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The Chinese Double Standard- Category:News
The Chinese Double Standard



1. China has defaulted on much of its 1912‐1941 debt to US citizens and the government.
2. China settled the same debts with Great Britain in 1987.
3. In an era when our debt to the Chinese is at historic highs, why has the US government not brought the Chinese to the table in a constructive fashion in order to resolve its outstanding debt?


China is eager to be recognized by the international trade and financial community as a first world economy. This cannot be achieved, however, without respect for its own debt obligations.

The economies of the G8 are subjected to intense scrutiny by each other, NGOs, the WTO, the UN, the IMF/ World Bank, credit rating agencies and the markets. Yet due to its sizeable foreign exchange reserves and break‐neck economic, growth, the US and others have turned a blind eye to China’s many transgressions, including selective default on its own debt. These transgressions include, but are not limited to:

1. VIOLATION OF SUCCESSOR GOVERNMENT DOCTRINE: It is well established, as a matter of international law, that a successor government is responsible for the payment of sovereign debt obligations of a predecessor government.

2. WORLD TRADE ORGANIZATION VIOLATION: China’s refusal to honor its sovereign debt obligations violates its obligations as a member of the World Trade Organization – a membership that requires China to abide by accepted international legal norms, yet action has not been taken against China on this account.

3. SECURITIES AND EXCHANGE COMMISSION (SEC) VIOLATIONS: China and numerous state‐owned and controlled Chinese enterprises (SOEs) participate in U.S. capital markets and constitute “issuers” under U.S. securities law, yet omit substantial “material” information (i.e. selective debt default status) that a reasonable investor would find to be important in determining whether to purchase the China’s securities.

4. CHINA’S INCOMPLETE CREDIT RATINGS: The Nationally Recognized Statistical Rating Organizations (NRSROs) consistently accord artificially high ratings to the foreign currency debt of the Chinese Government and do not recognize China’s actual “selective default” circumstance, despite its materiality.


The United States Administration has made inroads towards disciplining China and making it accountable, yet has ignored the longstanding issue of defaulted sovereign debt. Positively, President Obama has recently asserted “The bottom line is the United States cannot be expected to stand by if there is not reciprocity in trade and economic relations ‐‐where we see rules broken, we’ll continue to speak out and bring action.” (President Obama, November 11, 2011 speaking of China at the 2011 APEC summit in Hawaii).


On March 13, 2012 ten members of Congress sent a jointly signed letter to the U.S. Government Accountability Office (GAO) asking for a complete accounting from the U. S. Government of USG holdings of the defaulted bonds.


In order to define the size, scope and potential upside to the US Treasury, the U.S. Departments of State, Justice, and Treasury need to fully account for the entirety of their 1912‐1941 Chinese government bond holdings. Once delineated, the US government will have a clearly defined path to rectifying this egregious abuse by Beijing of American bondholders and taxpayers. Ultimately, we believe that the US and China should work towards a mutually acceptable debt swap.

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