... 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 holds a large quantity of these gold-denominated bonds. This citizen-led group, the American Bondholders Foundation, serves as trustee with power of attorney for some 20,000 bondholders, whose bonds are valued at well over $1 trillion.
Prime Minister Margaret Thatcher’s tough negotiation stance on the return of Hong Kong to China led to a British settlement agreement on these same Chinese bonds in 1987. Thatcher said that for China to have access to UK capital markets, it had to honor the defaulted Chinese sovereign debt held by British subjects. Faced with that stark choice, China agreed. ...
