China’s Secret? It Owes Americans Nearly $1 Trillion
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 modernize 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.