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China Debt Syndrome By: Elton Gallegly
Washington Times | Tuesday, September 09, 2008


After Saddam Hussein's government was replaced in Iraq, China demanded that the new government pay off the debt Saddam's regime ran up against China. China prevailed and is getting 100 percent of the more than $10 billion Iraq owes it.

China, however, refuses to recognize the debt its current government inherited when the communists took control in 1949. That debt includes about $260 billion on bonds issued by the former Republic of China. Of that, more than 300 American citizens are owed nearly $100 billion from bonds on which the People's Republic of China has defaulted.

It's time China owned up to its international obligations. Pressure is the only thing China understands. And pressure works. Americans weren't the only ones owed billions when the communists seized control. British citizens were among the bondholders Communist China had been ignoring. That lasted until 1987, when Great Britain enacted a law denying Chinese access to British capital markets and China responded by negotiating a settlement to pay off the bonds.

China also is in negotiations with France on its defaulted bonds but continues to ignore the United States because there is no incentive to do otherwise.

There are consequences to letting China skate on its obligations under international law. Not only are deserving American bondholders not receiving restitution, but the U.S. government is sending a message to China that it does not have to play by the rules when it competes in the global economy. This helps explain Beijing's refusal to abide by trade agreements, the manipulation of its currency, its underwriting of the genocidal regime in Sudan and its financial relationship with the terrorist-sponsoring government in Iran.

To that list we can add China's refusal to crack down on the widespread theft of intellectual property. The piracy of U.S. movies, books, music and other products is costing Americans billions of dollars each year.

Clearly, the United States cannot stand by and let this situation continue. Congress needs to turn up the heat. And one area where we can start to rewrite our economic relationship with China is to pressure them to honor their debts to Americans.

That's the thinking behind a House resolution I introduced. The resolution states it is Congress' position that China and its government-owned enterprises should be required to properly disclose material information concerning the selective default status of pre-1949 bonds in all prospectuses and filings with the Securities and Exchange Commission. This action will put all investors on notice that China has refused to honor its obligations in contravention of international law.

It will also encourage China to negotiate in good faith with American bondholders to settle their claims on defaulted bonds. China is now a world economic player. For the past three decades, China has averaged a 10 percent annual growth rate. China is expected soon to surpass Germany and Japan to become the second-largest economy in the world.

If China is to retain that status and continue to grow on the world market, it needs to prove it will stand by its obligations.


Elton Gallegly, California Republican, is a member of the U.S. House of Representatives.


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