By Tim Nerozzi
For some people, they are collector items. For the Trump administration, antique bonds held by a group of American investors could provide nearly a trillion dollars in important leverage in America’s trade war with China.
At issue are at least $750 billion worth of unpaid bonds issued by the Chinese government and held by Americans to finance development (and its wars with Japan) in the decades before Mao’s Revolution. Communist revolution. After seizing power in 1949, China’s communist party refused to recognize this debt.
The American Bondholders Foundation is lobbying politics and policymakers to hold China accountable for pre-Communist debt. In the past, while China did agree to pay British bondholders in 1987 in large post-revolutionary governments have declined from paying debts held by their predecessors. An analyst who spoke to AMI Newswire for this story said some speculators are still holding debt from prior to the Mexican Revolution — more than a century ago.
“Just as the United States pays the PRC on the $1.17 trillion of US Treasury Bonds they own, the PRC should make good on their defaulted sovereign debt owed American citizens,” said Brian Kennedy of the American Bondholders Foundation.
Similar organizations exist in several European countries who also seek restitution from China.
Conventional wisdom has held that the ABF and its sister organizations have been tilting at windmills because no American government was interested in pushing the issue. That may have changed with the Donald Trump.
“The Trump administration has been pushing for reciprocity in the economic and financial relations with the PRC. Just as the President pushes for tariffs to promote fair trade, the argument was made to him that there should be reciprocity when it comes to sovereign debt,” said Brian Kennedy of the American Bondholders Foundation in an interview with AMI Newswire.
President Donald Trump recently met with the president of the American Bondholders Foundation (ABF) in a private meeting to discuss the repayment of pre-Communist debt which China’s government has refused to pay.
“They wish to be seen as the successor government on every single matter except this sovereign debt,” said Kennedy.
“Sovereign debt” refers to debt accrued in the name of the central government. It is a national debt issued in foreign currency by the government to fund domestic growth for the issuing country.
“Only countries that are raising debt in global capital markets or who participate actively in international trade and finance deal with this. Iran, Syria, and Cuba are not going to have sovereign debt offerings on Wall Street any time soon,” said Kennedy. “[The People’s Republic of China], on the hand, issued sovereign debt in Hong Kong late last year denominated in US dollars. They did so to make it more attractive to US investors. But because of this defaulted [pre-1949} debt they weren’t able to do so on Wall Street.”
Most members of the ABF have been holding this asset for decades. While many are prepared to wait as long as it takes. It now appears that China has an ultimatum as they plan their financial and geopolitical future. If they want to be seen as legitimate, trustworthy partners to other first-world nations, they’ll need to pull out their checkbook.
“There’s a great reason for optimism,” said Kennedy. “First, we’ve never had a president in the last 50 years who has been so transparently pro-American and pro-economic nationalism with regards to the [People’s Republic of China] than President Trump. Second, [China] wants to be treated like a great nation and come to global capital markets and be considered a first-world economy. That will be very difficult if they simply refuse to honor their sovereign debt obligations.”
The organization asserts that Americans are owed at least $750 billion and perhaps more than $1 trillion by the Chinese government. Experts agree that if China were to recognize the debt at all, it would be in the context of a negotiated settlement paying pennies on the dollar.
“The ABF is actively pursuing all available means for resolving the claims of its members in respect of defaulted Chinese Bonds, including legal, political, diplomatic and media channels,” the ABF said in their 2013 public notice. “The ABF is confident that these avenues will, in time, result in a very beneficial outcome for its bondholders, although there obviously can be no guarantees.”
Photo Credit: @chuttersnap via Unspalsh
Source: American Media Institute