Sen. J.D. Vance (R-OH) on Thursday introduced legislation that would restrict the Chinese government from American capital markets and exchanges unless it follows international finance law, noting the country has yet to honor its debts to Americans.
The bill would mandate that the Treasury Department and Committee on Foreign Investment in the U.S. (CFIUS) take hardline stances against, including:
- Refusal to honor bond debts to American citizens and institutions
- Abuse of transparency and disclosure rules on capital markets
- Manipulation of payment settlement and bond default practices
Brian T. Kennedy, the chairman on the Committee on the Present Danger: China, said in a statement:
The future success of the global economy will be built on a system of international trade and finance that respects the basic principles of international law, including successor government doctrine. Since its inception, the People’s Republic of China has flaunted these principles along with their sovereign debt obligations and has been allowed to build a first world economy with little regard for the rule of law, not to mention common decency. Default scenarios like this set a dangerous precedent that could undercut the global integrity of sovereign debt in place today. This legislation by Senator Vance is a strong beginning of a vital effort to bring the PRC into compliance with basic standards and norms in the area of international finance and proper sovereign debt management, and we applaud his bold efforts to do so. [Emphasis added]
China is currently in default on its sovereign debt held by American bondholders, according to Andrew Hale, a senior trade policy analyst at the Heritage Foundation:
Some history is in order. Before 1949, the government of the Republic of China (ROC) issued a large volume of long-term sovereign gold-denominated bonds, secured by Chinese tax revenues, to private investors and governments for the construction of infrastructure and financing of governmental activities. Put simply, the China we know today would not have been possible absent these bond offerings.
In 1938, during its conflict with Japan, the ROC defaulted on its sovereign debt. After the military victory of the communists, the ROC government fled to Taiwan. The People’s Republic of China was eventually recognized internationally as the successor government of China. Under well-established international law, the “successor government” doctrine holds that the current government of China, led by the Chinese Communist Party, is responsible for repayment of the defaulted bonds.
A private group of American citizens, or the American Bondholders Foundation (ABF), hold a large quantity of gold-denominated bonds, serves as the trustee with power of attorney for some 20,000 bondholders, which are worth more than $1 trillion.
Hale lamented that the United States has yet to force China to honors its debt to American bondholders.
He argued, “Like the U.K. did in 1987, the U.S. must view the repayment of China’s sovereign debt as essential to its national security interests. In doing so, the U.S. government should undertake one or both of two actions currently being discussed by members of Congress.”
Hale calls for the acquiring of Chinese bonds to be held by the ABF and use them to offset the $850 billion-plus American Treasurys owned by China.
Vance Legislation on Chinese International Law Violations by Breitbart News on Scribd
His second proposal is in Vance’s legislation, which is to have China abide by international norms and rules on finance, trade, and commerce. If China fails to abide by these international norms, they would be cut off from all U.S.-bond markets and exchanges.
Hale argued that getting settlement on the defaulted debt could be a “huge win for the U.S. taxpayer” as it would lower the national debt.
Sean Moran is a policy reporter for Breitbart News. Follow him on Twitter @SeanMoran3.
