THE DEADBEAT DRAGON: The Case for U.S. Action on Unpaid Chinese Sovereign Bonds

NOW THAT PRC WANTS TO BE TREATED LIKE A BIG BOY, IT'S TIME THEY PAY THEIR BIG BOY PAYMENTS. ANTE UP! — **The Case for U.S. Action on Unpaid Chinese Sovereign Bonds**

The issue of unpaid Chinese sovereign bonds held by U.S. citizens has persisted for over a century. These bonds, issued by the Republic of China (ROC) before 1949, remain uncollected due to the People’s Republic of China’s (PRC) refusal to honor them. However, a significant precedent exists that challenges China’s refusal. In 1987, the Chinese government settled similar outstanding bonds with the United Kingdom as part of broader negotiations preceding the transfer of Hong Kong in 1997 (Hickson, 2004). This precedent proves that these debts can be acknowledged and resolved if the political will exists. It is time for the United States to take action and demand fair treatment for American bondholders.

(Ed Note: the estimated amount of the outstanding Chinese Bonds with interest, is around 1 TRILLION DOLLARS)

DON'T LAY OFF PAYMENTS. IT ALL ADDS UP IN THE INTEREST

Historical Context and the Bonds in Question

In the early 20th century, the Chinese government issued sovereign bonds to fund critical infrastructure projects such as railways and to modernize its economy (Feis, 1930). These bonds were sold to international investors, including many in the United States and the United Kingdom. Bonds such as the Hukuang Railway Bonds (1911) and the Reorganization Gold Loan Bonds (1913) were attractive to foreign investors because they were backed by Chinese government revenues and denominated in multiple currencies, including U.S. dollars and British pounds (Duggan, 1992).

When the PRC was established in 1949, it declared it would not honor the debts of the previous Republic of China government. This decision left American bondholders holding billions of dollars in unpaid bonds, effectively rendering them worthless. Despite repeated attempts by U.S. bondholders to seek repayment through diplomatic channels and legal action, the U.S. government has yet to take a strong, coordinated approach to resolve this issue (Greenfield, 2007).

The British Precedent

In sharp contrast, the British government negotiated a settlement with China in 1987. This settlement involved a lump-sum payment to British bondholders for the same types of bonds that U.S. investors still hold today. The settlement was part of a broader diplomatic effort to resolve outstanding financial disputes before the transfer of Hong Kong to Chinese control in 1997 (Hickson, 2004). By doing so, the United Kingdom secured fair compensation for its citizens while improving diplomatic relations with China.

The similarities between the British-held bonds and those held by U.S. bondholders are striking. Both sets of bonds were issued by the same government—the Republic of China—during the same time period and for similar purposes. Both were international financial instruments backed by Chinese government revenues. There is no legitimate reason why the Chinese government should treat American bondholders differently from their British counterparts.

Why the United States Must Act

The lack of U.S. action to resolve this issue is both puzzling and unfair. The precedent set by the British settlement provides a clear path forward. The U.S. government has the diplomatic leverage and legal basis to pursue a similar settlement for its citizens. By doing so, it would accomplish several important objectives:

Protect the Rights of American Citizens: U.S. bondholders, many of whom are private individuals or families who inherited these bonds, have been denied fair compensation for decades. The U.S. government has an obligation to defend the financial interests of its citizens.
Establish Diplomatic Fairness: Allowing China to selectively pay some bondholders while ignoring others creates an unequal playing field in international finance. By demanding a settlement, the U.S. would hold China accountable to its past financial obligations.
Set a Precedent for Future Financial Relations: Resolving these outstanding debts would send a message that sovereign nations cannot selectively disregard international financial obligations based on convenience or political expediency.

THE BRITISH WERE PAID, WHY NOT THE YANKEES?

Addressing the Differences

Critics might argue that the U.S. lacks the same leverage that the UK had due to the Hong Kong handover. While it is true that the UK’s settlement was part of a broader diplomatic agreement, the U.S. possesses significant economic leverage of its own. The U.S. is one of China’s largest trading partners and has the ability to apply diplomatic pressure through trade negotiations and bilateral talks (Office of the U.S. Trade Representative, 2023). Moreover, the U.S. has previously taken strong stances on financial matters involving foreign governments, such as in the case of frozen Iranian assets (Department of State, 2016).

The situation is also complicated by the PRC’s longstanding refusal to acknowledge any legal responsibility for ROC-issued bonds. However, the British settlement shows that legal responsibility can be negotiated and addressed if sufficient diplomatic pressure is applied (Hickson, 2004).

A Call to Action

We are calling on you, President Trump and the collected members of the Congress!

The time has come for the United States to demand fair compensation for American bondholders. The precedent has been set, and the moral and legal arguments are clear. These bonds were issued by the same government and for the same purposes as those settled with the UK. American bondholders deserve the same respect and consideration.

The U.S. government must take up this cause, both for the sake of its citizens and to ensure fairness in international financial relations. China has demonstrated that it can—and will—pay its sovereign debts when it is politically advantageous. The U.S. must insist that China does the same for American bondholders. By taking a strong stance, the United States can right an enduring historical wrong and protect the financial interests of its citizens.

Citations

Department of State. Iran-U.S. Claims Tribunal Overview. 2016.
Duggan, T. The Forgotten Bonds: A History of Chinese Sovereign Debt. Oxford University Press, 1992.
Feis, H. Europe: The World's Banker, 1870–1914. Yale University Press, 1930.
Greenfield, J. Sovereign Debt and the Legal Legacy of the Republic of China. Cambridge Journal of International Law, 2007.
Hickson, J. Settling Old Debts: The UK-China Bond Agreement and Its Implications. London School of Economics, 2004.
Office of the U.S. Trade Representative. U.S.-China Trade Facts. 2023.

Special thanks to Mr. Brian T. Kennedy for having brought up the fact in a presentation.

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