China is in a state of default and owes more than a trillion US dollars to the US

China is in default on its sovereign debt held by US bondholders.

Successive US administrations preferred to bypass this fact, allowing business and trade with China to continue as usual. Now that relations with China have deteriorated, and the People's Republic of China has become the greatest hostile threat to the security of the United States and the West, politicians should reconsider this appalling miscarriage of justice.

A bit of history. Until 1949, the government of the Republic of China (KR) issued a large volume of long-term sovereign gold bonds, secured by Chinese tax revenues, for private investors and governments to build infrastructure and finance government activities. Simply put, the China we know today would not be possible without these proposed bonds.

In 1938, during the conflict with Japan, the Republic of China defaulted on its sovereign debt. After the military victory of the communists, the government of the Republic of China fled to Taiwan. The People's Republic of China was eventually recognized internationally as the legal successor of China. According to established international law, the doctrine of "successor government" states that the current government of China, headed by the Communist Party of China, is responsible for repaying defaulted bonds.

A private group of American citizens owns a large number of these bonds denominated in gold. This is the American Bondholder Fund (ABF), which acts as a fiduciary manager with power of attorney for approximately 20,000 bondholders whose bonds are valued at more than $1 trillion.

The tough position of the then Prime Minister of Great Britain, Margaret Thatcher, in the negotiations on the return of Hong Kong to China led to the conclusion of the British peace agreement on the same Chinese bonds in 1987. Thatcher said that in order for China to gain access to British capital markets, it must default on China's sovereign debt owned by British subjects. Faced with such a tough choice, China agreed.

Unfortunately, the USA could not take such a healthy position. To this day, China has access to the capital markets of the United States, openly refusing its sovereign debt obligations to the holders of American bonds.

So that no one asks about the age of these bonds, it does not matter. What is important is that this is a sovereign obligation. More recently, in 2010, the German government made the last payment in reparations for the First World War. In 2015, Great Britain made payments on bond issues dating back to the 18th century.

The Biden administration and the US Congress have a unique opportunity to ensure compliance with the established international rule that governments must repay their debts. Like Great Britain in 1987, the United States should consider repayment of China's sovereign debt as a necessary condition for its national security. At the same time, the US government should take one or both of the two actions that are currently being discussed by members of Congress.

First, it is the purchase of Chinese bonds owned by ABF and their use to offset (partially or fully) more than $850 billion in US Treasury bonds owned by China (reducing to $95 million in daily interest paid to China). This will reduce the national debt and improve the financial situation of the USA on a global scale.

Secondly, to adopt a law requiring China to comply with international norms and rules in the field of finance, trade and commerce. This will include compliance with the rules of transparency of capital markets and stock exchanges and the cessation of the practice of exceptional settlements, discriminatory payments, selective default and rejection of the successor government doctrine of established international law. If China does not fulfill these obligations, it and its state organizations will be closed to all markets and bond exchanges denominated in US dollars.

This, again, is just common sense, and the Chinese government would do the same if the situation were reversed.

Over the past two decades, Congress has periodically provided bipartisan support to bondholders to resolve China's default problem through several Congressional resolutions. Despite this, successive US administrations kept silent on this issue, decided to put it aside, assuming that China would eventually liberalize and adopt Western norms and values.

Considering that relations with China have deteriorated and there is a bipartisan agreement on the threat from China, this issue can finally be considered by both Congress and the Biden administration. Getting compensation for this defaulted debt is not only the right thing for the bondholders, but if done right, it can also be a huge win for the US taxpayer.