted Debt: Remedies for U.S. Citizens
     
    Last edited: Dec 2, 2013
  20. northernarunachalpradesh

    northernarunachalpradesh Regular Member

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    If you see BBC these days there are loads of programs on china.They want to encourage chines tourist visiting Britan.Those guys are appeasing chines these days a lot.

    They want to do brokering job and earn brokerage like they used to do before financial crisis .(I think any countru will do that now).

    You have to understand british situation they are in deep debt,no one knows how they are still not bankrupt.

    See what happened the so called British empire,hey are going all over the world to do brokerage.
     
  21. jon88

    jon88 Regular Member

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    Interesting........ PRC and also ROC is definitely an inheritance bequeathed from the Qing dynasty. I would say yes, both China(s) should pay up for this debt. More so the ROC, because the ROC was the direct line of inheritance from the Qing dynasty with the PRC holding a minor stake in the debt. Since it was a railway bond and not a malice intended bond (eq. war bond) and the very fact that the Qing dynasty have actually capitulated, bond holders actually have a good chance here.

    It's sad....... that the supreme court of the land that they are suing at, go against them. I wonder why they didn't try the petition in Taiwan or Mainland China instead? They might have a better, logical, and unambiguous argument there.
     
    Last edited: Dec 2, 2013

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