Waste of the Day: China Still Owes Over $1 Trillion to American Bondholders
Topline: The Chinese government refuses to repay over $1 trillion of decades-old bonds held by private American citizens, even though the U.S. is still making payments on its more than $850 billion debt to China, according to a recent op-ed in The Hill.
Key facts: The Republic of China financed huge infrastructure projects in the early 20th century by issuing bonds to investors and governments around the world.
The Chinese government fell behind on its bond payments in 1938 while at war with Japan. Before they could fix the error, it was overthrown by the current communist regime and the People’s Republic of China was formed.
The current Chinese government argues that it is not responsible for repaying the previous government’s debt, leaving over 20,000 Americans with worthless bonds.
The U.K. solved this problem in 1987 by threatening to cut off China’s access to British stocks and bonds if China did not repay its debt.
America has yet to take similar action. The Heritage Foundation’s Andrew Hale wrote in The Hill that’s because U.S. leaders always assumed China would eventually westernize and start repaying the bonds, but that has yet to happen.
Hale says the U.S. government should purchase the Chinese bonds from American citizens and then pass legislation forcing China to repay the debt. The bonds could then be used to offset America’s debt to China.
Background: China owned $859.4 billion of U.S. Treasury bonds as of August 2023.
Last year, OpenTheBooks.com and Sen. Joni Ernst uncovered $490 million of U.S. taxpayer money sent to the Chinese government and private companies through grants and contracts since 2017, meaning America is actually borrowing money from China just to send it back.
Last December, Ernst sponsored legislation that requires the Pentagon to audit the last 10 years of U.S. defense money sent to China and to virology labs around the world. A report must be filed to Congress by June.
Critical quote: “This failure to act needs to end now,” Hale wrote of America’s reluctance to strongarm China on its bond payments. “Given that relations with China have deteriorated and there is bipartisan agreement on the threat from China, this matter can finally be acted upon by both Congress and the Biden administration. Getting settlement on this defaulted debt is not only right and just for the bondholders but, if done correctly, could also be a huge win for the U.S. taxpayer."
Summary: The U.S. was dangerously close to defaulting on its bond payments to China last year. It’s time for the federal government to explore all avenues of lowering that debt and doing right by its taxpayers.
The #WasteOfTheDay is brought to you by the forensic auditors at OpenTheBooks.com
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