Pony up, Xi!

| May 31, 2020

Oil, Oil Rig, Industry, Oil Industry

This story kind of writes itself. If there is anyone who can twist Xi JinPing’s arm, it should be our current, sitting (and frequently standing) President, but one would suppose that this might have been addressed by earlier administrations.

Essentially, China owes us money. Lots of money. In fact, China owes US citizens $1.6 trillion in a century-old bond debt.  This did come as a surprise to me, because it’s never been bandied about as a way to make China knuckle under. And as much as Xi JinPing loves money (yes, he does, it’s as obvious as ketchup on French fries) and the glam of being a control freak, one would think he’d have addressed this by now.

Pony up, Xi! Cough it up now!  https://www.foxbusiness.com/markets/historic-chinese-bonds-trump-leverage-beijing

From the article:  As the Trump administration seeks ways to penalize China for its handling of the COVID-19 pandemic, it need look no further than Tennessee.

The Lewisburg, Tennessee-based American Bondholder Foundation holds $1.6 trillion of century-old Chinese debt, including interest, dating to before the founding of the communist People’s Republic of China, that it wants the administration’s help in redeeming. There is an estimated $6 trillion or more of the debt outstanding worldwide.

The bonds were issued by the Republic of China — which ousted the imperial government in a coup — as far back as 1912 and are backed by gold; they were defaulted on in 1938. The ROC government fled to Taiwan, where it remains the official ruling body, after Mao Zedong’s communist party took over following the 1949 end of the revolution.

Beijing maintains Taiwan** is part of China, and under international law, successor governments are responsible for the debts of their predecessors.

By paying some bondholders and not others, Beijing is technically in selective default, according to the ratings of bond-risk firms Moody’s, Standard & Poors and Fitch. Until China pays, it cannot sell debt on the international market, Bianco said.  – article

**Plainly, this technicality that Beijing claims it owns Taiwan is like walking around in the dark and bumping into hardwood furniture, in a thunderstorm with nasty flashes of lightning. The stumbling block is that Taiwan refutes Beijing’s claim as an independent entity.

Note that, when Margaret Thatcher demanded that the Chinese government make good on bonds owned by British citizens or lose access to British capital markets, President Li Xiannian’s government obliged, reaching a settlement of 23.5 million British pounds.

Do we have something similar going on here? Why, yes – yes, we do: In addition to those $1.6 trillions in gold-backed bonds, China is proposing to purchase drilling rights in oil fields in the Permian basin, which were essentially shut down because of the drop in oil prices and the glut and lack of storage space for crude oil. The price of oil per barrel has risen. If you haven’t noticed a rise in the price of gas at the pump recently, it’s gone from $1.849 in February to about $2.259 to $2.459, depending on where you are. And in reality, you’d have to wonder why China isn’t doing a deal with Vlad Putin. But let’s not put a bug in anyone’s ear about it.  China does have its own reserves, as well: it holds 25,132,122,000 barrels of proven oil reserves as of 2016, which begs the question: why does China need to drill here? Or for that matter, own anything here?  Once the camel gets its nose under the tent flap….

Things will be picking up if the CV19 crisis is in actuality coming to its conclusion, but as with Mrs. Thatcher, one can rightfully hope that the USA will have China by the short hairs if the right person can do what Maggie did.

Do we have anyone like Mrs. Thatcher who could get this deal done?  Anyone have an answer to that? Anyone?  Bueller?

Category: China, Economy, Exploitation

Comments (30)

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  1. David says:

    That would be a slippery slope, I think – if the debt is owed by the Taiwanese KMT and we expect the PRC to pay it, it is a very short step to China saying ‘we only owe it if Taiwan is legitimately ours- so you concede that? ‘.

    • Ex-PH2 says:

      You obviously missed the part about Mrs. Thatcher (PM of UK) getting the Chinese government to pony up.

      • David says:

        “Mrs. Thatcher” – means that was at or before 1990; may as well refer to something Reagan did. I doubt Xi would give that more than a passing “that was then, this is now, so regrettable” in passing.

    • The Other Whitey says:

      International law says successor governments are liable for the debts of their predecessors. The Red Chinese insist that they are the legitimate government of China and that the ROC is illegitimate. That means that, by their own claim, they now owe that debt. To refuse is to admit that the ROC is the rightful government, plus why should anyone else loan them money once they’ve demonstrated that they’ll never pay it back? They are standing on their own dick with this issue. They can’t have their cake and eat it too with this. Either way, they lose.

  2. Slow Joe says:

    Why is China not drilling for oil on its own reserves?

    Perhaps they still believe that nonsense about peak oil and are planning to use other people’s oil first…?

    • Ex-PH2 says:

      That’s a legitimate question, SJ. Here’s the answer:

      China’s oil/gas reserves are something on the order of 25++ billion reserves in volume. It’s about a 10-year supply. Then they’ll become dependent on the kindness of others for gas and petroleum.

      In 2018, when the Permian Basin was regarded as about to run out of gas (pun intended) a new field was tested and found to have something on the order of 25++ trillion in reserves for drilling, which is 10 times what China has. We are, therefore, near the top. I think Russia has higher reserves levels than ours but not by much.

      IT’s easy to assume that China doesn’t want to use its own reserves if it can get them elsewhere by purchasing the rights to them, which we should not allow to happen, period.

    • 11B-Mailclerk says:

      Ours are profitable, even at lower prices. Their fields an expensive clusterf###, and they need money desperately.

      • Ex-PH2 says:

        I keep wondering why they aren’t trying to make a deal with Putin, when Russian oil/gas reserves noticeably exceed ours, and Russia is geographically closer to China than we are.

        • The Other Whitey says:

          Russia and China are ancestral enemies who occasionally make brief alliances of convenience. Any deal with Putin will favor Russia, and he will play dirty.

        • Ex-PH2 says:

          Yes, he will and I know it. That was behind what I said. 😉 I would love to see what happens, should that come to pass. (Giggle.)

  3. 11B-Mailclerk says:

    I do believe I posted that “old China bonds” tidbit here, a while back.

    Taiwan could offer to settle a fraction of it in exchange for recognition, etc.

    And a “not valid” claim by the PRC invites reciprocity, which hurts them a great deal more than us.

    • Ex-PH2 says:

      Yes, and they are backed by gold, which has a high price on the commodities markets now, considerably higher than it was in 1912.

  4. Commissar says:

    Ugh…The logic of this one…

    The world owes China over $1.7 trillion dollars. Of that over $1 trillion is owed by the US. That is not in dispute.

    Here is the counter argument that Trump has latched onto – though it is actually Obama era argument and probably academically predates even that…

    The argument is that the Republic of China borrowed $1.6 trillion from Western bond holders.. Not just the US. But did not pay back US bondholders – though they paid back British bondholders.

    The Republic of China is the Chinese government before the Communist revolution/civil war. So were are talking about money borrowed before 1949 – and best I can tell this debt actually is from around 1913 By a government that no longer exists in mainland China and no longer rules China, a government that he CCP regards as the enemy of the Chinese people…

    However, it does still exist in Taiwan, in fact the government of the Republic of a China is still the official government of Taiwan. Chiang Kai-Shek and his government and KMT remnants escaped to Taiwan when the Communist’s were clearly going to defeat the remnants of their Army.

    So Taiwan owes the US bondholders money (I doubt it is $1.6 trillion since that was the original estimated figure and some money was paid back to settle the British portion of that debt)…

    However, since China insists Taiwan is part of China, and because the US and the UN officially also hold that position for diplomatic and stability reasons.. then, the argument goes, Taiwan’s government debt is China’s government debt..

    Now, here is the problem… it is more of a talking point and a negotiation lever than a debt the US is likely going to get paid. The bondholders can collectively sue in court, they have a genuine case though a tough opponent and there is a ton of changes in the international finance system that China can use as legal loopholes and outs to avoid a more than century old debt from the previous ruling government.

    Remember a bond is not a zero risk investment, it needs to be paid back by the borrowing government. So it is only as secure as the government. The Government of the Republic of China was already under attack by invading Japanese imperial forces.

    Though it does make a good talking point for Trump since it’s incoherent logic makes it seem clever to his “whatever he says must be right” base…

    Here is the real problem, and why no US administration has tried to seriously leverage this debt in negotiations…

    Because it would reaffirm Taiwan being Chinese territory. While Nixon officially did that in 1972, and we have implicitly continued to maintain that as our “official” diplomatic position, the US has been reticent to do anything that further legitimizes and substantiates the CCP claim on Taiwan.

    Trump does not give a shit about the future of Taiwan, and neither does most of his base.

    So his propaganda machine and allied media are trumpeting this claim.

    Purely as a political talking point.

    • 11B-Mailclerk says:

      If they are the successor state, they owe the money per a whole bunch of settled law.

      They cant have it both ways.

      And Taiwan is clearly not owned by PRC or CCP, as they have made clear that they are not. The DPRK claims all sorts of weird shit. None of it valid in regards to the ROK.

      China claims there is no ROC government, only the PRC, having -replaced- the ROC. Then, they owe the debt. Settled law.

      Or, they say “not us, the other guys signed that”. Then the “other guys” are -not- the PRC. Settled law.

      Or, they effectively say “Reality is as warped as we care to Lie. Sue us. We wont pay”. Then anyone else can say “Oh? Hold my Diet Coke.” Or Tea, or Raktajino, or whatever global metaphor works for “oh, that was a dumb ass move by the folks who want -us- to pay back…”

      The Face loss potential is huge.

      Not hard at all. Elegantly simple.

      • Commissar says:

        Successor states are literally new and independent legal entities that control or absorb all or part of a former state.

        By definition. That is the definition of “successor state”.

        As independent legal entities they do not absorb the legal obligations of the former state.

        You could argue China under the CCP is not a successor state. In fact they implicitly and sometimes explicitly make that argument.

        But the continued existence of the Republic of China government undermines that argument.

        • 11B-Mailclerk says:

          Those bonds are a toothpick in the sandwich China tried to eat.

          Even if only an annoying distraction, useful.

          Bullfighters wave a harmless cloth. The bull winds up food. That cape is a weapon.

  5. 5th/77th FA says:

    It should be as obvious as the burning cities in the US that the Chinese Communist Government (take that larsie boi) is NOT our friend and will do whatever they can to destroy our way of life. No, they don’t want to destroy the infrastructure or pollute the farmland, they want to take it over. It should be obvious, too, that the Communist Chinese have NO intention of paying their just debts, and the domestic enemies of our country (Read Kongress Kritters) have allowed them to skate for DECADES. Until 11B made his post a little while back, I was not overtly aware of this. And, since they are not paying on it, we could just quit paying them anything that we owe them. Or, confiscate any holdings that they have in this country.

    They need us more than we need them. I can’t think of a whole lot they have that we can’t procure somewhere else. I may be wrong. And for God’s Sakes, do not let the SOBs buy anything else, especially drilling rights. They already own 146K prime acres of farmland, out right own a major meat processing company (Smithfield) and control a number of others (Armour, Nathans, ect).

    Again, connect the dots, follow the money. Look who all has been neck deep in our grubmint for the last 40-50 years and how they have profited from China. Can you say, Biden, Clinton, Skeery, Pigolosi, DiFi, and now Gates, Big Pharma, the list goes on.

    Lock and load boys and girls, sh^t fixin’ to get really real.

    • Commissar says:

      China is not trying to destroy our way of life.

      That is insane.

      We adopted a neoliberal worldview for the international political economy and our elected and appointed leaders walked us merrily into our fate.

      And since the 1990s both parties willfully and enthusiastically supported this outcome.

      The result is trade relationships and agreements that created an international political economy which screwed American workers and small businesses so we could get cheaper socks from Walmart.

      None of this was a communist conspiracy. It was a global capitalist agenda. Literally, indisputably.

      China has not as wholeheartedly embraced our neoliberalism as we anticipated they would, while we continue to cling to the principles of it. And thus it created imbalanced trade relationships where we felt China was acting “unfair” by not honoring the neoliberal ideology we expected them to and they agreed to in the trade agreements.

      But rather than abandon our assumptions we clung to them and expected China to play fair.

      Now we want to act like China is “destroying our way of life”.

      When in fact we sold our way out for the benefit of international corporations, and the wealthiest Americans under the justification that cheaper socks maximized utility for American consumers.

      If we had maintained progressive taxation to redistribute the benefits of the massive wealth the current political economy has generated for relatively few Americans then maybe the capitalist math would have been correct and nearly all Americans would have benefited overall from these agreements.

      But instead we abandoned the tax policies of the 1950s and 1960s and at the same time we were abandoning the “American worker first” ideology of our trade policies.

      So we ended up allowing the benefits of the global economy that we were the primary architects of go overwhelmingly to a tiny percentage of Americans and a global, corrupting, class of international elites and corporations.

      • 11B-Mailclerk says:

        Progressive taxes do not redistribute. They destroy. High wage earners can -easily- pass on “opportunities” taxed 70-90%. That activity never happens. No revenue, no jobs.

        As intended by Proggies.

        Trump is pushing “americans first” rather hard. Thus his increasing Union Worker support, for example. That you -dont- support such American worker first efforts is manifest, and repudiates any claim you might have to speak for them.

        -Unions- are a “big business” and a protection racket. Of -course- they support Democrats.

      • 5th/77th FA says:

        After you finish orally gratifying your socialistic masters you asinine POS, why don’t you go phuque off somewhere and continue to phuque off until you can’t phuque off any further you phuquing phuquer. My only surprise is that you didn’t fill you drivel filled comment with the over abundance of pure profanity that you are so known for. I’ll just leave this right here. Oh and btw, your reading comprehension is as low as it has always been, but the pure disgust that most people feel for you continuing to steal oxygen is at an all time high!

        • AW1Ed says:

          Work with me here Gun Bunny. No way I can cure the years of bad blood with Lars. I’m trying to get to at least a place of more ‘civil’ disagreement. My fault the flame wars got out of hand this week for not stepping in soon enough- I need to fix this, and I will. In the mean time if I can get the (heh) old salts like you, RGR 769 and Poe behind the theory of “don’t start nothing won’t be nothing” I’d appreciate it.
          I know how much you all love to go off, and I hope Lars found the edge of my envelope the other day, but I can’t just throw people into Mod Jail for disagreeing. Or being disagreeable. If that were the case ALL y’all would be there.

          • 5th/77th FA says:

            I gotcha ‘Ed, and not your fault. His flaming mouth set off a firestorm and between that and his disparaging against true Men of Honor was my last straw. In the future, I will let yoo hoo tube talk for me in the replies for his obnoxious, overbearing, foul mouthed, vulgar, asinine, POS, sissy punk self.

            If there is a need to delete my comments, my skin is just as thick, if not thicker than yours. No harm no foul.

      • 11B-Mailclerk says:

        Of course China means to destroy our way of life. They mean to be “the Central Kingdom”. That isn’t a “neighbor” thing. It is a “dominion” thing.

        We are in their way, and we help others resist them.

        That is obvious from even simple reading. Tibet is not an aberration. It is an example of long-term objective.

  6. OldSoldier54 says:

    Well, well, well … that is VERY interesting, Ex-PH2.

  7. FAEX says:

    I’m not an expert in bonds, but the company itself, American Bondholder Foundation, seems kind of shady. They’ve been fined by the SEC, their business address is a rural farmhouse and their website gives very little info. The owner has apparently made millions of dollars from people investing in interest in the bonds, money they will never get back unless the US government forces the Chinese government to pay a hundred year old obligation. I would argue that this is a borderline scam.