FOLLOW US

GOP Sen. Martha McSally, R-Ariz has called for China to repay a $1.6T sovereign debt plus interest that dates back over a century, prior to the formation of the Chinese Communist Party.

The resolution has been co-sponsored by other GOP lawmakers, including Sen. Marsha Blackburn, R.-Tenn, as well as a house measure led by Rep. Mark Green, R-Tenn.

Originally, the $1.6T gold-backed bonds were issued by the Republic of China in 1912. As Mao Zedong’s revolution swept the country, the Republic of China’s leadership fled to Taiwan, effectively putting any form of repayment to bondholders in stasis.

Since Beijing continues to insist that Taiwan is part of China, international law dictates that the debt carries over to the successor government, thus putting the current regime on the hook.

This would not be the first time China has had to pay back bondholders, however. In 1987, British Prime Minister Margaret Thatcher demanded that Beijing pay back the U.K. for its holdings or China would be denied access to British capital.

The threat payed off, the then Chinese President Li Xiannian ended up paying the U.K. $23.5 million pounds in a settlement.

According to bond-risk firms Moody’s, Standard & Poors and Fitch, China is currently in selective default since they have only repaid certain bondholders. Because of this, Beijing can be frozen out of international debt markets.

McSally’s resolution read as follows:

“It is the sense of Congress that the President should do everything in his power to achieve resolution and repayment of the defaulted sovereign debt of the People’s Republic of China held by 20,000 families in the United States who are represented by the American Bondholders Foundation.”

American Bondholder President Jonna Bianco was thrilled with the resolution, commenting, “We are pleased that our Senate leadership -- and we've got one coming out of the House as well -- are expressing their support in holding China accountable, consistent with America's message to the president: Hold China accountable.”

Bianco currently has power of attorney for 95% of the U.S. bondholders involved in the dispute.

Analysts have pointed out that the $1.6T debt would be an effective weapon for the Trump Administration’s ongoing spat with Beijing over the handling of the coronavirus and Hong Kong’s democratic opposition movements.

It is unknown at this time whether the Trump Administration will use the debt as leverage in further talks with Beijing.

--------------------------------------------------