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CHINA OWES AMERICA OVER $1 TRILLION IN SOVEREIGN DEBT

Sovereign debt never expires

Since its founding in 2001, the ABF has been working to get China’s debt to America paid. In
1987, Prime Minister Margaret Thatcher successfully settled with China to pay on the same
defaulted sovereign bonds to British bondholders. Yet, to this day China has refused to honor
its obligation to America. Settlement of this outstanding debt would be consistent with the
rules of international law and immediately provide an enormous economic stimulus into the
U.S. economy.
BACKGROUND: Perhaps Today’s Value $126,393,750

From 1900 to 1940, the Chinese Government

issued millions of dollars in sovereign debt, most
notably, a large tranche of £25,000,000 issued at
5% in 1913 set to mature in 1960. This massive
bond funded the modernization of China's
infrastructure and was widely acquired at the
time by governments, banks, and investors
across the globe. However, in 1938 China
defaulted on its "binding engagement upon the
Government of the Republic of China and its
Successors,"leaving millions of global creditors
unpaid. In accordance with the terms of the
bond, successor government doctrine, and
accounting standards, the United States can and
should hold China accountable to its obligations.

While the Chinese Communist Party of the

People’s Republic of China purports to be a
legitimate leader in the global community, it selectively enjoys the benefits of the
international trading system while not playing by the rules and honoring its respective
obligations. Since China paid British bondholders but refuses to pay America, China is in an
extreme negative credit position called “selective sovereign default.” This would mean that
China would be barred from raising money in America. With the assistance of its Senior
Advisors and congressional assistance, the ABF has been able to block past attempts by
China to raise money by issuing new sovereign bonds in U.S. markets. However, through its
State Owned Enterprises (SOE’s), China has been able to circumvent the rules and borrow
many billions of dollars in the U.S.

BONDHOLDERS AND THE ABF:

The ABF has personally briefed President Donald Trump as well as key members of his
Cabinet and staff on the need for China to play by the rules and honor its obligations. Today,
the ABF believes it has President Trump’s strong support as we continue to work with his
Administration to get this issue resolved.

1. China owes over $1 Trillion in sovereign debt. How did this come to be?
Back in 1911, the Republic of China government or the ROC, came to power ending
thousands of years of Imperial Chinese rule. Starting in 1912 and for several years up to
1940, the new government issued sovereign bearer bonds to the world in order to raise
money for construction and development of infrastructure throughout the country. Many
countries, banks, companies, governments and private citizens purchased these bonds,
which were underwritten by investment banks from many of the industrialized countries
including the predecessors to today’s major investment banks such as J.P. Morgan,
Deutsche Bank, Lehman Brothers, HSBC and Citibank. In 1938, China defaulted on
these bonds leaving bondholders unpaid.

Governments around the world, including the United States issue sovereign debt in the
form of bonds, both short and long term bonds/debt. These bonds are issued for various
terms such as 30, 40, 50, 60 year terms, and even today, up to 100-year term bonds.
Because China has chosen to “selectively default” and not pay on these bonds,
cumulative interest, default interest and penalties have continued to accrue for decades.

2. Why is China still responsible for defaulted sovereign bonds?

After China defaulted on the bonds in 1938, Communists led by Mao Zedong took over
China forming the People’s Republic of China or the PRC in 1949. Members of the
Republic of China (ROC) fled to Taiwan. The PRC took over mainland China, continued
to collect all taxes, took over all of the development and infrastructure of the country that
was underwritten by these bonds and became the “Successor Government”. To this
day, China demands a “One China Policy” that recognizes the PRC as the sole
legitimate government of all of China. It is well established under international law, that
the successor government is responsible for the payment of sovereign debt obligations
of a predecessor government.

3. Why are the bonds still valid?

It is a fundamental principal of international law, which has been reaffirmed countless
times by governments, legislative and judicial bodies around the world, that a mere
change in the governing body of a country does not affect that country’s obligation to
repay its sovereign debts. If such a change in government allowed a country to renege
on its payment obligations, the entire system of international trade and finance would
not work as no citizens, institutions, and governments would rely on the credit
worthiness and credibility of the countries when they issued sovereign bonds for their
respective financing. A prime example is every four years the United States holds a
Presidential election. Even with the change of an administration, the U.S. honors its
obligations and pays interest and principal on the U.S. Treasuries it offers worldwide.

4. Why is China’s payment to British bondholders significant?

In 1987, the PRC paid the United Kingdom claims of “British nationals” against the PRC
for debts incurred prior to the PRC’s formation in 1949, including the very same
pre-1949 sovereign bonds at issue. When China needed to raise more money in British
capital markets, Prime Minister Margaret Thatcher, the “Iron lady”, made it clear that
China must first pay on its defaulted sovereign bonds. This settlement is very
significant because by making payment on these same bonds to the British people, yet
refusing to pay America, this places China in Selective Default. Placing the PRC in
Selective Default adversely affects its credit rating and requires that China acknowledge
this debt to America as part of the full disclosure requirements in order to raise capital in
U.S. markets. So, the PRC and its State Owned Enterprises (SOE’s), which are
corporate entities owned and controlled by the dictatorship of the Chinese Communist
Party (CCP) should not have access to U.S. capital markets and take more money from
America until they pay on their defaulted sovereign debt first.

CONTACT INFORMATION:

American Bondholders Foundation, LLC

2840 Glasscock Road, Lewisburg, Tennessee 37091
(931) 359-8781 office | (931) 359-9689 fax
Email: abfinfo@americanbondholdersfoundation.com