Tracy Alloway and Lee Buchheit discuss the possible resuscitation of claims against China for non-payment of Imperial Chinese bonds, the legal merit of unpaid debts as bargaining chips, the value and risks of these bonds as investments, the viability of a dollar-issued bond with a first priority claim, challenges of unauthorized debt instruments and counterclaims, and the moral dimension of debt and China's potential obligations.
Imperial Chinese bonds have become a way for the US government to pressure China and assert moral superiority, despite the claims lacking legal merit.
The enforceability of claims on Imperial Chinese bonds faces legal challenges regarding the statute of limitations and the authorization of the bonds, but the concept of set-off and the potential for counterclaims add complexity to the debate.
Deep dives
The fascination with Imperial Chinese bonds
Imperial Chinese bonds, issued in the early 1900s, have gained attention due to their potential value and political significance. While many argue that these claims lack legal merit, they have become a tool for the US government to exert pressure on China and assert moral superiority. The bonds are seen as a way to penalize China and justify various punishment measures, such as blocking China from selling new debt internationally. The debate revolves around the plausibility of these claims, with arguments centered on the statute of limitations, political leverage, and the potential for a counterclaim by China. Despite the unlikely legal enforcement, the concrete value of the bonds and their symbolic significance make them an intriguing topic.
The legal complexities surrounding Imperial Chinese bonds
The enforceability of claims on Imperial Chinese bonds faces numerous legal challenges. Statute of limitations is one defense that China could assert, as the bonds matured between 1950 and 1960, well beyond the time frame for possible legal action. However, the concept of set-off allows the bonds to retain some vitality, potentially influencing negotiations between the US and China. Additionally, arguments surrounding the authorization of these bonds and their historical context arise. It is difficult to determine the necessary authorizations from the early 1900s, and the fact that China paid these bonds for 28 years before defaulting could further complicate the legal landscape. While legal obstacles exist, the possibility of a rhetorical gesture or counterclaim remains.
The political dimensions of Imperial Chinese bonds
Imperial Chinese bonds hold political salience due to their simple narrative and concrete monetary value. The claim that China owes the US $1 trillion captures public attention and presents a way to express moral superiority over China. These bonds provide a unique intellectual nugget that resonates with people as they perceive it as unfair for China to not honor its debt. Issues like intellectual property rights or manufacturing offshoring might be more complex, but the bond claims simplify the narrative. Moreover, the emotional element and the association of the bonds with a corrupt imperial regime and a time of national humiliation in China add to the political significance of these claims.
Debating the plausibility and significance of Imperial Chinese bonds
The plausibility and significance of claims on Imperial Chinese bonds are subjects of debate. While some argue that the claims lack legal merit and are primarily a political tool, others explore the potential of extracting compensation through leverage or persuasion. The concept of odious debt, though untested in court, comes into play, as some see these bonds as potentially falling under this category. However, factors such as the statute of limitations, the potential for counterclaims, and the difficulty in determining the validity of bonds issued over a century ago create legal complexities. Despite the unlikelihood of legal enforcement, the fascination with these bonds persists due to their symbolic and political value.
Imperial Chinese Bonds: Are They Coming Back to Life in 2020?
Bloomberg’s Tracy Alloway, financial reporter extraordinaire, and sovereign debt guru Lee Buchheit join us for a discussion of zombie sovereign bonds. Over the last year, there have been stories in Bloomberg, the Financial Times and on NPR on the possible resuscitation of claims against China for non-payment of bonds that were issued over a century ago by the Imperial Government. The driving force for these stories has been the efforts of a group of supporters of President Trump who apparently hold a big bunch of these antique bonds and want President Trump to negotiate a settlement for them as part of his trade talks with China.
Producer: Leanna Doty
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